Discovery

january 2013 THE QUARTERLY NEWSLETTER OF KOCH COMPANIES Moving forward After another year of record results in 2012, Koch Nitrogen acquired South Dakota- Opportunity is pushing ahead with based Farmers Plant Food, Inc. To accomplish so much growth in so billions of dollars’ worth of expansions, These transactions are in addition to the many different areas, one of the first acquisitions and improvements in 2013. hundreds of millions of dollars’ worth challenges to overcome is finding the In just one month, last December, of plant expansions and improvements right employees. Koch companies announced several for FHR’s Pine Bend and Corpus Christi Koch already has at least 2,500 open significant developments that typify the refinery complexes announced earlier positions across all its companies. Finding growth and dynamism of the company. in the fourth quarter. even more people with the virtue and tal- On Dec. 13, Georgia-Pacific announced Innovation ents to succeed in the company’s market- its pending purchase of Temple-Inland based culture is a constant challenge. One of the common threads throughout Building Products assets from Interna- Space constraints have become an issue, tional Paper for $750 million. all this activity is a very strong emphasis on innovation. too. At Koch Industries’ Wichita head- Temple-Inland, founded in 1893, oper- quarters, more than 1 million square , the chairman and CEO ates 16 facilities in seven southern states feet of office space is no longer enough. plus Pennsylvania. It makes a variety of of Koch Industries, routinely challenges business leaders to make innovation a In December, Koch Industries announced products for residential and commercial plans to build a 210,000-square-foot office construction, including gypsum, lumber, key part of their vision and then build the necessary capabilities. building (pictured above) on its Wichita fiberboard and particle board. campus. When completed in 2015, the “When we say innovation, we’re not just Less than a week later, Koch announced three-story building will have enough it had purchased a minority stake (about talking about new technology or products,” room for 745 additional employees. 45 percent) in Guardian Industries, a Koch said. “We need innovation in every aspect of the company, including compli- Another and even more worrisome con- privately held manufacturer of architec- cern is the ongoing challenge of an ever- tural glass, automotive components and ance, recruitment, purchasing and legal services, to name a few. worsening regulatory environment. It is specialized coatings for plastics. difficult to justify billions in investments Based in Auburn Hills, Mich., Guard- “If we’re structuring an acquisition or and the creation of thousands of new jobs ian has nearly 18,000 employees in 25 other transaction, we need to think of if policymakers – whether in Brussels, countries, including Russia, Thailand, ways to improve that process to the Santiago, Toronto or Washington – Poland and India. It also has a presence benefit of all concerned, rather than keep making the rules more restrictive in 22 states. Ron Vaupel, the former head just using the same old boilerplate. and costly. of Koch’s business development group, is “Innovation can help us be safer, more “In a difficult environment like this,” now the president and CEO of Guardian. productive, less wasteful, more energy- Koch said, “the one constant has to be Last December was also the month efficient and more customer-focused. our commitment to our MBM® Guiding Flint Hills Resources acquired a Nebras- “We have to drive innovation faster than Principles. If we lose our integrity, fail to ka ethanol plant, acquired our competitors to have any hope of long- be compliant or stop creating long-term a Dutch manufacturing facility and term success.” value, we cannot succeed.”

this issue… Post-election letters pg 2 Perspective: Charles Koch pg 10 Year in review pg 5 The other Rock Islands pg 12 Postal Pipeline

December – Koch company employees provided for almost 2,300 needy children during 2012 Salvation Army Angel Tree campaigns in (left-right) Wichita – 1,325 angels, Pine Bend – 283 angels, and Atlanta – 660 angels. All three of those totals were records. This was the 21st year for the Angel Tree campaign in Wichita.

The same public that is screaming for who were in college and pursuing their Dear Charles, job creation fails to realize that success- own American Dreams. The Dean of the Graduate School ful businesses produce jobs, drive the Then she said something I’ll never forget: of Princeton University often began economy and grow our GDP. “What the rest of the world sees and speeches by saying: “What should be said About 10 years ago, I was talking to a this country fails to realize is that, in often goes unsaid…and so he said it.” lady who does pedicures for a living. She America, your poor people are fat.” I am grateful for your leadership in many told me she was from Ukraine, where she This speaks volumes to the prosperity causes of liberty. I am also grateful to be and her husband worked as engineers we have all enjoyed. included in your bi-annual conferences. until they emigrated to the U.S. in 1979. I fear that if government continues to I am the same age as you, and in the I felt sorry for her, because, based on gain favor and power, we’re on a collision past five years I have returned to work her occupation, I felt she had failed to course with real poverty. in the hope that I can generate more achieve the American Dream. significant dollars for the worthy causes Christopher Jarrett you espouse. When I asked if she missed Ukraine, she District sales manager Nate Bachman sharply replied “No!” and told me that American Cast Iron Pipe Co. The Bachman Group she and her husband had raised two sons Lake Mary, Fla. Cincinnati, Ohio

Dear Charles and David, and economic development officials in Regarding what we might have done Topeka. Yours is the most positive eco- better and what we might do better for nomic development in Wichita in several the next election… years, and the most positive story for the state in 2012. I have been in the television business for a long time and I know it is not Compare that with the “border wars” in possible to sell a bad product when Kansas City, where Kansas and Missouri another choice is perceived to possibly are giving away tax dollars to companies be better. It is easy to create an image, that move across the border, with a net but very difficult to change an image. zero gain. What could be more senseless than luring companies to move where My bottom line is that the Republicans they don’t need to relocate? made it extremely difficult, if not impossible, to convince the American I am encouraging the Wichita Indepen- people to vote for their candidates. dent Business Association to make Koch Charles and David, please know that “Exhibit A” in economic development. you can count on me, my wife and our Studies tell us that approximately 90 per- family to stand foursquare with your cent of economic growth comes through ongoing efforts to preserve our unique It’s really good seeing Koch get some positive recognition, including the existing businesses. The key is making the American way of life. great cover story in the Dec. 24 issue economic climate beneficial to all busi- of Forbes and a very positive editorial nesses and let the free market determine the winners. Stanley S. Hubbard in The Wichita Eagle after your an- Chairman and CEO nouncement of expansion plans. Pete Schrepferman Hubbard Broadcasting, Inc. I think your story is one that should be Johnstone Supply Co. Saint Paul, Minn. continuously pushed to our legislators Wichita, Kan. 2 We are so thankful for the Fred and winter developed his troops Mary Koch Foundation’s continued into a unified fighting force. partnership in helping us forge free- Looking at the national stage, it’s easy dom in the hearts and minds of young to feel discouraged. Unemployment people. This idea of “forging freedom” threatens to climb higher and our debt was first envisioned during General Washington’s trying winter at Valley continues to grow, but “the greatness of Forge (a scene that adorns the cover America,” wrote Alexis de Tocqueville, of our annual review). “lies not in being more enlightened than any other nation, but rather in In the winter of 1777, a time when her ability to repair her faults.” progress seemed hopeless, Washing- ton rallied his men, and during that Last year, we readied 519,999 stu- dents to begin the process of repair- ing those faults. What’s more, we Charles and equipped 4,892 teachers, who will Dear Mr. Koch, each impact 100 students a year with historically grounded materials to tell Thank you, thank you, thank you – to the true story of our heroic Founders. your brother David and you – for being such fine and patriotic Americans. Together, we will restore a constitu- tional culture. The courageous and principled stands that you take to help us retain and Tony Woodlief restore our liberty are truly inspiring. President You are doing so much good for so many. Bill of Rights Institute www.BillofRightsInstitute.org Arlington, Va. Larry Saunders Registered commodities rep. Thank you for Koch Industries’ invest- Dear Mr. Koch, Franklin, Tenn. ment of $375,000. By choosing to invest I want to thank you and your family for in our organizational structure, Koch all you have done during this past election. Dear Charles, will allow us to realize greater efficien- The results are tough to acknowledge; how- cies, serve more kids and create a more I wanted to write you a note of personal ever, the efforts that you put forth make me thanks for all that you, Liz and David sustainable model for future little broth- very proud of the company I work for. ers and little sisters. are doing on behalf of all of us, to try to educate the American public about the We value our long-term relationship Gretchen Chartier Koch Industries, Inc. destructive direction that our country with Koch Industries and its many (and the world, for that matter) is going. amazing employees who have invested Scottsdale, Ariz. their money – and By speaking out publicly you are under- more importantly, taking courageous work. It is shocking their time – to to see what the “enemies of truth” write change the life of a and say about you. child. Thousands I can see that I need to ensure that of Kansas kids have our students are being educated in the benefitted from innate value of freedom. They need to that investment. understand that it is freedom that unlocks the human spirit, unleashing Dan Soliday, CEO it to do great things. Kansas Big Broth- ers Big Sisters Stay strong and courageous, knowing Wichita, Kan. that there are many others standing with you.

www.BBBS.org Tom Davis President and headmaster Koch Industries is Kansas Big Brothers Big Sisters’ largest corporate donor. Almost Wichita Collegiate School 50 Koch company volunteers in Wichita are “bigs” for at-risk children. Wichita, Kan. 3 I just read Charles Koch’s edito- Dear Charles, rial in Newsmax, “Why we fight This is a short note of thanks and appre- for economic freedom.” If you ciation for your efforts promoting free ever bump into Mr. Koch, please enterprise and limited government. convey to him my utmost ap- It saddens me that you have received preciation for everything he has threats of violence against you and done in the cause of freedom your loved ones for expressing your and liberty. I know he and his convictions. brother have spent vast sums If more people knew you as “Charles” trying to restore a modicum of instead of the totally biased caricature common sense to our fellow the media portrays, you wouldn’t have Americans, and I know that it as many haters. has been an uphill battle. But, Thanks again for taking the stands that without the Kochs’ efforts, it’s you have. likely our country would now be all but thoroughly socialized. Dakin Cramer Financial consultant (retired) If there’s ever anything I can Wichita, Kan. do to help the cause and it is remotely within my capability to do so, he need but ask. As a Flint Hills Resources employee, am Dave Gell Newsmax also published an interview with David I free to copy and send any part of the Ammonia buyer Koch, who discussed the need for greater economic Discovery newsletter that I want, or are Keokuk, Iowa freedom and better policy-making in Washington. there restrictions? Mr. Koch’s “Perspec- tive” in the July issue is something I would like to share with friends and customers. Dear Mr. Koch, As a former fighter pilot, I have said many times that there were parts of Charles Boan I have intended to write you ever since FHR marketing manager my retirement from Koch Industries in business that terrified me more than Rosemount, Minn. 2004. I have obviously procrastinated, combat, but I never once felt I was but hope you will share this with David working for or with individuals who We encourage employees of Koch companies and both your families. were underhanded or lacking in to share Discovery articles with whomever compassion for the welfare of others. Having endured another political season they wish. To assure worldwide access, every that is so troubling, I wanted to tell you It troubles me greatly to see the issue is posted at www.kochind.com. of my appreciation for the time I spent heart and soul of our nation, the free with Koch. I never felt that I was just enterprise system, characterized as an employee. The lessons of business and something evil and only for the ultra- To “like” and follow Koch companies and leaders – wealthy. I have seen you and David including Georgia-Pacific, INVISTA, Flint Hills life that I learned watching you have Resources, Matador Ranch, Koch Pipeline and always been something special. vilified in TV ads and have done all Charles Koch – visit Koch Industries’ Facebook page. I can to set the record straight. I suppose these TV shots are the price Letters and other submissions become the property of Koch you pay for sticking your head up to Industries, Inc., and may be reproduced in whole or in part, support and speak for the American including your name, for any purpose and in any manner. heritage we hold so dear. Letters may be edited for length or clarity. Thank you for helping to fight the January 2013 | Volume 19 | Number 1 good fight and please know that you Discovery have touched many people (myself Editorial board Questions? Comments? Philip Ellender Contact: Rod Learned included) with your straightforward, Rich Fink 316.828.6136 Jeff Gentry [email protected] honest approach to what you believe. Dale Gibbens Publication design Greg Guest Amber Vogts Charles Koch Jessica Buchanan Jim Mahoney Charles A. “Butch” Rose Koch Creative Group 1998 – Former Koch pilot Butch Rose receiving a Dave Robertson Former Koch Aviation manager www.kochind.com service award from Charles Koch. Land O’ Lakes, Fla. ©2013, Koch Industries, Inc. Koch is an EOE. M/F/D/V. 3 4 15 Georgia-Pacific completes the sale of its stake in a joint venture in Turkey.

13 Georgia-Pacific co-sponsors the national premiere of the PBS documentary, Slavery by Another Name, raising awareness about a little-known aspect of American history.

9 Georgia-Pacific Professional receives two Partners in Performance Awards from Grainger, including Green Supplier of the Year.

8 KS&T launches a global natural gas and LNG trading business.

7 KII and Koch company employees in Wichita donate and raise more than $200,000 for Kansas Big Brothers Big Sisters.

7 The Metropolitan Museum of Art announces David H. Koch’s $65 million gift for renovation of its Fifth Avenue plaza.

RUA EB RY 1 F 2 3 J A N U A R Y M A R C H

11 KMS announces the launch of its new website: 12 Koch Industries sponsors Green School Grants www.kochmembrane.com. to promote innovative environmental ideas in classrooms. 17 Georgia-Pacific completes the sale of its consumer tissue business in Italy. 15 Koch Exploration Canada receives conditional approval for its Gemini oil recovery project 27 KII’s Wichita campus receives in Alberta. Clean Air & Sustainability award. 21 INVISTA announces expansion of its nylon facility 30 Jim Hannan, Georgia-Pacific CEO in Rozenburg, the Netherlands. and president, is recognized by the National Safety Council as one of nine business leaders who “get it” when it comes to safety. 19 Koch Pipeline receives the American Petroleum Institute’s Distinguished Award for Outstanding Safety and Outstanding Environmental Performance as well as (for the second year in a row) API’s 2012 Environmental Performance Award for large pipeline operators. 29 INVISTA resolves its indemnity lawsuit (arising from 17 After 97 tornadoes touch down in Kansas the 2004 acquisition of INVISTA from DuPont) in one night (the state’s annual average on a favorable basis. is 57), KII announces $300,000 in tornado relief donations. 22 Koch Alaska Pipeline Co. gives notice of its intent to relinquish its 3.08 percent interest in the 12 Union Pacific Railroad awards three Koch businesses – Trans-Alaska Pipeline System. FHR, GP Chemicals and Koch Sulfur Products – Pinnacle Awards for safe transport of hazardous materials. 4 FHR Renewables establishes a joint development relationship with Edeniq, with an eye toward 1 The U.S. becomes the country with the highest integrating cellulosic and corn-based ethanol corporate tax rate (among developed nations). production technologies.

APRIL JUNE 4 5 6 M A Y

1 FHR Corpus Christi announces it will voluntarily post publicly available emissions reports on its website.

3 David H. Koch agrees to donate $35 million to fund a new Dinosaur Hall at the Smithsonian’s National Museum of Natural History.

17 INVISTA unveils new, energy-efficient and environmentally-friendly technology for producing nylon intermediates.

25 Georgia-Pacific’s Brawny brand, in partnership with Wounded Warrior Project™ , launches its “Support Our Heroes” campaign to help meet the needs of injured service members and their families through financial contributions and consumer promotions. 27 Matador Cattle Company expands its Akaushi breeding program by sending pure-bred cattle from Spring Creek Ranch in Kansas to both its Matador, Texas, and Dillon, Mont., ranches.

23 FHR announces it is evaluating a $250 million project to process more Eagle Ford crude oil 2012 at its West Refinery in Corpus Christi, Texas. 14 INVISTA’s Orange, Texas, facility is chosen as YEAR the first to receive an investment of more than $100 million in next-generation nylon technology. 30 Koch Fertilizer announces it will add a REVIEW $10 million, state-of-the-art control center 13 INVISTA and biotechnology firm LanzaTech enter to its facility in Ft. Dodge, Iowa. an agreement to jointly develop a bio-based butadiene process. (Used in the production of 23 GP reports its Bucket Brigade program synthetic rubber and various plastics, butadiene has totaled more than $1 million in donations is an important intermediate chemical.) to community fire departments across the U.S.

3 GP sells its reusable plastic container business 16 INVISTA Performance Surfaces & Materials to Tosca, Ltd. invests $20 million to optimize its North American carpet fiber capacity, which will increase 2 Launch of the “new” kochind.com. production at its Camden, S.C., site.

AUGUST 7 8 9 S E R J U L Y P T E M B E

1 Koch Pipeline starts up a 250,000-barrels-per- 1 0 Charles Koch’s op-ed on cronyism appears in the day pipeline to carry Eagle Ford crude from Wall Street Journal. Pettus to Corpus Christi, Texas. 14 The Quivira Council of the Boy Scouts of America 3 In Texas, Matador Ranch, Optimized Process announces it received a cash donation from KII which, Designs, Koch Pipeline and Flint Hills Resources along with the company’s donation of 5 acres of land, distribute more than $80,000 to local emergency will help enable construction of a new Boy Scout Center. responders and community fire departments. 14 INVISTA’s Athens, Ga., site celebrates earning VPP STAR 19 GP completes the €1.32 billion sale status. (Nearly 100 Koch company sites have earned of its European tissue business to SCA. either federal or state STAR certification. VPP STAR status is OSHA’s highest safety designation.) 25 Dedication of the Habitat for Humanity home built by 430 Koch company volunteers, family 18 GP announces plans to ramp up production at its members and friends in June. This was Koch’s oriented strand board facility in Clarendon County, sixth Habitat home in Wichita. S.C., in early 2013.

25 INVISTA establishes a new textile research 26 KII and the Fred and Mary Koch Foundation center – its first in mainland China. announce $814,000 in funding to support diversity programs at Kansas State University. 27 The first crude oil moves from FHR’s new Ingleside dock. 31 For 2012, Koch companies earn 119 awards for safety, environmental excellence, community stewardship, innovation and customer service (and 565 such awards since 2009).

24 Charles Koch appears on the cover of Forbes magazine, where he discusses his philosophy for improving well-being in society.

19 Koch purchases a 45 percent interest in Guardian Industries, a global, privately-owned maker of architectural glass, specialty plastics coatings and building products.

30 Koch Fertilizer announces it will add a 13 Georgia-Pacific announces an agreement to acquire the assets $10 million, state-of-the-art control center of the Temple-Inland Building Products business from International to its facility in Ft. Dodge, Iowa. Paper Co., for $750 million.

23 GP reports its Bucket Brigade program 13 KII reveals plans for a major expansion of its Wichita campus. has totaled more than $1 million in donations to community fire departments across the U.S. 13 KCBX buys a Chicago petcoke storage and distribution facility.

16 INVISTA Performance Surfaces & Materials 7 FHR acquires an ethanol plant in Fairmont, Neb. invests $20 million to optimize its North American carpet fiber capacity, which will increase 3 KS&T expands its global nat gas trading program to include the production at its Camden, S.C., site. U.K.natural balancing point and French Point d’Exchange Gaz.

CTOBER CEMBE O DE R 10 12 N R O V E M B E

1 0 Charles Koch’s op-ed on cronyism appears in the 2 Georgia-Pacific announces it will contribute truckloads of Wall Street Journal. consumer products to support Hurricane Sandy relief efforts in the Northeast. 14 The Quivira Council of the Boy Scouts of America announces it received a cash donation from KII which, 9 Georgia-Pacific receives the Better Practices, Better Planet along with the company’s donation of 5 acres of land, 2020 Sustainability Award from the American Forest & will help enable construction of a new Boy Scout Center. Paper Association for comprehensive energy management programs at GP’s manufacturing facilities. 14 INVISTA’s Athens, Ga., site celebrates earning VPP STAR status. (Nearly 100 Koch company sites have earned 12 FHR’s Pine Bend Facility is awarded an international habitat either federal or state STAR certification. VPP STAR conservation award from the Wildlife Habitat Council. status is OSHA’s highest safety designation.) 16 FHR announces it will make $400 million in improvements to 18 GP announces plans to ramp up production at its its , allowing it to reduce emissions while oriented strand board facility in Clarendon County, improving efficiency and reliability. S.C., in early 2013. 26 FHR, GP and INVISTA sites are further recognized after the 26 KII and the Fred and Mary Koch Foundation KII Energy Leadership Conference for substantially reducing announce $814,000 in funding to support energy intensity and energy consumption. diversity programs at Kansas State University. 27 Nutrients for Life, sponsored by Koch Fertilizer, launches a free program to show Kansas school kids how science can help feed the world’s growing population. International News

China – INVISTA’s fourth textile research center – its A hexamethylene diamine molecule. HMD is an essential Shanghai – Steve Kromer (standing) is overseeing one of first in mainland China – is now open. component of many popular INVISTA products. the largest capital projects in KII’s history.

China – It has been more than 30 years nylon facility in China,” Kromer said. its Victoria plant. “It is an ambitious goal since INVISTA built an HMD (hexa- “The phases that follow will employ tech- to do all this by the end of the decade, methylene diamine) plant. But that nology innovations developed at other but we believe our team is up to the is about to change in a big way, as the INVISTA locations around the world.” challenge,” Greenfield said. company moves forward with plans From Texas to Shanghai Production from the Shanghai plant is to construct the most energy-efficient intended for customers in the -Pacific HMD plant in the world. Both the process design and execution region, where about one-fifth of phases of this project have been quite INVISTA’s employees currently HMD is a colorless, organic compound complicated and innovative. essential for making nylon polymers, live and work. including those that go into several of “The company plans to follow this invest- Jeff Gentry, INVISTA chairman and INVISTA’s signature products, such as ment in HMD with an investment in its CEO, said: “The project team has done STAINMASTER® carpet fiber, automo- most advanced proprietary ADN technol- an outstanding job of understanding and tive air bag fiber, TORZEN® reinforced ogy, which resulted from more than advancing our commitment to environ- plastic resin and nylon for apparel. $40 million in research and development mental excellence while navigating the during the past four years and was led often complex permitting and process On Jan. 5, INVISTA announced it primarily by the team at our research lab requirements associated with a project received Environmental Impact As- in Orange, Texas,” Kromer said. of such scope.” sessment approval from the Shanghai Environmental Protection Bureau to He noted that the project’s early front-end Innovation = growth engineering and process design were led build an HMD plant at the Shanghai Gentry sees the shared knowledge by a team from the Gulf Coast of Texas, Chemical Industry Park in China. and innovation that are going into the with significant support from China. The EIA approval is a big step forward in Shanghai plant as a way of expanding INVISTA’s plans to have a new plant up “Now, two years after the Texas team some of INVISTA’s other capabilities. and running there by mid-2015. started its work, leadership for the design Gentry says the Shanghai project will completion and execution phases has also benefit INVISTA Intermediates’ vi- When completed, the plant will be able shifted to the local team here in Shanghai.” to produce 215,000 tons of HMD per sion for aggressive growth in its Engineer- year. It will also feature INVISTA’s best INVISTA has two sizeable plants in Texas ing Polymers business, which produces and most innovative technology. – one in Victoria and the other in Orange reinforced polymers for cars, electronics – with combined employment of more and other high-performance applications. Global innovation than 1,300 people. “We want to expand and improve our According to Steve Kromer, INVISTA’s According to Bill Greenfield, executive compounding capabilities to produce Shanghai-based senior vice president vice president of INVISTA Nylon Inter- reinforced products for Engineering who is leading the project for INVISTA’s mediates, the knowledge gained from the Polymer applications all around the Intermediates business, work on this company’s current project to implement world,” Gentry said. new plant has involved resources from its new ADN technology in Orange will “By sharing our knowledge and lever- Koch companies which have extensive be incorporated into the new ADN plant aging our innovations, we can bring experience with petrochemical plants in China. additional and significant value to the and contributed knowledge to the Ultimately, the business will use the downstream market. planning process. learnings from the Orange and China “That’s great news for INVISTA employ- “HMD is the first phase of an integrated projects to implement new technology at ees and customers everywhere.”

9 Charles Koch Perspective Chairman and CEO, Koch Industries, Inc.

When someone asks me what last But ever-more restrictive permitting Noteworthy November’s election results mean for requirements for building new plants our country, my answer is simple: or improving old ones make it chal- They are part of a trend that, if not re- lenging for us and other businesses to versed, will destroy the American dream. expand and improve our products and facilities. Such obstacles undermine The Financial Crisis and the The majority of those elected last fall, U.S. competitiveness and jobs. Today’s Free Market Cure both Democrats and Republicans, seem permitting process for large plants can by John Allison determined to continue the spending, borrowing, taxing and money printing delay approvals for years and greatly For 25 years, John Allison was CEO of that got us in this mess. increase the project cost, often making BB&T, one of the nation’s biggest and Their compromise to prevent us from it uneconomic. soundest banks. As a result of that experi- going off the imaginary “fiscal cliff” Onerous occupational licensing ence, his view of the financial crisis is based does nothing to address our trillion- requirements and other unnecessary on reality, not politics or media spin. dollar annual deficits and liabilities regulations impede business start-ups, In his book, Allison exceeding $100 trillion. This is America’s making it difficult, and at times, impos- discusses six funda- real fiscal cliff. sible for entrepreneurs to launch new mental themes: The deficits and debts of the U.S. ventures. This not only hinders people 1. Government threaten our future as a nation. They from improving their lot in life, it reduc- policy is the are exacerbated by massive government es innovation and limits competition. primary cause of spending, rampant corporate cronyism On top of all this, blatant cronyism – the financial crisis. and the escalation in destructive regu- the favorable treatment of a few at the 2. Government lations. Together, these things hurt expense of many – undermines the business, reduce employment and policy created a power of a free economy in which busi- lower the standard of liv- bubble in residen- nesses properly ing for the overwhelming earn a profit only tial real estate. majority of Americans. “No nation can maintain by benefitting 3. Individual No nation can maintain its living standards by others. For crony financial institutions (including Wall Street) its living standards by corporations, made very serious mistakes that contrib- continuing to consume continuing to consume the chief focus is uted to the crisis. more than it produces. pleasing govern- 4. Almost every governmental action taken Ultimately, its standard of more than it produces.” ment, not satisfy- since the crisis started, even those that may living is determined by the ing customers. help in the short term, will reduce our stan- ability to produce goods and services Crony favors, such as subsidies and man- dard of living in the long term. that make people’s lives better. To bring dates, waste resources and increase costs 5. The deeper causes of our financial chal- this about, the government must pursue for consumers while hurting produc- policies that enable individual productiv- lenges are philosophical, not economic. tive competitors. Cronyism also helps ity to be maximized rather than extend unprofitable companies stay in business, 6. If we do not change direction soon, the the crippling policies we have experi- even when those businesses are under- United States will be in very serious finan- enced in recent years. mining the nation’s social welfare. cial trouble in 20 to 25 years. Cause and effect Citizens everywhere need to under- Allison’s book – which includes a hearty When considering the effect of U.S. gov- stand that productivity and innova- recommendation from Charles Koch on the tion are lost when their government cover – is a stiff tonic for anyone who wants ernment policies on Koch Industries, consider that 85 percent of our employ- takes over an increasing share of the to get a grip on financial reality. ees live and work in the U.S., and the economy through spending, regulation great majority of our assets are here. and subsidies. Koch is eager to make large invest- Consequently, fewer goods and ser- “This is not the land of security. People ments – billions of dollars’ worth, in vices are available. Those that remain fact – in further improvements for come at higher prices with lower qual- did not get on a boat and travel to James- many of those facilities. By doing so, we ity. In the end, there are shortages of town to be secure. America is the land of can make better, lower-cost products, virtually everything, as we saw in the opportunity – the opportunity to be great, reduce emissions and energy consump- old Soviet Union and see today in the

Too True Too and the opportunity to fail and try again.” tion, and create new job opportunities. new Venezuela. - John Allison 10 Innovation With this in mind, we should not be and diversity of business opportunities, surprised to encounter significant resis- Governments that both internal and external. tance to innovation – especially from truly want the best Just as important is the fact that we are those businesses that rely on government for their citizens building capabilities to do all of this even favors for their existence instead of – most especially better in the future. This is how we are creating value for society and bettering the poor – should able to expand our employment and not undermine people’s lives. increase the number and quality of productivity and I suspect it is because we have spoken out opportunities for existing employees. innovation. so strongly in favor of economic freedom What if more businesses focused on Innovation is one and innovation, and against cronyism practicing Principled Entrepreneurship™ of Koch’s six core and fiscal irresponsibility, that we have rather than seeking political favors? What capabilities and been the target of so many political and if they tried to profit by benefitting others represents one of media attacks. (a win-win philosophy) rather than by our greatest com- Special interests feel threatened at the persuading the government to take from petitive advan- prospect of rules and policies that are no others (a win-lose mentality that is really tages. We define longer rigged and don’t offer unearned a lose-lose proposition)? I am convinced innovation as the discipline of discover- advantages. They shudder at the thought those businesses would be much better ing, developing and commercializing of having to compete, without subsidies off for the long term – and so would new ways of making people’s lives better. or other special treatment, for voluntary almost everyone else. We live better lives because of the cre- customers in an undistorted ative genius of people with innovative marketplace. Many attackers Principled EntrepreneurshipTM ideas who had the courage and initiative have falsely tried to lump us in to bring those ideas to life. Less-invasive with the cronies who seek gov- Maximizing long-term profitability by producing surgical techniques, smart phones and ernment protection and special products and services that make people’s lives treatment. The truth is just the the Internet are innovations that have better while using less resources and always helped us all. opposite. At Koch we consis- tently oppose such policies as acting lawfully and with integrity. But the need for innovation is not limited a matter of principle, including to the world of technology. Innovation is those that might benefit us. The real harm from today’s destructive just as important for business organiza- Although one of our companies, Flint public policy is not just to start-ups and tion and for understanding customers entrepreneurs. Poorer Americans are and meeting their needs. It is the driver Hills Resources, owns and operates five ethanol plants, we were happy to see those who suffer most from a govern- of what economist Joseph Schumpeter ment that attempts to control people’s famously called “creative destruction.” the ethanol tax credit expire at the end of 2011 and would be even happier to lives instead of letting them be free to Although the term may sound slightly see the ethanol mandate end, just as we create and produce. It is the poor who ominous, creative destruction is the would all energy subsidies and mandates. bear the brunt of higher unemployment, very positive process of transformation lower-paying jobs and products with by which innovation replaces older and Making people’s lives better higher costs and lower quality, as they inferior methods and products with new In spite of such a poor political and do when less innovation leads to fewer and better ones. economic environment, many Koch new products. I like Abraham Maslow’s perspective companies have been achieving record November’s election results underscore on innovation: results, as some of our critics are quick to a dangerous trend in the United States. Each new invention, each great point out. How has this been possible? That trend is for the problems I’ve out- discovery creates turmoil behind the I believe we owe our success to our focus lined to grow worse, not better. Current lines. The people who have settled on Principled Entrepreneurship™ and policies – especially those that favor a few down comfortably are shaken and to the significant increase in the under- at the expense of many – are putting the disturbed out of their comfort. They standing and practice of Market-Based economic wellbeing of America at risk. must learn new ways of doing things. Management®, or MBM®, throughout These policies have global consequences. They must see things in a different Koch companies. As a result, we have As a company, we are committed to do- way… It is clear that any great dis- improved our compliance, safety and ing what is right in every aspect of our covery, any new invention, anything environmental performance, and brought business. That is why we will continue which requires a reorganization of about a marked increase in innovation doing everything we can to persuade the conquered territory will be fought across the board. We are also generating politicians to put what is good for the against, and will not be accepted easily. a significant increase in the number, size country first, before it is too late.

10 11 Looking Back

1955 – A loading rack at the Rock Island Refinery in From 1959 to 1968, what is now known as Koch Lewis Winkler (above) and Fred Koch Indianapolis built by Simmons, Winkler and Kincannon. Industries was known as Rock Island. became business partners in 1925. The other Rock Islands

It’s hardly surprising when a family- It was also Rock Island Oil and Refin- will we be confused with ‘Rock Island’ owned company uses the family name ing Company that acquired a fleet of companies engaged in other businesses.” for its businesses. Koch Fertilizer, Koch Douglas A-26 Invader bomber airplanes Rock Island redux Minerals, Koch Pipeline, Koch Supply & in 1959. Fred had his engineers modify Not surprisingly, L.B. Simmons used the Trading and Koch Industries are obvious those planes in hopes of selling them as Rock Island name again in 1940 when examples of this. luxury business aircraft. he partnered with Lewis Winkler (who What is surprising is how significant a In 1959, Rock Island and Wood River had co-founded Winkler-Koch Engi- seemingly random name, Rock Island, Oil and Refining Co. (co-founded by neering in 1925) and L.E. Kincannon has been in Koch’s history. Fred Koch in 1940) merged and the to form Rock Island Refining Corp. That The story begins name of the firm was changed to the company built an independent refinery Rock Island Oil and Refining Co. That in Indianapolis. (Fred Koch was not part In 1946, the Rock Island Oil and Refin- was the same year Rock Island Oil and of that project.) ing Company was formed (with Fred Refining bought a 35 percent share That same year, Fred Koch and two Koch as president) to acquire assets of Great Northern Oil, owner of Pine other partners co-founded Wood River of the Rock Island Oil and Rock Island Bend Refinery, for $5 million. Oil and Refining Company, which built Refining companies of Duncan, Okla. It was only after Fred Koch died in 1967 an independent refinery near St. Louis. When L.B. Simmons, Fred’s uncle, built that Rock Island Oil and Refining was Both refineries were completed in 1941 that Rock Island refinery in 1921, he renamed Koch Industries. But even then, and both sets of owners suffered greatly reputedly named it after his previous the Rock Island name didn’t disappear. when World War II prompted a crude employer, the Rock Island Railroad. oil shortage, and excess profits taxes End of the line? That Oklahoma refinery was the first hammered their new businesses. to install the popular Winkler-Koch It wasn’t until Jan. 1, 1972 that the Rock The Hoosier Refinery thermal cracking process developed Island name was officially retired by Koch Industries. During the post-war boom years, Rock by Fred Koch in 1927. Island Refining Corp. was one of the The Rock Island Refinery was shut In a letter to employees written a month sponsors of the Hoosier Hundred, a down in 1949 and sold in 1953, but the earlier, Rock Island Oil’s president, shorter, dirt-track version of the famous Rock Island Oil crude gathering system Sterling Varner, explained how the Koch Indianapolis 500 race. name would become a unifying standard. had a bright future with Koch. That (Race fans take note: Tulsan John Zink small business was the foundation for “Rock Island Oil Company will change designed and sponsored consecutive what became the largest crude oil gath- its name to Koch Oil Company,” Varner Indy 500-winning cars in 1955 and 1956. ering system in . wrote. “Matador Chemical Company Certain assets of his company were later It was the Rock Island Oil and Refin- will become Koch Chemical Co., Inc., acquired by what is now Koch Chemical ing Company that acquired much of and Great Northern Oil Company will Technology Group.) the Matador Ranch in 1952, including become Koch Refining Company. The Rock Island Refinery in Indianapolis rights to the famous “flying V” and “50” “While many of us will miss the name was eventually acquired by Marathon Oil cattle and horse brands. we have used over the years, no longer Co., which closed that facility in 1993.

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