mousrnies CLONE RGBERTSON PRESIDENT AND COD October 4, 2010 Dear co?worker, As Koch company empioyees, we have a lot at stake in the upcoming election. Each of us is likely to be affected by the outcome on Nov. 2. That is why, for the first time ever, we are our newest edition of Discovery and several other helpfui items to the home address of every U.S. empioyee. This Discovery features election~reiated information about how government decisions affect us, and about the proper role of business in society (creating value). Charles Koch?s editoriai reminds us why it is the policies and actions of poiiticians not their personalities or political parties that matter most. To help set the record straight, we?ve also included an informative reprint from the Washington Examiner. included in this packet is a page with some helpfui reminders about voter registration and advance balloting options in your state. if you?re not registered to vote, your voice cannot be heard at the ballot box. For most of you, we?ve aiso enclosed a listing of candidates supported by Koch companies and KOCHPAC, the poiiticai action committee for Koch companies. Of course, deciding who to vote for is a decision that is yours and yours alone, based on the factors important to you. Koch and KOCHPAC support candidates we believe wiil best advance policies that create the economic conditions needed for employees and businesses such as ours to survive and prosper. Many employees continue to request information about Koch products. After ail, it makes sense to support our co?workers by buying the products they make. The enclosed wallet cards should make it easier to remember some of our most popular brand names. We believe it is essential for all empioyees to be informed and educated voters. I encourage you to do your homework and Elect to Prosper at the ballot box next month. Sincerely, Dave Robertson President and COO Koch industries, inc. 41 ?l '1 East 37th Street: North Wichita. Kansas 67220 The following candidates in your state are supported by Koch companies and KOCHPAC, the political action committee for Koch companies. We believe these candidates will best advance policies supporting economic freedom. .U enate Dino Rossi Ann Rivers (i3) Brian Blake (0) 1-9 DeanTakko (Di 4:59.; .3aimllerrera__ Richard Debolt (R) . .. 20 Jake Fem)- . - . -. .. .tate ten-ate Bob Morton-(ii Jerome Delvin (R) - 8 I Jam 13 Jim HORenyrd (R). 15 30:19 Ericka-en (R) 42 JT'Wiieox 2 Jay Rodne (R) 5 Shelly Short 7 Joel Kretz 7 Cary Condotta 12 Bruce Chandler (R) 15 Ed'OrcutHFi) 18 No candidate authoriZed'th-is ad. It is paid for by Koch industries, lno., 316.828.5500, 4111 East 37th Street North, Wichita, Kansas 67220, $33? t@ and not authorized by any candidate or candidate?s committee. Prosper. . . -- $4 g. 2kg} i have; lireaourcese We. in FLINT HILLS ?32 I On Nov. 2, the United States will hold an important mid~terrn election. At stake will be control of the US. Con- gress, 39 state governorships and thou- sands of other state and local of?ces. High unemployment, record de?cits, a sluggish economy and a swelling federal government have become ?ash point issues for millions of concerned Ameri? cans of every political persuasion. For the nearly 50, 000 Koch company employees in the United States, this election is an opportunity to help de? cide the future of economic freedom. Heavy hitter According to the International Mon? etary Fund, the United States accounts for about one~fourth of the world?s total output of goods and services, and one? ?fth of the world?s purchasing power. Like it or not, what?s bad for the United States .. including misguided federal pol? icies that undermine economic freedom is usually bad for the rest of the world. What has proven to be best for all soci~ eties is economic freedom. Citizens on every continent enjoy more prosperity, clean er environments, longer lives and higher literacy rates in economically free societies. That?s why, for more than 40 years, Koch Industries has openly and consistently supported the principles of economic freedom and marketubased policies. THE NEWSLETTER BF KEEN it Unfortunately, these values and prinw cipled point of view are now being strongly opposed by many politicians (and their media allies) who favor ever- increasing government. The challenge Government like ?re, water, chemicals and most everything is productive at some level and destructive at others. In the United States, government has now grown to such a level that it is choking American entrepreneurship and hurting the nation?s international competitiveness. Even worse, recent government actions are threatening to entitled to one?s own opinions, but not to one?s own facts. And the facts are that the overwhelm- ing majority of the American people will be much worse off if government overspending is allowed to bankrupt the country. Fateful warning When Thomas jetterson was inaugu- rated President of the United States in 1801, he warned about a particularly destructive way of thinking. It is wrong, he said, to punish someone for working harder or being more suc? cessful than someone else. - 5%kath comm The American serials Will be This can only sti?e till ll of the people under economic growth and ES allQWE?l if} the pretense of job creation, which in lla?l?'ll the 0813?th taking care ofthem? turn will signi?cantly reduce the standard of living ofAtnerican families. To preserve the nation?s economic viability and individual freedoms, this explosive growth must be reversed. There are, of course, plenty of politi- cians and critics who feel otherwise. Many of them have been quite vocal in their attacks on Koch industries and its owners, as well as other Koch compa- nies and their employees. However, as New York Senator Daniel Patrick Moynihan famously said, one is and taking from some to give to others ?who have not exercised equal industry and skill.? More than 200 years later, the destruc- tion of economic freedom that Jeffer- son warned against is being vigorously promoted by this administration and many elected of?cials. In the United States, the best antidote to this kind of over-reaching govern? ment is the power of the ballot box. That was true in 1801, and is just as . true oday http?kciefkhalncali a The role of business as4 a The battle for America?s future pg 7 a Water: a liquid asset pg 6 a Perspecrive: Charles Koch pg8 GP Georgia-Pacific I was just flipping through my latest edi? tion of Discovery magazine when ?u 'Wow! an article about Koch Knight?s 1 00th anniversary! I don?t know why, but ljust never expected it. I?ve had a smile on my face ever since. Here?s to 100 more! GregWeakland . Manager, manufacturing operations Koch Knight East Canton, Ohio Koch Knight empluyess celebrated the 108th anniversary at their an July 18. .My compliments to everyone at Koch for an outstanding company newsletter. i picked up the july issue of Discovery on a recent visit to Georgia-Paci?c?s facility in Crossett, Ark. I had heard that Koch Industries was a proud, successful and conservative com? pany. It is refreshing to read a company newsletter that ampli?es sound, conser? vative principles. Best of luck to you and your organization. Matt Halloran Regional sales manager Long Reach Allied Systems, Co. Dallas, Texas I am a GP employee at the Muskogee Mill, a towel and tissue facility. I have just read Discovery for the ?rst time, and found it interesting and informative. ?nd. res ranch has was ill!) ?5 Mancini Essie Bemean significant envimnmentai awards in the past six menths. The Perspective column on the last page of the july issue cited a column in the . January 20 10 edition by Charles Koch. lwanted to read it, but had trouble ac? cessing the link to earlier newsletters. Can you help? Scott Price Muskogee, Okla. 9ersseetiee editeriais (and entire issues at are available saline at Wicsehindsem. Just click an tees At the batters [if the Uissevery sesiiee en the Peelisatiens page is a link is previews issues dating task in January 236?. it is my pleasure to inform you that the Matador Ranch has been selected as the 2010 recipient of the Outstanding Rangeland Stewardship Award from the Texas Section of the Society for Range Management Texas and Southwestern Cattle Raiser Association. The award will be presented at animal meeting in Odessa, Texas, in October and recognized next March at the TSCRA. meeting. This award will also be nominated for the 2011 National Cattleman?s Beef Association?s Regional Environmental Stewardship Award. If selected as the regional winner, your nomination will compete nationwide for National Environmental Stewardship Award. i Congratulations on your award. You have certainly earned it. Jeff Goodwin Rangeland Management Specialist Grazing Land Conservation Initiative US. Department of Agriculture Cleburne, Texas Charles, the New Yorker article about Koch is the most unrealistic description of you and your company I can imagine. The enviromn ent you?ve created for your employees, this community and America re?ects the highest standards possible. These three groups have been rewarded by your efforts to advance economic free- dom and the limited role of government in our society. My wife and 1 thank you for what you are doing for all Americans. Bob Buford Wichita, Kan. Letters and ether submissiens sesame the steamy of lines industries, lea, anti may be mymducea in whale or in part, including year name, for any purpose and in any manner. Letters may be edited fer leagth er clarity. Discovery Ombermio gvaume l6 swim Editorial Board Questions! Comments! Philip Eilender Contact: Rod Learned Rich Fink 316.328.6136 jeff Gentry Dale Gibbens Mary Beth jarvis Publication Design: Charles Koch Deanna Crockett Jim Mahoney Koch Creative Group Dave Robertson wwkochindmm use to. Koch induwiei, inc. Koch is an EOE. Miami Kingsten An MSW session in Bntan?e drew a capacity Bf?Wd. Eurpus Bhristi - These sutfur pellets are destined far markets in Africa, Asia and Smith America. Shanghai - High schaal Junior Achievement members waited offices an ?Shaina Days Banada largest site (in terms of employees) is not in Delaware, Texas, the Carolinas or even China. 'lhat honor goes to Kingston, Ontario, facility, with about 900 employees; Kingston is not only largest site, it is the largest airbag yarn manufao wring facility in the world. On June 25, Kingston leader? ship team cosponsored aMarket-Based Management; wOrkshop in conjunction with St. Lawrence College Business Development. That day?long session, which was open to the public, drew a Capacity crowd Of more than 130 attendees Among those attending were govern- ment employees, business leaders, entrepreneurs and employees ofnot-for- pro?t organizations. Attendees were continually challenged to think of ways they could apply the principles and dimensions in their own roles and organizations, I. Several of the senior civil servants who attended the workshop wasted no time in doing just that. They made it a point to hold a follow?up session at Kingston City Hall, where they discussed how to apply what they had learned to their government agency. Texas Last year, the U.S. Patent and Trademark Of?ce issued a patent for a new method ofrnalring prilled or pel- letized sulfur. That new technology - capable of pro- ducing 2,000 metric tons of pellets per day is now up and running for Koch Sulfur on a 16~acre site next to Flint Hills Resources? Corpus Christi, Texas, re?nery complex. The location makes great business sense for tworeasons: First, re?nery ends up with tons of sulfur as a byproduct of re?ning crude oil. Lots of customers want that sulfur for making phosphate fertilizer or sulfuric acid. Second, and just as important, the port of Christi gives Koch Sulfur l?roducts Co a perfect staging area for delivery to customers worldwide. ?We?ve been marketing sulfur for more than 15 years,? said Douglas Towns, general manager of global sulfur man hating, ?but alinost all of that has been molten sulfur? Molten sulfur can be loaded onto big cargo ships, only short-haul barges. But prilled sulfur is easily loaded onto large, ocean?going vessels. Once loaded, prilled sulfur can be shipped anywhere in the world. Our ?rst load ofprilled sulfur just shipped out for South America,? said Towns. Ethics: and Asia are next.? Bhina The idea of having young people ?shadow? an adult worker on the job is an idea that has gone global. On August 13, more than two dozen Chinese students visited INVISTHS Shanghai of?ces as part of Junior Achievement?s Job Shadow Day. The 25 students were all ?'om Xiang Ming High School in the Luwan district, the same district where of?ce i '5 is located. They were joined by 16 corpo- rate volunteers. Students were given a brief introduction to the company and a tour of the of?ce before shadowing employees for half a day. One of the highlights of the of?ce tour was a 10?minute video conference with employees at office in Ge- neva, Switzerland, six time zones away INVISTAS Shanghai volunteers made 3 Several detailed presentations, helping- the students understand how the busi- ness operates, who its cu'stOmers are and what a ?real world job _is' like. At the end of thehalf-daysessron, the students returned. the favor by making a presentation summarizing the les- sons and insights they had gained while shadowing. junior Achievement?s staff told us this was one of the beStjob Shadow Days they?ve seen so far,? said Anita Cai, China comrr?mni'cation and public affairs manager. I ?We could see thatlthe students really learned something about our company and had some thoughts on their career development.? Cai. attributes the overall success of the event to the knowledge and initiative of volunteers. They not only prepared the corporate presentations, but helped (so-workers with ideas for facilitating conversations. ?Our volunteers are great. They really created an opportunity for us to learn from each other and have fun together.? We live in an. era when many people including policymakers and media ce? lebrities view businesses and corpora- tions with disdain or intense suspicion. Their way of thinking begs a simple question: What is the primary role of business? ls it to create jobs and provide bene?ts? Help advance a social agenda? Or just to make as much money as possible, by exploiting customers and employees? As a matter of principle, Koch compa? nies believe there is only one reason for any business to exist: creating value. ?Value creation,? says Charles Koch, "involves making people?s lives better. ?It means contributing to prosperity in society. If a company?s not doing that enhancing the well-being ofsociety then it needs to go out of business. ?We all tend to pursue our own interests, but in a true market economy we can only prosper long-term by providing others with what they value.? History and sound theory have both shown that the only way to consistently create value for society is to faithfully follow a set of reality~based principles. For Koch companies, those are the 10 WNW Guiding Principles, which include integrity, compliance, value creation, humility and respect. Principled approach Koch employees are among the world?s most ef?cient at making products and providing services that customers value more highly than their alternatives. ?Ihose products build and heat homes, protect the environment, help grow food, fuel cars and planes, purify water, help prevent disease, improve clothing and make vehicles safer. In producing all these and many other products and services, Koch companies also strive to use less resources. 'lhose resources (economists call them inputs) can include labor, raw materials, energy and capital. For example, GeorgiaJJaci?c operates a pulp mill (see story on page 6) that has greatly reduced the amount of water needed to make the pulp that goes into disposable diapers and other products. In doing so, GP Cellulose has freed up more groundwater - a very important resource for other uses. What?s more, ef?cient use of ground- water has helped prevent expansion of a saltwater plume in the aquifer that could foul public drinking water supplies. Without pro?ts, it wouldn?t have been possible to invest the $400 million needed to improve e?iciency thereby creating more value at that pulp mill. Similar stories can be told across many other Koch companies. At Flint Hills Resources, more than $100 million in investments (made pos- sible by pro?ts) allowed the Pine Bend Re?nery to produce ultra?low sulfur gasoline years before it was mandated by the federal government. That product called Blue Planet was highly valued by Minnesotans concerned about air quality. Biting the hand In a system of economic freedom, a com? panywill generate long~term pro?ts only if it uses resources in a way that constan- ers value more than alternative uses. Large or small, a company will not stay in business for long if it is not truly creating value. Unfortunately, the same cannot be said for governments. Most governments consume massive amounts of resources primarily labor and capital much of which doesn?t create value. Was it worth more than $200 million of US. taxpayers money to build an air" port injohnstown, Pa, that services just three ?ights per day? Although it was never built, would the federal government have created real, long-term value by spending nearly twice that much for the infamous ?bridge to nowhere? in Alaska? ?It is essential that use of resources is directed by consumers, rather than politically,? says Charles Koch. ?When resources are directed for politi~ cal ends, the result is n?sallocation.? What about jobs? Job creation is one oftoday?s hottest topics. Governments of many nations liberal, conservative and even Communist are under enormous pressure to ?do some- thing? about high unemployment and laggingjob growth. In reality, it is businesses of all sizes in the private sector, not the government, that tend to produce the sorts ofjobs that create real, long-term value. Government interventions particulate ly controls, subsidies, barriers to entry, tariffs and bailouts - misapply resources, thwarting the ef?cient production of what people value. An economist would say such actions re- place activities that convert resources to higher?value products with activities that convert them to lower-value products. ?it real and lasting ssetributisn is requires the treaties at real, icing?term raise.? - Chariss Koch ?lhink about that for a moment. If a business activity is really creating value, should it need to be subsidized? Similarly, if a business is destroying rather than creating value, shouldn?t it be allowed to go out of business, rather than be subsidized or protected? Productivity Productivity is more than a business buzzword. It is a key driver of success for all of society. Cilie more productive we are in enhancing the value of resources, the better offvirtu- ally everyone is going to be. By contrast, anything that interferes with productivity is going to make people less well oil, especially the poor, who are least capable of weathering economic shocks. It?s important to realize what makes us better oil. It?s not just how much money we have, but the availability of the goods and services we value. In the old Soviet Union, lots of people had rubles to spend, but there was very little of value to buy. Government policies resulted in chronic shortages of food, clothing and shelter. Similarly, in any nation where govern- ment policies systematically destroy value, shortages of valued goods and services should be expected. Good idea? Governmenbmandated transfers from one group to another don?t solve the problems of lower productivity and higher unemployment. in fact, they make those problems worse. lithe government insists that someone should be paid $50 per hour in wages and bene?ts, but that person only creates $30 worth of value, no one will prosper for long. In a scenario such as this, as businesses lose money because of the government?s policy, employees will end up losing their jobs and fewer (if any) new employees will be hired. Consequently, the result of what sounded good malzing a guaranteed $50 per hour will not be prosperity. it will be higher unemployment. Anything that undermines the mobility of labor, such as policies that make it more expensive and dif?cult to change where people are employed, also in- creases unemployment. ln Europe, where stringent labor laws make it dif?cult and expensive to termi- nate someone .. even for cause - this has become especially troublesome. Similar policies diat distort the labor market such as minimum wage laws and mandated bene?ts contribute to unemployment. Policies that make it difficult to get per- mits to build plants and equipment that are more e?icient lower productivity and reduce wages. All these obstacles interfere with the ability to create valued products and services, adversely affecting consumers, employees and employers. Alternatives in The Science of Success, Charles Koch wrote: ?Societies that value freedom and prosperity protect their citizens? rights to free speech, which greatly facilitates the discovery and the dissemination of knowledge.? What we see in many na? tions today is just the opposite. Citizens who are openly critical of the European Union bureaucracy in Brussels or the out?of?control government of the United States are being shouted down by politicians, government of?cials and their media and other allies. Too many government elites think they know what?s best for citizens and ignore the wishes of the citizens themselves. Those in power tend to want to control more and more, all in the name of making things ?fair.? To do so, they pile on more rules, more regulations, more restrictions, more programs and more costs. As Charles Koch has noted, this kind of thinking is a recipe for disaster - both for a company and for a government. ?Overwspecifying and enforcing particu? lars undermines prosperity,? wrote Koch. ?It also facilitates corruption and abuse of power, subservience and stagnation.? After many years of disastrous policy decisions in the United States, it will be interesting to see who voters support at the ballot box this November. Will it be those candidates who believe that more government is the answer, and that government rather than consum? ers - should decide which. businesses succeed or fail? Or will it be those candidates who be? lieve the true role of business is to create value for society by serving customers, not politicians? Water: a liquid asset Every Koch company large or small is dependent on water. Georgia?Paci?c needs it for pulp~and paper-making processes. Georgia-Pacific's Toledo, Ore, nostaineriioard pulp and paper mill. INVISTA couldn?t make nylon, polyester or spandex without it. Flint Hills Resources uses it to make the steam that powers several processing units. Koch Fertilizer and Koch Minerals rely on it for transporting products. Koch Membrane Systems was created to purify and desalinate it. Rotterdam refmery wouldn?t exist without its harbor access. And Matador Cattle Co. needs it for hydrating cattle a and thirsty cowboys. Water footprints Tim Go, managing director of Koch In- dustries? operations excellence tearn, pays close attention to water usage. ?Last year, we organized our ?rst-ever KII-wide water team Math seven differ- ent Koch companies represented,? Go said. ?One objective was to conduct an informal survey of water usage across all of our US. facilities. ?We wanted to get an idea ofhow much water Koch companies bring in, how much we consume and how much we return or discharge.? The goal is to get an understanding of Koch lndustries? total water rToot-print.? In the process of studying water use, several impressive success stories have emerged. Water, water everywhere Georgia-Paci?c, which uses the most water of any Koch company, has spent several years focusing on resource preser? vati on and reducing its water consumption. That focus has yielded some notable results. GP now uses 9 percent less water in its paper?mal