Koch Net Worth 1984 to 2021 and 2021 Koch Industries Shareholders Dividend Update

It has been a while since I have updated the net worth statement for Koch Industries. The last update I did was back in 2018 and how things have changed since then. David Koch passed away in August 2019 and his shares went to Julia Koch and family. I blogged extensively on the passing of David Koch here and here. Also I reported how recently Julia Koch had been added to the board of directors of Koch Industries as well. 

Looking at the 2021 Koch website they report $115 billion in revenues (although they claim it comes from Forbes since they don't report revenue numbers but this number must be somewhat accurate. Taking $115 billion of revenue x a 13% profit margin (which was calculated here) would say after tax earning are $11.3 billion (assuming a 24% tax rate which again calculated here) . Koch reinvests 90% of their earnings back into the company which would say $10.2 billion of earnings are reinvested back into Koch Industries every year. The company based off historical information pays out 7% of their earnings as dividends (leaving about 3% for short term liquidity needs). This would say that Koch pays out close to $800 million of dividends to all their shareholders. 

Charles Koch and his family (Chase Koch has mentioned he is a shareholder of Koch Industries here) would earn about $334 million (since they own about 42% interest in Koch Industries). Julia Koch and her family would earn about $334 million. Last but not least the Marshall family would earn $127 million. It is important to remember that Koch Industries is a C-Corporation (I uncovered that here) so the dividends are taxed first at the corporation level (21% under current tax law) and then taxed again individually. For federal income tax purposes Koch shareholders would pay 24% (20% + 3.8% Obamacare tax). In addition to this they would pay state income tax as well. Charles Koch lives in Wichita Kansas so the top income tax rate for that state is 5.7%. This would say that close to 30% of his dividends are taxed. Said another Charles Koch and family would earn $233 million from dividends after taxes were paid. Julia Koch lives in both Florida and New York. My hunch would be that her residence for tax purposes is Florida (which currently doesn't have a state income tax). However, if she truly were a resident of New York City the tax there would be 32% for just living there and throw on federal income taxes of 24% would result in roughly a 56%. To translate this into dollars it would say that Julia Koch and her family would receive $146 million after taxes which would be what she would use for her annual living needs. 

The average compound growth in net worth of Koch Industries has been about 14%/year (again this is a rapid growth rate when looking at when Charles Koch took over the company back in 1967). Some smaller companies are able to achieve this for a decade or two at most and then at some point stall out because as you get larger it is harder to continue to grow. The largest jump in net worth was between 2005 to 2006. This was when Koch Industries purchased Georgia Pacific. I had reported on Georgia Pacific as a case study. Koch Industries grew from $60 billion of revenue (before the Georgia Pacific merger) to $80 billion (after the merger). At the time Koch paid a larger premium (39% premium above the market value of the company). David Koch at the time told the New York Times that Koch Industries could streamline the manufacturing and production processes of Georgia Pacific and reduce the costs by investing in technology. The purchase of Georgia Pacific accelerated the size and number of employees for Koch Industries. This in turn increased the net worth of the Koch shareholders. 

As I have mentioned before Koch Industries pays out 7% of it's earnings as dividends however as a yield for Koch Industries stock the shareholders really do earn a small yield compared to their net worth. For example, if you take the $334 million Charles Koch and his family earn it would say and divide this by his recent net worth of $46 billion would say that the yield on Koch Industries stock is only .7%. If you compare this to yield of the S&P 500 (1.5%) it would say that Koch Industries shareholders could double their current dividend by selling the company and investing into the S&P 500. However, the long term dividends of Koch Industries as I calculated before have grown an astounding 21% per year (this is over a 50+ year period since Charles Koch took over too). Running some math Charles Koch was worth $500 million back in 1985 which exceeded his lifetime goal by a factor of 70) when he first took over the company after his father passed away. 

Without a doubt there is no question that Koch Industries has grown quite exponentially over many many decades. When Charles Koch took over the company after his father passed away in 1967 Koch Industries only paid out $300,000 a year and now that amount in 2021 is roughly $800 million a year. Charles Koch back in 1984 had a reported net worth of only $375 million and now has a net worth of $40 billion. Central to this growth in my view has been two key characteristics. The first is the company philosophy of what is called market based management (MBM). This philosophy is very different than any other company. The philosophy focuses on employees speaking up to share ideas, for all employees to act as if they are business owners, and to think critically about problems they are facing in the business they are in. The other key characteristic is Koch Industries for a long time has reinvested 90% of its earnings back into the business (to my knowledge no other company does this). Given that Koch Industries is private gives them the flexibility to do this. This type of policy would be considered crazy in any public company of board of directors. At any rate no one can deny that Koch Industries is like no other company. 

Julia Koch Joins Koch Industries Board of Directors

Recently I learned that Julia Koch was added to the board of directors of Koch Industries. Honestly, this is not that shocking after David Koch passed and since David Koch had been an executive a Koch Industries since at least 1980 and given his experience with the company it would be logical for her to join after David would pass. Remember Elaine Marshall is also on the Koch Industries board of directors (she has been on the board of directors since 2006) after E. Pierce Marshall passed (son of Howard Marshall II). It would make sense from an estate planning perspective to give Julia Koch shares of Koch Industries and by doing that allow her to be on the board of directors since she is a major shareholder. In terms of estate planning usually when someone passes most of their assets will pass to the spouse (due to an unlimited martial deduction that allows an infinite amount of assets (including Koch Industries stock) to pass to Julia without incurring any estate taxes. However, when Julia Koch passes (which won't be for many decades since she is only currently 58 years old-an interesting fact is that David Koch was 56 when he married Julia-who at the time was only 34) there could be a large estate tax bill that will be paid (assuming no planning has been done which I doubt). The same logic would apply when Charles Koch passes (most likely his wife Liz Koch will receive his shares of Koch Industries stock). 

According to Bloomberg Koch Industries lists the board of directors as Charles Koch, Martin Slack, Richard Fink, Dave Robertson, Elaine Marshall, Steve Feilmeier (former CFO of Koch). In addition to this on March 07, 2013 Jim Hannan, Chase Koch (who is also a Koch Industries shareholder), and Brad Razook were added to the board of directors of Koch Industries. With the addition of Julia Koch this would say Koch Industries has at least 10 people on the board of directors. 

The question is what role will Julia Koch play the board of directors? She hasn't been involved in the company business however still retains a large ownership of the stock. Will she just delegate the corporate decisions to other in the business or have a voice at board of director meetings? As I mentioned previously Koch Industries would generate a fair amount of dividends to help Julia Koch provide for her lifestyle. My last estimate shows that Julia Koch would pull in a little less than $400 million per year just in dividends (which should be sufficient to provide for her spending needs/wants). David Koch in a 1999 MIT Spectrum article mentioned that he/Julia gave away 50% of his income. Even if Julia gave away half her income she would be left with $200 million (before taxes of course) to live off of. She could purchases different homes, remodeling, (she apparently was working with a interior designer to remodel her $40 million New York townhome), and traveling. David Koch once made the comment that one time Julia was given the task of renovating a home for years and he told Julia there was no budget and David commented "she still managed to go over the budget". However, will Julia want more of Koch's earnings paid out as dividends if she wants to increase her lifestyle and possibly lead her to selling her Koch shares to other Koch shareholders?  

Speaking of the Koch finances after David Koch passed when I look at the 2019 David Koch Foundation tax return it shows only $10 million for the assets of the foundation (or said another way Koch Industries shares didn't fund the foundation). I wonder why they even have this set up given for this small amount of money (relative to the overall net worth). What is interesting is the return shows about $7.3 million of a retirement distribution (David Koch may have had his Koch 401k plan/pension plan/other retirements go directly to his foundation upon his death to avoid income taxation). 

The Koch family a number of years established a family office. In general a family office is created to management to handle the day to day financial operations of a wealthy family. For example a family office primarily will handle the investments of the family, tax planning, estate planning, and even be delegated the duty of philanthropic work, making travel arrangements (if the family wants to take trips), paying bills, and other administrative duties. According to this source the Koch family office is named 1888 Management (based in Denver, Colorado) and manages $2 billion of assets. According to this family office source the Koch family office is focused on taking a directs investments and take a sizable stake in certain companies. For example 1888 Management purchased a stake in a telecommunications company X5 OpCo LLC. 

An old article mentions there are seven family officers of the 1888 Management Richard Dinkel (who is currently now the CFO of Koch Industries, Steve Feilmeier (who was the former CFO of Koch Industries), Daniel May (he overseas the investments for the family office, David Koch (this has probably changed to Julia Koch, Anna B. Koch (wife of Chase Koch-son of Charles Koch), and Elizabeth B. Koch (which is the wife of Charles Koch-the daughter is also named Elizabeth Koch but her middle name is Robinson). Usually the family office will mix family members with people that work for the corporation have the family background and vision for where the family wants to go while at the same time putting into place a sense of corporate governance so family members can't run wild. 

I previously covered allegations against Julia Koch made by security detail of the family (however this seems to have stayed quiet and maybe perhaps some type of settlement was reached). Within the past month Julia has been spotted eating out near her Florida home. During the pandemic in June 2020 she retreated to her Hamptons residence from Florida. Her children are growing up too. The oldest David Koch Jr. is attending Duke University and appears to be majoring in political science and government and expected to graduate in 2021. Mary Julia Koch is a history major at Harvard University and is expected to graduate in 2023 (she is also the editor in chief of the Harvard Independent). The youngest John Koch is attending a Manhattan prep school (Mary Julia attended The Spence School). The question is will the children get involved with Koch Industries business over time? Chase Koch has worked within Koch Industries for many years and understands the ropes of the business. He is currently the only next generation Koch involved in the family business. Remember back in the 1980's Charles, David, and Bill Koch were involved in the business (Frederick Koch was not involved but that is still a 75% participation rate). However, over time though as there are more shareholders who each have different needs (some shareholders want more dividends paid out to support their lifestyle-like Bill Koch did back in the 1980s which lead to a corporate coup/people like Charles Koch who regularly reinvests 90% of the earnings of Koch back into the company to grow it-which over time actually leads to an increase in dividends. It is worth pointing out that when Fred Koch passed in 1967 the dividends of Koch Industries were only $300,000. The hard work and growth of Koch Industries of the company reinvesting 90% of their earnings back into the company also helped grow the company size and dividends too. This growth even exceeded even the wildest dreams of Charles Koch who recently said back in 2015 that he looked back in 2013 at his goal for growing the company and it exceeded his own expectations by 70 times. I estimated that his net worth back in 2013 was $35 billion which would say that Charles Koch expected to retire with only $500 million! 

This outstanding growth rate has benefitted all the other shareholders who don't even work for Koch Industries. The Marshall family for example I estimated pull in $140 million of dividends with their 16% interest in Koch Industries and again they don't even work for the company. However, at some point Elaine Marshall will pass and her shares may go to her family members and there will be a new generation of owners. The question will be will there be a revisit of a company battle of the shareholders over control/direction and the dividends of the company. The more shareholders you have the more diverse group of wants you have and the harder it is to keep everyone happy. Usually when a shareholder of a private company wants out the company will offer them a price to buy out their shares so they can walk away and do what they want. Frederick and Bill Koch did this back in the 1980's and got close to a billion dollars. I however pointed out they would have been better off holding on to their Koch Industries shares in the long run (again given the impressive growth of the company). Time will tell however what happens with Julia Koch her role on the board of directors for Koch Industries and how involved she gets (or doesn't get) and whether or not she continues to keep a low profile. My own personal view is that she will keep a low profile. She has managed to keep a low profile (other than going to galas) for over three decades and out of all the Koch family members I have never read about or seen an interview with her.  As Charles Koch one time mentioned "I always followed the mama whale's advice to the baby whale: Son the time you get harpooned is when you come up to spout off". 

400th Post What I Have Learned From Blogging Over The Years

I honestly can't believe this is my 400th blog post. Originally I started to write a blog to keep track of things I was noticing in the world. My first blog post was back in October 30, 2009. My original intention was to keep a diary of my thoughts. At the time I wanted to focus on "finance, economics, current events". Originally I did blog on a garden variety of things-from hair loss, to organ donation, to Tiger Woods. However, probably what this blog is most known for is following Koch Industries and the Koch family over many years. This blog was the first and only blog to have a historical net worth estimate for Charles and David Koch. Also it is on this blog that I calculated the annual dividends (along with net profit) of Charles Koch and David Koch. I haven't tracked my time on the issue but I would say I have spent a few hundred hours studying/following the Koch family.

Back in the early 2010's I was in graduate school and often found free time on my hands to write blog posts and during those years I spend dozens of hours looking up old articles on the Koch family. The graduate school I was at had a subscription to NewsBank database which was a great resource to find articles on the Koch family.  Although, I have seen it sourced in many Koch books such as Kochland and Sons of Wichita one piece I wish I could obtain is the Koch vs. Koch trial transcript. I have been able to find summaries online however the actual transcript would be really interesting to look through. 

What is interesting is I somewhat stumbled upon the Koch family. Back in the early 2010's (while I was in grad school) I became interested in learning more about Walter Williams. I remember watching a video that was a toast to him (here is the video from 2003). At one point Charles Koch speaks saying that him and Walter Williams had been friends since about 1983-1984 (it should be noted when Walter recently passed away Charles contacted Walter's daughter (Devon) to express his condolences). The first post I have had on something Koch related was back on June 23, 2011 when I wrote about the Koch philosophy of management. 

What I am probably most proud of is my ability to research rare items on the Koch family and write wonderful blog posts that are fun, entertaining, and share information that you can't find anywhere else on the internet. I often think of how sloppy some writers are. What I mean by sloppy is they don't get into the nitty gritty details and often use flowery language with not much facts/data. It also irritates me when writers can't get to their point or have a take away or action item. There are a few writers like James Stewart or Bryan Burrough who are able to weave incredible stories with facts and data. If you look back at my blog posts I try to include as much data as possible (perhaps sometimes too much) with appropriate hyperlinks so if people are curious they can check out the resources on their own (you don't have to just take my word for it). 

The most popular post on the blog has been my post on Elizabeth Koch (what is interesting is this all started from a footnote in "Sons of Wichita" and then became a project of mine. People often don't realize a few of the blog posts I have written occurred over many days/sometimes months (often saved as a draft and then I will come back to it for additional ideas or editing). Most posts I try to knock out in a few writing sessions. However some posts I did have writer's block of how to organize or what I felt was the most interesting. To posts that come to mind are the ABKO deal between Koch Industries and Chrysler and the other was the Pine Bend Refinery that Koch owned. Both posts were written over a couple of months of back and fourth. The ABKO deal and Pine Bend refinery are two of my favorite posts though. Also I would challenge anyone to find posts that are more detailed and have more analysis then those two posts. My general process has been to get all the data and do some type of brain dump and then structure the information in an organized fashion. The fun part is what I call the editing of trying to move facts to their respective positions and tidy things up. 

One of the things I was able to break on my blog is that Koch Industries is a C Corporation (and not a S Corporation as S Corporation as Austan Goolsbee tweeted that Koch Industries didn't pay any corporate taxes (the tweet was then deleted). In actuality Austan (who unfortunately is a professor at the University of Chicago) confused the Koch brothers and was confusing Bill Koch with Charles and David Koch. 

My most productive year was in 2011-2012 (at the time I was in graduate school and had a lot of free time on my hands). During this time I read through hundreds of pages from the Koch vs. Koch trial (part 1, part 2, part 3) and tried to boil down all these into the important pieces. Probably the most interesting part was learning the work schedule of Charles Koch. At one point Koch executives were working a full day and part of the Saturday night. In fact there was a meeting on a Sunday in August 1968 that went from 4 P.M. to midnight! Brother David Koch was no slouch either. As I remarked here David woke up at 7:30 A.M. and had his breakfast and would work until 7 P.M. and then go home to his wife, kids, and personal chef. Back in his younger days David (who was a bachelor for many many decades) would spend weekends at the office studying pollution control designs (for fun he would ski). Probably one of my favorite interviews is the one MIT Spectrum did with David Koch back in 1999. In the interview David admits he gives away about half of his income to charity. For fun he enjoys reading biographies, historical fiction, and military fiction (back in the 1980's he mentioned that he read about 24 news/opinion journals (and that didn't even include technical trade journals). Also he takes some of his friends on exotic trips to the Amazon jungle on his private jet. According to David traveling "takes you out of the rut you get locked into as a businessman". I truly believe both Charles and David Koch are interesting individuals who undeniably built an amazing business with an extraordinary long term growth rate. 

One of the largest contributions this blog has made was estimating what Koch Industries earn and the dividends they pay out to shareholders. Koch Industries routinely invests 90% of their earnings back into the company. Well simple math would show that if I knew the revenues I could back calculate how much profit there was. What I probably am most proud of is my research that has put a ballpark estimate on the dividends and profits of Koch Industries. My estimates show that Koch Industries generates roughly $17 billion of earnings (before tax) which would translate into $900 million of dividends available to all Koch shareholders which would say the Koch brothers each pull in close to $400 million of dividend income (dividends have grown at a compound growth of 21%/year-over 50 years!). I also compared Charles Koch as a businessman to John D. Rockefeller here (John Rockefeller retired at 57 and Charles Koch is currently 85 years old and still working at Koch Industries). Speaking of dividends I also wrote how Bill Koch and Frederick Koch (brothers to Charles and David Koch) left billions on the table for their shareholder dispute with their brothers and would both have had more of a net worth and dividends if they never sold their Koch shares. 

Speaking of Bill Koch I also covered the Oxbow Carbon corporate coup that almost lead to the fire sale of Oxbow Carbon (ultimately a judge ruled that Bill Koch would not be forced to sell his company-however the story is still quite interesting). The whole corporate coup was filled with corporate governance issues (such as Bill Koch using the company as as a piggy bank (for his private jet), valuation issues of what Oxbow was really worth, and key executives at Oxbow employees going behind the back of Bill Koch to try to negotiate deals without him knowing. 

It really has been amazing to see the growth of this blog over the years. I have close to almost 250,000 visitors which I never in my wildest dreams never would have believed. What has been really fun is putting my ideas, thoughts, and research out there to share with the rest of the world (yes I do have a worldwide audience). My goal is for someone to stumble upon a blog post and think "Wow this person really does their research when looking into things". I am sure in the coming years there will be more news from Koch Industries and what the succession plan of the company looks like. This experience of blogging has taught me that I truly took the road less traveled. 

Texas Celebrates Renewable Blackout Day and Millions of People Literally Left In the Cold

Recently (President's Day) there has been a cold winter storm that has braced Texas for a winter not seen in many decades. This winter storm has left millions of Texans without power without water and literally left them cold and in the dark. As a result as I watch the local news this morning many individuals are passing away (from carbon monoxide poisonings-leave their cars on in their garage to stay warm). The price for electricity on the market increased on February 12th (ahead of the storm) from roughly $25/megawatt hour to $2,000/mega watt hour in preparation of the cold weather. Prices skyrocketed to $9,000/megawatt hour in times of scarcity. The demand for natural gas skyrocketed from $3/million British thermal units (BTUs) to $600/million BTUs. 

In the Houston area it is estimated that more than 1.4 million people don't have power. (it is estimated that 4 million people in Texas are without power). Now let's assume that those 4 million people each had roughly about 8 hours without any type of power (this is conservative since someone people started losing power beginning last night and in the early hours of the morning today). This would say that ~32 million hours would equal human suffering 3652 years! Remember we are just referring to a lose of power of one day too! 

In order to figure out where we currently are we first have to look back in history. Back in 1999 then Texas Governor George W. Bush signed legislation that to enforce a renewable electricity be mandated in Texas. Back in the late 1990's the goal was 2,000 megawatts (MW) be from renewable energy (by 2009). Also during this time according to the Wall-Street Journal only 2% of energy in Texas came from renewables increased to 16% in 2016. According to the Energy Information Administration (EIA) Texas now utilizes 20% renewable energy to serve it's energy needs. A week before the freeze set in wind accounted for 42% of the power. Natural gas power plants power more than 50% of the Texas electricity. Let's remember that 1 megawatt can power 400-900 homes for a whole year. To make matters worse Texas governor Rick Perry then increased the 2,000 MW figure to 10,000 MW (by 2025). In fact if you look at the Powering Texas website they are quite proud of the fact that Texas surpassed the 2015 goal in 2005 and the 2025 goal in 2009. 

Electric Reliability Council of Texas (ERCOT) shows (as I write this in the afternoon on February 16, 2021 the current capacity for energy is about 47,000 megawatts (MW). For some perspective during the summertime the peak demand of energy is close to 75,000 megawatts (during the summer months). About half the wind capacity for Texas (10,500 megawatts) was taken offline. In total about 30,000 megawatts of energy were taken offline. The question is why an energy grid that is use to a multiple energy is operating at 62% of it's capacity. Some could argue that Texas did not winterize their natural gas and coal power sources. However, I would point out any money that was forced to be spent on renewable energy could have been in investing in winterization of the reliable sources of energy. 

Although fossil fuels are unpopular they produce a vast amount of energy at a relatively affordable price and most importantly are reliable. If Texas had not relied on as much of a wind exposure and utilized more natural gas, coal power, and nuclear power (good luck going through that regulation/permitting process) there may be have been fewer people without power and for a shorter duration. Let's be clear, nuclear and coal are the most reliable forms of energy. One nuclear reactor produces 1 GW (gigawatt) of energy. One nuclear reactor plant would the same amount of energy as 412 wind turbines or 3 million solar panels. To translate this 1 GW of energy could provide enough energy to power between 300,000-750,000 homes. Currently, as I write this about 1.4 million homes in the Houston are without power. 

People incorrectly assume that well because the sun is shining and because the wind is usually blowing solar and wind energy. However, the issue is you have to add the cost of fossil fuels to their cost (as wind and solar are unreliable and needs reliable sources of energy as backup power). Also in terms of efficiency there is an upper bound on how efficient wind energy can even be. The Betz limit states that the maximum amount of power is close to 60% (currently this amount is close to 40%). It is also worth noting to that solar energy falls under a similar principal with the Shockley-Queisser limit which states that the maximum conversion rate for solar energy is 34% (currently the best solar technology is around 26%. Said another way there are physical limits as to how efficient wind and solar can be. Also it is worth pointing out that you still need fossil fuels to even produce wind energy. 

The history is against the side of people who tout renewables as the "future". Germany for instance has about 46% of their energy comes from "clean" energy (33% of the energy in Germany comes from renewables). The country is trying to become carbon-neutral by 2050. The issue however is when the sun doesn't shine or the wind doesn't blow (which can be problematic). Also the cost of energy has increased 59,000% in a two year period (no this not a typo). Germans pay 45% more than the European average (half of the fee are just green taxes). By 2023 Germany could face a shortfall of reliable energy (according to estimates they lost an equivalent of 43% of total secure energy). Germany's transmission operators estimate that there will be a shortfall of 5.5 gigawatts of energy of peak power and reliable power. This would translate into 13-14 million people not having electricity. History will show whether or not Germany can have a secure energy future relying upon wind and other clean energy sources. 

Another country that has a large allocation to unreliables (renewables) is England. Last year in November the National Grid in the UK issued an "electricity margin notice". The issue was that wind farms were expected to produce 16.9 GW (gigawatts) of energy however could only produce 2.5 GW of electricity (or in other words an 85% decrease). When you look deeper through the 2.5 GW of electricity is what optimal amount and due to system constraints only 1.3 GW of energy could be effectively used. Although England didn't suffer any blackouts they are verging on the risk of putting their citizens at a large risk of blackouts. 

It is important to point out that some people often need electricity for live saving medications. If these drugs aren't stored at proper temperatures they can go bad placing the patient at risk for severe side effects. Also electricity allows individuals to perform work (computers/cell phones/other electronic devices) all need energy to run. For instance think of a doctor who doesn't have access to power and therefore can't perform any virtual appointments (due to COVID). When you multiple this by a large factor there is an enormous harm done to many individuals. Also you have the psychological aspect with the power out of not being able to be in contact with co-workers/family/other loved ones (some cells tower did go offline since they to require energy to run). Also living in a home that is 50 degrees (without power) is quite unpleasant. One other thing to keep in mind is when people don't have energy they resort to methods that might lead to death or serious injury. For example as I write this 60 people in the Houston area are hospitalized for carbon monoxide poisonings (example: trying to keep themselves warm by turning their car on with the garage door closed). 

For the past few days it has been difficult to even get a hold of how many individuals have access to power/energy. The question that will need to be asked is if Texas didn't move towards wind turbines to generate power what percentage of an outage would there have been? People on both sides (even though I would favor) are making claims that they have no data to backup. My question if wind turbines weren't used and coal and natural gas were used what would have been the effect been? The religion of people who are obsessed with renewables (unreliable) is very risky business and can lead to having people access affordable and reliable power that they need to stay warm and comfortable.