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Killing the Koch Kash Kow?

August 26, 2013
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Picture 2Is the famous Koch Machine out of cash?  There are rumors that they have over-extended themselves in business, and are pouring so darn much money into politics that they are having the same cash flow problems that your humble Pink Flamingo is having.  Who knew?  Pardon moi if I don’t go all mushy and sentimental as I consider the possibility that they are in deep financial do-do.  (Now is the time when you may pause and do a little Walter Huston style dance).

The tipping point, letting we the little people know that they are having problems is when they did not want to pay cash for   In 1994 they did $23 billion in revenue and had 13,000 employees, world-wide. The excuse for not buying the Tribune papers is that they were not ‘financially’ viable.  That doesn’t hold water when one considers that they bought Georgia-Pacific, which had a tremendous amount of debt.  There are rumors that the real reason they didn’t cough up the bucks is because Tribune wanted cash, and the Kochs have a very real cash flow problem.

The problem is that we just don’t know if they do or not.  There are rumors, lots of rumors out of Wichita that they have spent so darn much money on businesses that might not be paying off, that they are in trouble.

Since 2004 they have spent something like $50 billion on what may be known as a historic spending spree.  During this period the value of Koch Industries grew about 3,500%.  The problem is the fact that, because it is a privately held company, we don’t know what the heck they are really worth.  We also don’t know if what their business sites is spewing out is true.  For example, the above stats come from INVISTA’s shareholder page.  From a Piping Designer site, the following information can be found:  The company grew at a 2,200% rate and invested about $32 billion in it.   In 2004 they invested $21 billion to acquire Georgia-Pacific.

As a privately held company, Koch Industries, Inc. is not required to release financial statements or provide data to credit rating agencies.  It’s all kept quiet.  No one really knows what they have or what they are worth.  When you start trying to ascertain just what they have, well, good luck.  It’s all smoke and mirrors, making one wonder just what they aren’t telling in the fine print.  As the second largest private company in the US, next to Cargill, they aren’t required to tell anyone anything.  It’s all PR.

In December of 2011 they had approximately 60,000 employees.  Their employee growth is -10.4%.  Wikipedia said they had 70,000 employees.  In 2007 they had 80,000 employees.

“…Koch (pronounced “coke”) Industries is the real thing, one of the largest (if not the largest) private companies in the US. Koch’s operations are diverse, including refining and chemicals, process and pollution control equipment, and technologies; fibers and polymers; commodity and financial trading; and forest and consumer products (led by Georgia-Pacific). Its Flint Hills Resources subsidiary owns three refineries that together process more than 800,000 barrels of crude oil daily. Koch operates crude gathering systems and pipelines across North America as well as cattle ranches in three states with 11,000 head of cattle. Brothers Charles and David Koch control the company….”

In 2012, WikiWealth put their employee base at 67,000.  Allegedly they did about a $110 billion in revenue that year, but, contrary to what we have been led to believe, that doesn’t say much because we just don’t know..  Forbes said their revenue in 2011 was $98 billion.  Here’s the thing, when you put their billion bucks into perspective, it’s chump change and we’ve been the chumps.  Remember, revenue is NOT profit.  Revenue is what’s flowing in and out.

J. C. Moore Online

J. C. Moore Online

The largest privately held corporation is Cargill.

Wikipedia

Wikipedia

Revenue and profit are two different animals.  In 2012, it was stated that they had $115 billion revenue.  Legend says there is no debt.  We really don’t know because they don’t tell anyone anything.

“...With a $115 billion in revenue and a pretax margin of 10%, we estimate the Wichita-based conglomerate throws off at least $11 billion a year in cash before expenses like taxes and depreciation. Assume a 35% tax rate and another 15% for maintenance and capital expenditures and the Koch brothers, who own 84%, could easily borrow 4 times free cash flow, or some $22 billion. That would immediately put about $18 billion in their pockets after paying the 15% dividend tax….”

This is all an estimate.  Revenue is the cash coming in, flowing around, but doesn’t take into account expenses and taxes.  There is no estimate about profit. One source said that Charles spent $6 billion to buy GA Pacific, which had $15 billion in liabilities.  According to Forbes, they have no centralized pay scale.

“…He saw the business could grow much bigger and, in a pattern he has maintained to this day, steered the firm’s slender earnings into projects like a new factory in Europe. “I didn’t care about living high on the hog,” says Charles, who like Buffett lives in an unpretentious house, constructed on his family’s property in 1975. “I wanted to build something.”…”

Slender earnings….?

David and Charles Koch came by their money the hard, old fashioned way.  They inherited it from their father, who was not so much a brilliant business person as he was willing to snuggle up to some truly nasty and revolting individuals from Nazi Germany and Stalinist USSR. He left his sons with MIT educations, a divided family, and their grandfather’s hatred of anything connected with the New Deal.  They were also left with a legacy from the John Birch Society.  They are not bright business people.  Their son, who is running the day to day operations of Koch Industries, isn’t the brightest bulb in the family red light district.  A third generation, Chase, is part of the family business, the one who is the big polluter.

“…Perhaps for that reason, the Koch brothers reinvest 90% of their profits back into the business. That’s another surprising practice for men past retirement age, with family members who theoretically would like to get their hands on a billion-dollar-a-year dividend stream. The Kochs declined to comment for this article, but Kaplan said their dividend policy isn’t completely irrational. Even at a 90% reinvestment rate, they can still probably pull a couple hundred million dollars a year out of the company.

“Maybe they feel the returns from keeping the money inside the company are greater than taking it out and investing in the S&P,” Kaplan said. What about diversification? “With $115 billion in revenue, they’re probably diversified already,” Kaplan said.

There is one big problem with this level of thrift: By reinvesting in the company, the brothers could be creating a tax bomb for their heirs. Charles has two children, and David has three. With the death-tax exemption currently topping out at $5 million, that leaves at least $30.9 billion each brother has to shelter somehow from the 35% federal tax rate, which is scheduled to rise to 55% next year…”

Like a Pacman game, Koch Industries keep gobbling up companies, spending cash like drunken sailors on a twenty-four hour pass.  In 2004, they bought INVESTA, Inc. for $4.2 billion.  They have destroyed their family in the process.

“...But Charles Lewis, the founder of the Center for Public Integrity, a nonpartisan watchdog group, said, “The Kochs are on a whole different level. There’s no one else who has spent this much money. The sheer dimension of it is what sets them apart. They have a pattern of lawbreaking, political manipulation, and obfuscation. I’ve been in Washington since Watergate, and I’ve never seen anything like it. They are the Standard Oil of our times.” …”

They are being attacked by a boycott of their products.

“...Covert Operations: Third Richest Billionaires Koch Brothers Waging Hidden Wars Against Obama and Democrats New Yorker Jane Mayer August 30, 2010 (Jane Mayer is a great reporter. She and Abramson who is now on the editorial board of the New York Times, wrote the only honest book on how Justice Thomas was appointed to the Supreme Court. Senator Spector’s behavior towards Anita Hill who told the truth was so unfair that I never liked him. I am glad that a true Democrat is now running a tough race for Senator.

Products to Boycott: Koch Industries owns Brawny paper towels, Dixie cups, Georgia-Pacific lumber, Stainmaster carpet, and Lycra, among other products. Forbes ranks it as the second-largest private company in the country, after Cargill, and its consistent profitability has made David and Charles Koch—who, years ago, bought out two other brothers—among the richest men in America. Their combined fortune of thirty-five billion dollars is exceeded only by those of Bill Gates and Warren Buffett.…”

The real problem is the fact that we just don’t know what they are worth.

Fire Dog Lake

Fire Dog Lake

We just don’t know much of anything. It is all quite hidden behind their almost pathological need for secrecy.  We don’t know what their actual profit is, just revenue.  We know some of what they are giving away to various ‘charities’, and it’s a heck of a lot – probably way too much.   I’ve not even begun to list the legalities about their operations, the fines, investigations,etc.

Right now, from what I can tell, the alleged $32 billion, or $50 billion, or $24 billion that Charles and David are worth is on paper.  It’s all on paper.  Allegedly there is no corporate debt.  We don’t really know do we?  We don’t know what their profit is.  We don’t know what their loss is.  We only know what their revenue is, and the fact that they’ve dropped about 20,000 employees since 2008.  In the early 90s their revenue was $23 billion.  It seems to me, when you factor inflation and the fact that they had less than 20,000 employees at the time, they were in much better shape, financially.

Rumor has it they are spending way too much money.  Rumor has it that Chase (?) has made some very real financial blunders that have impacted the bottom line.  Allegedly Charles and David have made some very serious mistakes with land speculation.  Their Matador Cattle Company is not doing well.  They’re allegedly down to about 8000 head.  In many ways, this makes a heck of a lot of sense, considering the fact that many ranchers are dumping their cattle.

There are reasons for me suggesting that they are starting to have some very serious cash flow problems.  One of them is the fact that they appear to be pulling back from political commitments.  No, I’m not a business person.  I grew up around my father’s small business and around my grandfather’s business.  I chose not to follow them, because I don’t like that world.  I do know a thing or two.  It is smart to re-invest your corporate cash to grow the business.  That’s all my sister does.  But – you must be smart about it.  One thing I’ve noticed about the Brother’s Koch is that they’re not the smartest cogs in the financial wheel of industry.

The way they have been buying and acquiring businesses has a down-side.  It is terribly risky.  If you don’t leverage and use your own money, then you cut into your cash flow.  That cash flow is diminished until you turn the business around.  Then you run a very real risk of doing the Humpty-Dumpty thing.  It all falls down.

Business also has a dynamic.  It ebbs and flows.  Right now, some fascinating dynamics could be at play here.  One purchase too many and it all falls down.  I think the Kochs have reached that point.  Something is cutting into their bottom line.  I suspect they are as powerful as they’re ever going to be.

This country doesn’t like dictators.  We don’t like anyone who becomes so arrogant and powerful that they think they are better than everyone else.  There’s nothing more than We the Little People like better than bringing these people back down to earth.  I think this is what is starting to happen to the Brother’s Koch.  It’s not going to be pretty when they fall.  When they do, they’re going absolutely destroy the funding base of the GOP and the tea party monsters they helped to create.

The Brothers’ Koch are so secretive, we don’t know what they are worth.  We can safely assume, I think, that what they are worth, on paper, is not what their net worth is, in the bank.  Most of their net worth is based on their 45% – 45% ownership of Koch Industries.  That’s nice.  When you own a corporation, even an LLC, you only get “X” amount of spending money.  If they’re re-investing 90% of their profits, then we know they’re only dealing with 10% to spend.  That’s about 4% each.  The assumption is that the profits are in billions.  That’s an assumption because we’re told their revenue is in billions.

What if their profit is, as I saw somewhere, while researching this piece, only about $110 million or something?  The, we’re looking at a completely different ball game.   That’s “only” about $50 million each.  They way those two are spending on the side, they could be in serious trouble.

I hear they have the same problem my parents to – they’re becoming land poor.

Oh, I do appreciate the irony.

I’ve not even touched on the problems within their gas-oil business.

Charles and David Koch want us to think they’re in the same league as Bill Gates, when it comes to spending money.  They’re not.  We know what Gates is worth.  We know what he spends his money on and how he donates it.  The Brother’s Koch aren’t even in his league, even though they want us to think they are.

Have we been conned?

 

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1 Comment

  • jose maria says:

    Thank you, Pink Flamingo, for this excellent post and for bringing these facts to our attention.


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