In 2008, Forbes called it the second largest privately held company in the United States (after Cargill) with an annual revenue of about $98 billion, down from the largest in 2006. If Koch Industries were a public company in 2007, it would rank about 16 in the Fortune 500.
Fred C. Koch, for whom Koch Industries, Inc. is named, co-founded the company in 1940 and developed an innovative crude oil refining process. His sons, Charles G. Koch, chairman of the board and chief executive officer, and David H. Koch, executive vice president, are principal owners of the company after they bought out their brothers, Frederick and William, for $1.1 billion in 1983. Charles and David H. Koch each own 42% of Koch Industries, and Charles has stated that the company will publicly offer shares "literally over my dead body".
History
Predecessor companies
In 1925, Fred C. Koch joined MIT classmate Lewis E. Winkler at an engineering firm in Wichita, Kansas, which was renamed the Winkler-Koch Engineering Company. In 1927 they developed a more efficient thermal cracking process for turning crude oil into gasoline. This process threatened the competitive advantage of established oil companies, which sued for patent infringement. Temporarily forced out of business in the United States, they turned to other markets, including the Soviet Union, where Winkler-Koch built 15 cracking units between 1929 and 1932. During this time, Koch came to despise communism and Joseph Stalin's regime. In his 1960 book, A Business Man Looks at Communism, Koch wrote that he found the USSR to be "a land of hunger, misery, and terror." According to Charles G. Koch, "Virtually every engineer he worked with [there] was purged."
In 1940, Koch joined new partners to create a new firm, the Wood River Oil and Refining Company, which is today known as Koch Industries. In 1946 the firm acquired the Rock Island refinery and crude oil gathering system near Duncan, Oklahoma. Wood River was later renamed the Rock Island Oil & Refining Company. Charles G. Koch joined Rock Island in 1961, having started his career at the management consulting firm Arthur D. Little. He became president in 1966 and chairman at age 32, upon his father's death the following year.
Koch Industries
The company was renamed Koch Industries in honor of Fred Koch, the year after his death. At that time, it was primarily an engineering firm with part interest in a Minnesota refinery, a crude oil-gathering system in Oklahoma, and some cattle ranches. In 1968, Charles approached Union Oil of California about buying their interest in Great Northern Oil Company and its Pine Bend Refinery but the discussions quickly stalled after Union asked for a large premium. In 1969, Union Oil began trying to market their interest in Great Northern by telling potential buyers that Koch's controlling interest could be thwarted by currying favor with another owner, J. Howard Marshall II. When Marshall discovered this he threw his lot in with Koch, they together acquired a majority interest in the company and ultimately bought Union's interest. Ownership of Pine Bend refinery led to several new businesses and capabilities, including chemicals, fibers, polymers, asphalt and other commodities such as petroleum coke and sulfur. These were followed by global commodity trading, gas liquids processing, real estate, pulp and paper, risk management and finance.
In 1970, Charles was joined at the family firm by his brother David H. Koch. Having started as a technical services manager, David became president of Koch Engineering in 1979.
Subsidiaries
Among Koch Industries' subsidiaries across various industries are:
Georgia-Pacific paper and pulp company, maker of "Brawny" paper towels, "Angel Soft" toilet paper, "Mardi Gras" napkins and towels, "Quilted Northern" toilet paper and paper towels, "Dixie" paper plates, bowls, napkins and cups, "Sparkle" paper towels, and "Vanity Fair" paper napkins, bowls, plates and tablecloths. The Atlanta-based company has operations in 27 states.
Invista, a polymer and fibers company that makes "Stainmaster" carpet, and "Lycra" fiber, among other products.
Koch Pipeline Company LP, which owns and operates 4,000 miles (6,400 km) of pipeline used to transport oil, natural gas liquids and chemicals. Its pipelines are located across Wisconsin, Minnesota, Texas, Missouri, Iowa, Oklahoma, Louisiana, and Alberta, Canada. The firm operates offices in Wichita, Kansas, St. Paul, Minnesota and Corpus Christi, Texas.
Flint Hill Resources LP, is a major refining and chemicals company based in Wichita, Kansas. It sells products such as gasoline, diesel, jet fuel, ethanol, polymers, intermediate chemicals, base oils and asphalt. It operates oil refineries in six states. Flint Hill has chemical plants in Illinois, Texas and Michigan. The firm is also a major manufacturer of asphalt used for paving and roofing applications. It operates 13 asphalt terminals located in six states including Alaska (2 terminals), Wisconsin (2), Iowa (3), Minnesota (4), Nebraska (1), and North Dakota(1). The firm manages the purchasing of domestic crude oil from Texas and Colorado offices, has four ethanol plants across Iowa, operates three refineries in Alaska, Texas, and Minnesota, and has a refinery terminal in Alaska. The Minnesota refinery can process 320,000 barrels (51,000 m3) of crude a day, most of which comes from from Alberta, and handles one quarter of all Tar Sands crude entering the U.S.It also operates fuel terminals in Wisconsin (4 locations), Texas (6), and one each in Iowa and Minnesota.
Koch Fertilizer, LLC, which is one of the world’s largest makers of nitrogen fertilizers. Koch Fertilizer owns or has interests in fertilizer plants the United States, Canada, Trinidad and Tobago, Venezuela, and Italy, among others. In October 2010, a plant in Venezuela was nationalized by the government.
Koch Agricultural Company's Matador Cattle Company division operates three ranches totaling 425,000 acres (1,720 km2) located in Beaverhead, Montana, Matador, Texas and the Flint Hills of eastern Kansas. There are more than 15,000 head of cattle raised on the ranches.
Environmental and safety record
From 1999 to 2003, Koch Industries was assessed "more than $400 million in fines, penalties and judgments."
Pipeline accidents
Koch Industries was fined $35 million for 300 alleged pipeline spills across six states from 1990 to 1997, adding up to 3 million US gallons (11,000 m3) of oil. The US Government had originally proposed fining Koch $71 million to $214 million in penalties for violations of the Clean Water Act by those spills.
Koch's Sterling butane pipeline had a leak in Lively, Texas, on August 24, 1996. Two teenagers on the way to report the leak drove into the unseen butane cloud, and were killed when the gas exploded and burned. The National Transportation Safety Board concluded that severe external pipeline corrosion was the cause of the failure, and recommended to Koch to improve corrosion evaluation procedures. Although Koch distributed pamphlets about safety around the pipelines, they failed to maintain an up-to-date mailing list. Only 5 out of 45 residences in the area of the accident had received pamphlets. The families of the dead had not.
In 1999, a Texas jury found that negligence had led to the rupture of the Koch pipeline that fueled the explosion killing the two teenagers, and awarded a $296 million verdict — "the largest compensatory damages judgment in a wrongful death case against a corporation in U.S. history".
In a statement released in 2010, Koch Industries responded to the criticisms in Jane Mayer's article in The New Yorker, "“Covert Operations: The Billionaire Brothers Who are Waging a War Against Obama,”
The August, 1996 pipeline accident in Texas was a tragedy. Koch accepted responsibility immediately for the incident, which is the only event of its kind in the company’s history. The thorough review conducted of this pipeline the year before the accident did not uncover any issues that posed a foreseeable threat to public safety. The bacteria-induced corrosion that caused the accident acted more quickly to damage this pipeline than had ever been documented by any industry expert. Koch’s cooperative efforts to identify the source and cause of this problem so that this knowledge could be shared throughout industry were praised by the National Transportation Safety Board, which did a two-year investigation into this incident.
Pollution and resource fines
In March 1999, Koch Petroleum Group, a Koch Industries subsidiary, pled guilty to charges that it had negligently dumped hundreds of thousands of gallons of aviation fuel into wetlands near the Mississippi River from its refinery in Rosemount, Minnesota, and that it had also illegally dumped a million gallons of high-ammonia wastewater onto the ground and into the Mississippi River. Koch Petroleum paid the Dakota County Park System a $6 million fine and $2 million in remediation costs, and was ordered to serve three years of probation.
In 1999, a federal jury found that Koch Industries had stolen oil from government and American Indian lands, had lied about its purchases more than 24,000 times, and was fined $553,504.
In January 2000, a Koch Industries subsidiary, Koch Pipeline, agreed to a $35 million settlement with the U.S. Justice Department and the State of Texas. This settlement, including a $30 million civil fine, was incurred for the firm's three hundred oil spills in Texas and five other states going back to 1990. The spills resulted in more than 3 million US gallons (11,000 m3) of crude oil leaking into ponds, lakes, streams and coastal waters.
In 2001, the company reached two settlements with the government. In April, the company reached a $20 million settlement in exchange for admitting to covering up environmental violations at its refinery in Corpus Christi, Texas. That May, Koch Industries paid $25 million to the federal government to settle a federal lawsuit that found the company had improperly taken more oil than it had paid for from federal and Indian land.
In June 2003, the US Commerce Department fined Koch Industries subsidiary Flint Hill Resources a $200,000 civil penalty. The fine settled charges that the company exported crude petroleum from the US to Canada without proper US government authorization. The Commerce Department’s Bureau of Industry and Security said from July 1997 to March 1999, Koch Petroleum (later called Flint Hill Resources) committed 40 violations of Export Administration Regulations.
In 2006, Koch Industries’ subsidiary Flint Hill Resources was fined nearly $16,000 by the EPA for 10 separate violations of the Clean Air Act at its Alaska oil refinery facilities, and required to spend another $60,000 on safety equipment needed to help prevent future violations.
In 2007, Koch Nitrogen's plant in Enid, Oklahoma, was listed as the third highest company releasing toxic chemicals in Oklahoma, according to the EPA, ranking behind Perma-Fix Environmental Services in Tulsa and Weyerhaeuser Co. in Valliant. The facility produces about 10% of the US national production of anhydrous ammonia, as well as urea and UAN.
In 2010, Koch Industries was ranked 10th on the list of top US corporate air polluters, the “Toxic 100 Air Polluters,” by the Political Economic Research Institute at the University of Massachusetts Amherst.
Awards and certifications
According to its website, Koch Industries and its subsidiaries received 289 stewardship awards over the two years ending January 2011.
Koch Industries' headquarters in Wichita has been certified for meeting the Energy Star standards for superior energy efficiency and environmental protection. As of 2010 it is the only Wichita office building to be so recognized.A Tulsa, Oklahoma site of the Koch-owned John Zink Company site was part of the EPA's National Environmental Performance Track program from 2003 until 2009 when the program was suspended.
In 2005, Koch's Flint Hills Resources refinery was recognized by the Environmental Protection Agency's Clean Air Awards program for reducing air emissions by 50 percent while expanding operations. The EPA has worked with Flint Hills Resources to develop "strategies for curtailing so-called 'upset' emissions, in what agency and company sources say could lead to guidance to minimize such emissions from petroleum refineries and other industrial facilities." The EPA described the process as a "model for other companies."
Koch's Matador Ranch in Texas earned the Lone Star Land Steward award for outstanding natural resource management in 2010. The Montana ranch has earned several environmental stewardship awards, including the EPA Regional Administrator's award.
In 2011, the Midway-Kansas Chapter of the American Red Cross awarded Koch Industries with a Corporate Excellence Award for its long-standing commitment to the humanitarian mission of Red Cross.
Legal activity
In 2008, Koch Industries discovered that the French affiliate Koch-Glitsch had violated bribery laws allegedly securing contracts in Algeria, Egypt, India, Morocco, Nigeria and Saudi Arabia. However, Ethics Compliance officer "Egorova-Farines wasn’t rewarded for bringing the illicit payments to the company’s attention. Her superiors removed her from the inquiry in August 2008 and fired her in June 2009, calling her incompetent, even after Koch’s investigators substantiated her findings. She sued Koch-Glitsch in France for wrongful termination." In response, Mark Holden, Koch Industries general counsel, said the subsidiary, Koch-Glitsch, completed its investigation and terminated the four employees involved. Egorova-Farines, however, was not fired but instead left the company to go on leave and never returned. She sued the company and lost in French court and was ordered to pay costs for bringing a frivolous case. Moreover, Holden points out that Egorova-Farines failed to bring the violations to the attention of her managers immediately, choosing instead to give the information to a manager at Koch-Glitsch who was later fired for bribery. Egorova-Farines' delay in reporting the matter cost the company another fine.
In May 2011, a Utah judge dismissed a Koch Industries lawsuit alleging that Youth For Climate Truth, in releasing a fake Koch Industries press release, had infringed on Koch Industries' trademark.
Political activity
All about: Political activities of the Koch family
Koch Industries has spent more than $50 million to lobby in Washington since 2006, according to the Center for Responsive Politics.
The company opposed derivatives regulation and greenhouse gas limits. It sponsors various free market foundations and causes, listing Americans for Prosperity and Americans for Prosperity Foundation on its site.The Center for Responsive Politics has said that many of Koch Industries' contributions have gone toward achieving legislation on energy issues, defense appropriations and financial regulatory reform.
Koch Industries has come out against the Low Carbon Fuel Standard passed in 2007 in California. They state that "LCFS would cripple refiners that rely on heavy crude feedstocks to provide the transportation fuels that keep America moving."
A Greenpeace study claims that between 1997 and 2008 Koch Industries donated nearly $48 million to groups which doubt or oppose the theory of anthropogenic global warming.
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