Post on 14-Jan-2016
Koch Industries, Inc. A CFO’s Perspective
Wichita State University
May 19, 2014
Confidential and proprietary information of Koch Industries, Inc.Do not copy without receipt of express written permission.
Agenda
1. Koch Overview
2. Innovation Matters
3. Market-Based Management®
4. Prosperity, Freedom, and Well-Being
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Koch Industries, Inc. - Overview
• Presence in nearly 60 countries; approximately 100,000 people worldwide.
• Koch is the 2nd largest private company in America, according to Forbes.
• 30% of Koch’s $115 billion in revenues are generated outside of the US.
• $60 billion in acquisition and capex in the last 10 years.
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Diverse Independent Companies
Not Rated
(AA-/Aa3)(A+/Baa2) (BB+/Baa3)
(BBB/Baa3)
Flint Hills Resources (AA-/A1)• Petroleum Refining• Chemicals & Lubricants • Renewables
Fertilizer Products
Process Technology
Commodity Trading
Minerals Sourcing & Handling
Pipelines
Ranching
Consumer Products• Retail• Commercial
Packaging• Medium• Liner• Board• Pulp
Building Products• Plywood • OSB• Lumber• Gypsum
Intermediates
Apparel• Spandex • Nylon
Performance Surfaces
& Materials• Carpet• Air bag • Retail• Commercial
Not Rated
• Commercial Connectors• Micro Connectors• Integrated Products
Well Known Brand Names
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Historic Growth
Growth History Since 1960*
Index of KI Book Value Growth Index of S&P 500 Growth
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Source: http://money.cnn.com/magazines/fortune/fortune500/2012/full_list/
Koch would be #15
Fortune 500 Top 20
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The Power of Reinvestment and Good Decisions
5 Year 15%Increments Compounded Year
1 200 19672 400 3 800 4 1,600 505 3,200 Years6 6,400 7 12,800 8 25,600 9 51,200
10 102,400 2017
Koch’s Presence in Kansas
• 3,400 direct employees, 7,080 total jobs supported• ~$431 mm in direct compensation and benefits
– ~$25 mm in state income taxes annually– ~$15 mm in state sales tax annually– ~$15 mm in property taxes annually– ~$15 mm in philanthropy annually
• 1.2 mm square foot office complex• 20% additional square footage under construction• 3 significant manufacturing sites in Kansas
• Future: potential for significant new investment which could double our presence in the next 10 years.
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Why Innovation Matters?
• Sales and productivity gains
• Share and profit erosion
• Post office and the internet
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Types of Innovation
• Product
• Function
• Logistics
• Processes
• Business models
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Koch Examples
• Pet protect / Quilted Northern Ultra®
• Renewable fuels
• Gas purchasing
• Methanol
• Plywood
• ADN catalyst
• Accounting / tax management
• Board governance
• Evolution of MBM
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U.S. Manufacturing
Unit Labor Costs in Global FX Terms
14Source: Bridgewater
Electricity Costs
15Source: Bridgewater
($/mwH)
U.S. Share of Global Fixed Investment
16Source: Bridgewater
Market-Based Management®
We define MBM® as a philosophy that enables organizations to succeed long term by applying the principles that allow free societies to prosper.
Market-Based Management® is a holistic approach to management that integrates theory and practice and prepares organizations to deal successfully with the challenges of growth and change.
It draws on the disciplines of economics, ethics, social philosophy, psychology, sociology, biology, anthropology, management, epistemology and the philosophy of science.
Market-Based Management ® also draws on the lessons learned from the successes and failures of humans to achieve peace, prosperity and societal progress. Thus, it includes the study of the history of economies, societies, cultures, politics, governments, conflicts, businesses, non-profits, science and technology.
Market-Based Management®
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The 5 Dimensions of MBM®
• Vision
• Virtues and Talent
• Knowledge Systems
• Decision Rights
• Incentives
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MBM® Guiding Principles Provide the Framework for Our Culture
Integrity
Compliance Value Creation
Principled Entrepreneurship™
Customer Focus
Knowledge
Change
Humility
Respect
Fulfillment
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Without these two you will not be allowed to
stay in business.
Importance of Integrity, Compliance, and Culture?
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• Environment, Health and Safety• Anti-Boycott• Anti-Corruption (Foreign Corrupt Practices Act)• Anti-Money Laundering• Anti-Trust• Commodity Trading (Dodd-Frank)• Customs and Import Regulations• Data Privacy• Export Controls and Trade Sanctions• Government Contracts and Interactions• Intellectual Property• Interstate Commerce Act• Lacey Act• Records and Information Management• Securities and Equities Trading• Venture Governance• Employment Law
Areas of Compliance
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MBM® Guiding Principles: Overview
Integrity
Compliance
Value CreationPrincipled Entrepreneurship™
Customer Focus
Knowledge
Change
Humility
Respect
Fulfillment
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This is the reason a business exists and what we are
here for!
MBM® Guiding Principles: Overview
Integrity
Compliance
Value Creation
Principled Entrepreneurship™
Customer Focus
Knowledge
Change
Humility
Respect
Fulfillment24
How you make the
first three a reality
Defending Our Freedom and Prosperity
27Source: The Heritage Foundation/WSJ, 2014
Index of Economic Freedom – 2014Ranking of Societies
1. Hong Kong 169. Argentina2. Singapore 170. DRC (Congo)3. Australia 171. Timor-Leste4. Switzerland 172. Turkmenistan5. New Zealand 173. Iran6. Canada 174. Eritria7. Chile 175. Venezuela8. Mauritius 176. Zimbabwe9. Ireland 177. Cuba
10. Denmark 178. North Korea12. United States
Bottom 10Top 10
Economic Freedom Measures
• Limited Government– Fiscal freedom, low government spending
• Rule of law– Private property rights, freedom from corruption
• Regulatory efficiency– Business and labor freedom, sound monetary policy
• Open markets– Free trade, investment and financial freedom
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Economic Freedom and Prosperity
Hong Kong
Ireland
New Zealand
Singapore
Switzerland
United Kingdom
United States
Zimbabwe AngolaSyria
Argentina
Venezuela
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
$50,000
2.5 3.5 4.5 5.5 6.5 7.5 8.5 9.5
Economic Freedom of the World
20
06
Pe
r C
ap
ita
GD
PEconomic Freedom and Prosperity
Source: The Fraser Institute, 200729
Most Free vs. Least Free Countries . . .
• 8x higher average incomes per capita• 10x higher incomes for the poor• The most free country residents are happier• Better civil rights• Cleaner environment• Longer life expectancy (20 years longer!)• Less corruption• Lower child labor and lower infant mortality• Less unemployment
Learn more:
www.CharlesKochInstitute.org
Facebook.com/EconomicFreedom
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31Source: The Heritage Foundation/WSJ, 2014
Economic Freedom – 2014 vs. 2007Ranking of Societies
1. Hong Kong 1. Hong Kong2. Singapore 2. Singapore3. Australia 3. Ireland4. Switzerland 4. Australia5. New Zealand 5. New Zealand6. Canada 6. United States7. Chile 7. United Kingdom8. Mauritius 8. Chile9. Ireland 9. Switzerland
10. Denmark 10. Canada12. United States
Top 10 (2014) Top 10 (2007)
Policies Proposed Today
• Ever increasing regulations and subsidies• Large increases in taxes and spending• Further deterioration in the rule of law• Over-criminalization• Increasing protectionism• Socialization of health care• Private property and civil rights violated
Learn more:
www.CharlesKochInstitute.org
Facebook.com/EconomicFreedom
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