August 23, 2008
For McCains, a Public Path but Private Wealth
By DAVID M. HALBFINGER
PHOENIX — When Senator John McCain is in Washington, he lives in a luxury high-rise condominium in Arlington, Va., owned by his wife, Cindy Hensley McCain. Mrs. McCain also owns their condos in Phoenix, San Diego and Coronado, Calif., and their vacation compound near Sedona, Ariz. And it is the beer business, Hensley & Company, she inherited from her father that is the source of the McCain family fortune.
That fortune makes Mr. McCain one of the richest members of the Senate. Yet barely a sliver of it is in his name.
Democrats have increasingly highlighted Mr. McCain’s wealth. Senator Barack Obama ridiculed him on Thursday for being unable to say how many homes he owned, saying it showed that Mr. McCain was out of touch with ordinary Americans. But with the McCains’ money in Cindy McCain’s name, as dictated by a prenuptial agreement, the senator’s finances are more difficult to assess and scrutinize than those of many other political candidates.
The husbands and wives of senators are subject to fewer disclosure requirements than their office-holding spouses. In addition, Mrs. McCain, who files separate tax returns from her husband, controls a privately held company and invests mainly through a web of limited-liability corporations and trusts that have few disclosure requirements. She declined to be interviewed.
“Cindy is a private person, and I think in many ways that defines her,” said Robert Delgado, her father’s successor as chief executive of Hensley & Company, who spoke at the McCain campaign’s behest.
But the Hensley family wealth, from its rough-and-tumble origins to prominence in Arizona’s corporate world, is also the fortune that propelled John McCain into national politics. A clearer picture of that fortune emerges from a review of public records and interviews with employees, business associates, friends and relatives.
Hensley & Company has grown from a tiny operation in the 1950s to the dominant beer wholesaler in Arizona and the third-largest Budweiser distributor in the country, with more than $300 million in annual sales. It plays a leading role in corporate Phoenix — Andy McCain, the senator’s stepson from his first marriage and a top executive of the beer company, is now president of the city’s Chamber of Commerce — and is a forceful presence in state politics on the issues that matter to it.
But by all accounts, Mrs. McCain is far from a forceful presence at the company, where she is chairwoman.
She crisscrosses the country on the company jet, keeps an accountant on the company payroll to mind her personal finances, drives a company Lexus with “MS BUD” plates and says she oversees the company’s “strategic planning and corporate vision.” Yet she almost never shows up in the office, is deemed an absentee owner by Anheuser-Busch and has left scarcely a mark on the company, present and former executives say.
Mrs. McCain has spent far more time as a volunteer on behalf of needy children. She is a board member of CARE and Operation Smile, which provides cleft-palate surgery for impoverished children; when she visited Mother Teresa’s orphanage in Bangladesh 17 years ago, she brought a baby girl back for the surgery and then adopted her.
Her business, however, recently found itself at odds with advocates for pediatric hospital beds in Arizona’s neediest communities and for a statewide childhood education program. When the advocates proposed initiatives that would raise liquor taxes, Hensley opposed them.
Mrs. McCain has not said how she would handle her business if her husband were elected president. The federal government has domain over issues important to the alcohol industry, like excise taxes, marketing to under-age drinkers and beverage labeling.
Anheuser-Busch documents suggest that Mrs. McCain’s ownership of Hensley & Company could also create an unusual circumstance. The brewer’s contracts with wholesalers require that absentee owners supervise their managers, attend meetings and make timely decisions, meaning that the business would be overseen by the first lady. And if she chose to withdraw from ownership, Anheuser-Busch would have the right to approve whoever bought her shares, or to make an offer to buy them.
A Colorful Inheritance
He was a young husband and father before he went off to war. Wounded in combat, he returned home a hero, but stunned his wife by divorcing her to marry another woman. The warrior in this case was not Cindy McCain’s husband, but her father, James W. Hensley.
Jim Hensley’s first marriage was to his Phoenix high school sweetheart, Mary Jeanne Parks. Family lore says he was treading water in the English Channel, after his B-17 was shot down, when his daughter, Kathleen Anne Hensley, was born in February 1943.
The marriage ended there, according to that daughter, now Kathleen Portalski. Recuperating far from home, he fell in love with Marguerite Smith, a woman from Tennessee with a 10-year-old daughter. By March 1945, he was divorced, and they married.
Back in Phoenix, he and his brother, Eugene, went into the liquor business with Kemper Marley, a businessman who had cornered much of the market in Arizona after Prohibition ended.
In March 1948, a federal jury convicted both Hensleys of concealing sales of black-market liquor. Jim Hensley’s six month sentence was suspended. A second indictment, in 1953 for falsifying records to evade taxes, was dismissed.
The Hensleys bought a New Mexico horse track in 1952. Eugene Hensley’s role at the track led to lawsuits, tax-evasion charges and prison. In 1969, he sold out to a mob-connected company with close ties to Mr. Marley, according to published reports. (The Phoenix police named Mr. Marley as the man they believed ordered the 1976 assassination of Don Bolles, an investigative reporter for The Arizona Republic. Mr. Marley, who died in 1990, was never charged.)
Jim Hensley sold his stake in the track in 1955, and took a job at a beer wholesaler. After buying the business, in 1959 he got a federal wholesaler’s permit as Hensley & Company.
Selling Bud in steel cans and Michelob draft, Hensley & Company started with a 6 percent market share. But Mr. Hensley, bent on building the “Cadillac of beer companies,” lured workers with generous pay and benefits.
Few big cities have only one Budweiser wholesaler, but Phoenix had just 107,000 residents in 1950. A decade later, its population had quadrupled. Hensley’s market share shot to 50 percent in 1987, from 20 percent in 1970; it now has nearly two-thirds of the market.
Those who knew Mr. Hensley, who died at 80 in June 2000, invariably sing his praises. If he had one flaw, they add, it was being unable to say no to his wife or their daughter, Cindy Lou, who was born in 1954.
At her father’s funeral, Cindy McCain told of his gentle reaction when she wrecked the car he had bought her after she graduated from the University of Southern California, according to people who were there. She did not mention, as a former employee recalled, that it was a Porsche and that he replaced it with a Mercedes-Benz. When the young Cindy Hensley began teaching high school and was criticized for driving a fancy car, the ex-employee said, her father bought her a Volkswagen to drive to school.
Mr. Hensley also quietly subsidized his first daughter, Mrs. Portalski, and her family. He paid for her children’s schooling, gave them credit cards and wrote company checks of $40,000 a year to Mrs. Portalski and her husband, the couple said in an interview.
But in his will, Mr. Hensley left Mrs. Portalski just $10,000 and her offspring nothing. “It’s so disappointing, just being pushed aside,” she said. Mrs. Portalski said Mrs. McCain added insult to that injury by referring to herself, in her eulogy for her father, as his only child — while her half-sister sat in a front pew.
Shortly after Jim Hensley’s death, Mrs. Portalski’s daughter said, she tried charging a meal and had her company credit card rejected. Her son says he learned that Mr. Hensley’s promise to pay his graduate-school tuition was no longer operative.
A McCain campaign spokeswoman, Jill Hazelbaker, said Mr. Hensley’s will did not provide for continuing his periodic gifts to relatives.
Absent, and Entitled
Her father’s death left Mrs. McCain with full control over his company, though she has seldom intervened, executives say. “She’s never been a day-to-day manager in this business,” said Mr. Delgado, the chief executive.
In the late 1980s, she set up a charitable organization out of Hensley headquarters, distributing medical supplies in developing countries. But she disbanded the group in the early 1990s after she became addicted to painkillers and was caught stealing from its supply of drugs.
Since then, her parking space has seldom been occupied. In fact, Anheuser-Busch treats her as an absentee owner, requiring Mr. Delgado to have total control over business operations and capital investments.
Mr. Delgado confirmed that after Jim Hensley died, Anheuser-Busch approached Mrs. McCain about buying the distributorship, because the brewer prefers hands-on owners. But he said Mrs. McCain decided she wanted to be the steward of her father’s legacy.
But others who have seen the company’s books gave another reason: The company is handsomely profitable. She owns a controlling 34 percent share of a company with net profits estimated at more than $5 million a year.
In addition, Meghan, Jack and James, the biological children of Mr. and Mrs. McCain, each have 7.73 percent of Hensley & Company. Andy McCain, 45, the senator’s stepson, has 6.8 percent. Bridget McCain, the McCain’s adopted daughter, has shares worth 3.4 percent. (Ms. Hazelbaker of the McCain campaign said Bridget’s stake would eventually equal her siblings’.)
Mr. Delgado declined to discuss equity stakes or distribution of profits and said Mrs. McCain spoke to him a few times a week, often about personal financial issues. He said she took an interest in Hensley’s charitable giving and in “things that could affect the company’s existence.” For example, when he proposed taking on debt to build a large warehouse in Tempe, he said Mrs. McCain’s input was “advice and consent.” He praised her for otherwise letting management run the business.
Another person knowledgeable about the company’s finances said Mrs. McCain’s involvement in Hensley was more limited. “Delgado will tell her how much money they made, so she can tell him how much she’ll take out,” this person said. As controlling owner, Mrs. McCain is entitled to distribute profits to shareholders whenever she sees fit.
How much she receives in profits is not a matter of public record. Distributions to other shareholders, who discussed them only anonymously, suggest she receives hundreds of thousands of dollars several times a year. Mrs. McCain has released only a two-page Form 1040 from her 2006 return. It listed $4.5 million in income from S corporations (like Hensley), partnerships, rental real estate and other categories; capital gains of $743,000, and dividends of $283,000. Mr. McCain’s tax returns show that his wife received a salary from Hensley of more than $430,000 each of the last two years. (Mr. McCain listed $361,373 of his own income in 2007.)
Senate rules do not require spouses to specify the values of assets or income sources exceeding $1 million, and Mrs. McCain has many of them, including shares in Anheuser-Busch, which at a minimum are worth $2.7 million.
Mrs. McCain has also invested in banks, including one founded by Valley National Bank, where her father got his first business loan. Valley National, now part of JPMorgan Chase, holds a promissory note of $500,000 to $1 million that Mrs. McCain has been rolling over annually since 2003. And Hensley’s entire debt of $30 million is held by JPMorgan Chase, Mr. Delgado said.
Far more of Mrs. McCain’s money is invested in real estate. With Sharon Harper, a close friend, Mrs. McCain has stakes in three office complexes. At the Brophy College Preparatory School, where the McCains’ two sons went to high school, the Harper Balcony sits just over the McCain Colonnade.
Mrs. McCain owns 10 homes, including rental properties.
There are the condominium in the Crystal City section of Arlington; two in an oceanfront tower in Coronado; her father’s condo in the La Jolla section of San Diego; a $4.7 million condo atop one of Phoenix’s newest luxury towers; another unit on its fourth floor; and a $700,000 townhouse nearby.
Then there are Mrs. McCain’s vacation homes outside Sedona. In 1985, a Hensley entity bought the first, along Oak Creek. In 1996, Mrs. McCain bought an adjacent home for $750,000.
In 1992, the McCains and the Harpers formed a partnership to buy six acres of vacant land across the creek, and in 2000 they bought another neighbor’s spread. The Audubon Society turned the vacant land into a private bird sanctuary with help from the McCains.
While all of the family’s real estate is held by Mrs. McCain, the John and Cindy McCain Family Foundation is funded by Mr. McCain. From 2001 to 2006, its donations averaged about $260,000 a year. In addition to big donations to children’s causes, mine clearing and Parkinson’s research, the United States Naval Academy received $420,000 to run an ethics conference in the senator’s name; the Brophy school has received more than $250,000; Christ Lutheran, which Bridget and Jim attended, more than $100,000.
[Continued in next post, sorry this is a bit long]
