First, Ray Kroc, the founder and visionary entrepreneur.
Second, Fred Turner, who perfected the McDonald’s System.
And third, Jim Cantalupo, the financial whiz who built out McDonald’s
International Infrastructure.
Turner died on Monday at the age of 80.
Let me give one insight into his character.
In the early 1980s, the US Congress passed Tax Leasing,
which permitted a corporation to sell its tax benefits (investment tax credit
and accelerated tax depreciation) to another corporation.
Thus a company operating at a tax loss could invest in plant
equipment and monetize these tax benefits upfront by selling them to a
corporation that had a stable stream of sufficient taxable income to use these
tax benefits.
The corporation buying these tax leases viewed them as a
very cheap financing.
With Goldman Sachs doing the bargaining, Ford Motor was
selling its massive tax benefits in the early 1980s. Negotiating with Goldman Sachs, a very
attractive deal was reached, where McDonald’s would be in essence getting a
financing at a bit less than 0%. As a
comparison, the US Prime Interest Rate reached 20.5% in 1981.
All that was needed was Turner’s approval.
He asked for a simple schedule which would lay out what McDonald’s
US Federal Income Tax Rate paid would be in each of the next several years,
first assuming the company acquired Ford’s tax benefits and second assuming
the company did not acquire Ford’s tax benefits.
After receiving this schedule, which showed a massive
difference in US Federal Income Tax Rate paid, Turner quickly killed the deal. Even though the economic benefit to McDonald’s
was extremely lucrative, he wanted to make sure that the company paid a fair amount
of US Federal Income Tax.
Where have all the Fred Turner CEOs gone?
