[Congressional Record (Bound Edition), Volume 146 (2000), Part 13]
[Extensions of Remarks]
[Pages 18779-18780]
[From the U.S. Government Publishing Office, www.gpo.gov]


[[Page 18779]]

       FRIEDMAN BAG COMPANY CELEBRATES OVER 70 YEARS OF OPERATION

                                 ______
                                 

                       HON. LUCILLE ROYBAL-ALLARD

                             of california

                    in the house of representatives

                     Wednesday, September 20, 2000

  Ms. ROYBAL-ALLARD. Mr. Speaker, today I congratulate the Friedman Bag 
Company for over 70 years of continuous operation in my congressional 
district and to highlight its leadership as a responsible corporate 
citizen.
  In 1927, four Russian immigrant brothers started a small bag 
manufacturing company in the heart of Los Angeles. Sam, Saul, Harry and 
Morris Friedman fled Imperial Russia with their family in search of 
freedom, settling temporarily in Mexico until they were granted 
permission to enter the United States. Over the years, Friedman Bag 
Company grew almost as quickly as the city around it.
  In many ways, the founding and growth of Friedman Bag Company 
personifies our nation's immigrant experience. The company was born 
from an immigrant family's dream to provide their children with a 
better life. The Friedmans succeeded, eventually becoming one of the 
largest suppliers of textile and polyethylene bags in the West. Their 
bags were primarily used for agriculture products such as Idaho 
potatoes, walnuts and other crops such as carrots and lettuce from the 
Central Valley of California.
  But like many manufacturing companies in the United States, fierce 
competition from lower cost producers, in countries like China, 
eventually threatened the survival of Friedman Bag Company. To endure, 
the company needed to change and adapt to the new economy, and the 
successful effort was led by two sons of the founding members.
  Friedman Bag Company desperately needed to invest money in new 
equipment. Company workers were still sewing burlap and mesh bags by 
hand. Morale and sales were suffering. Having never taken on debt 
financing in its history, the company embarked on a somewhat radical 
and risky venture to make sure it could remain competitive. Working 
with a financial institution that recognized its special history as a 
family business, and overcoming internal and external challenges, 
Friedman Bag Company secured the resources to continue its operations 
in the 33rd Congressional District.
  Friedman Bag Company also worked with the Mayor and City Council to 
consolidate operations, ultimately bringing more jobs to Los Angeles. 
An article which appeared in the Los Angeles Times on May 26, 1999 and 
documents this important success story follows these remarks.
  Today, Friedman Bag Company employs more than 250 people, with 
operations in Idaho, Washington and Oregon. The company's morale has 
soared as its future prospects have brightened. Friedman Bag Company is 
now firmly-positioned so a third generation of the Friedman family can 
continue the dream started by their family's ancestors.
  I am proud of Friedman Bag Company's long tenure in southeast Los 
Angeles. Their efforts to modernize and adapt to an ever-changing 
economy in order to stay competitive are to be commended. Many men and 
women in my congressional district have worked at Friedman Bag Company, 
supporting their families and contributing to our community. I 
congratulate Friedman Bag Company for over 70 years of success which 
has epitomized the contributions to America made by our immigrant 
community, and I wish them many more years of successful operation to 
come. I submit the following article into the Record.

               [From the Los Angeles Times, May 26, 1999]

                   When Debt Proves To Be Best Answer

                          (By Cyndia Zwahlen)

       Long debt-free Friedman Bag Co. turned to bank loans when 
     it didn't have the money to cover shareholder buyouts and 
     upgraded technology.
       Pressure from more than 30 family shareholders to sell 
     Friedman Bag Co., against the wishes of company management, 
     was threatening to destroy the value of the closely held Los 
     Angeles company founded by three brothers in 1927.
       The far-flung shareholders, only one of whom worked at the 
     company, wanted to cash out their shares. Management, 
     including two sons of the founders, was desperate to invest 
     the money in equipment needed to bring the company into the 
     21st century. Company workers were still sewing burlap and 
     mesh bags for the agricultural industry by hand. Printing 
     presses were slow and inefficient. Morale and sales were 
     suffering.
       ``It was like a tug of war,'' said Harvey Friedman, chief 
     executive and son of one of the retired founders. As the 
     debate intensified, rumors that the company was going out of 
     business began to fly.
       Friedman Bag didn't have the money to cover shareholder 
     buy-outs and new technology. The shareholders weren't 
     interested in a note--a written promise to pay them in the 
     future. And sale of the company's real estate wasn't an 
     option because of the huge tax bill that would result, 
     Friedman said.
       For the first time in more than four decades, the company 
     was forced to consider going outside for financing.
       It's a classic dilemma for a family business. The 
     conflicting demands on company funds of growth or expansion 
     and shareholders buyouts or dissolutions can push the most 
     debt-averse company to seek outside money, particularly if 
     buyout funding isn't covered by insurance or some other 
     previous arrangement. Perhaps it's the founder who wants to 
     cash out, or an owner dies and there are estate problems. Or 
     an owner without an heir interested in the business may want 
     to sell the company to the employees through an employee 
     stock ownership plan.
       ``Growth, liquidity, unexpected dissolutions that can 
     disrupt the business are needs for financing,'' said Alfred 
     E. Osborne, director of the Price Center for Entrepreneurial 
     Studies at UCLA.
       A business typically has two options when it comes to 
     outside money--taking on debt through a bank loan or selling 
     a stake in the company to an equity investor.
       Friedman Bag, like most family businesses, chose debt, 
     unwilling to deal with additional shareholders and their 
     demands. The company polled its industry contacts for 
     potential lenders. After being debt-free for decades, it 
     found itself being wooed by more than 20 banks. Friedman and 
     his managers decided on Imperial Bank in Los Angeles for 
     several reasons. They got a speedy response and a loan 
     package that covered their needs: an equipment line of 
     credit, a term loan to buy out the shareholders and an asset-
     based line of credit to pay for growth. The bank's enthusiasm 
     for the company's prospects sealed the deal.
       ``When you borrow money, you want to feel like the bank is 
     excited about your new venture and not that they are doing 
     you a big favor,'' Friedman said.
       All things being equal, he'd just as soon lend to a family 
     business, said Imperial Bank Executive Vice President Duke 
     Chenoweth, who grew up in a family with a business.
       ``A family will generally put everything they have on the 
     line to uphold the integrity of that family business and the 
     family name,'' he said. In addition to a potentially deeper 
     level of commitment than an absentee owner or a group of 
     professional managers, a successful family business often has 
     a built-in successor, important for management continuity, 
     Chenoweth said. And if worse comes to worse, often the 
     retired founder can be relied upon for emergency guidance or 
     deep pockets.
       Bank debt isn't right for every family business, of course. 
     A company has to be able to generate enough cash flow to 
     repay the debt, which naturally limits how much money a 
     company can borrow.
       Although it's not as common for a family business, an 
     outside equity investor can also provide needed cash. The 
     downside is that most equity investors are institutional 
     investors who typically expect a return on their investment 
     within three to five years. That's not practical for many 
     family businesses.
       ``It would be a mistake to say private equity has no place 
     in family business, but it would only be under specific 
     circumstances where the family is willing to provide a 
     liquidity event,'' said Jourdi de Werd, a managing director 
     and co-founder of investment bankers Greif & Co. of Los 
     Angeles, one of several corporate sponsors of the Family 
     Business Program at USC.
       A family that is contemplating a transition to more 
     institutional ownership or a founder that wants to take 
     capital out of the business might turn to an outside equity 
     investor, said de Werd, who also grew up in a family with a 
     business.
       Friedman offered several tips for family businesses 
     thinking about outside financing.
       He echoed the advice of several bankers when he suggested 
     family businesses limit the number of family members working 
     at the company. Bankers worried about the toll of inflated 
     salaries. Friedman was more concerned about a company's need 
     for broad skills and the potential impact on the family 
     itself.
       ``Success is a blend of family members and outsiders,'' he 
     said. ``If there is too much family, then you have a lot of 
     internal problems that are brought home.''
       In addition to good-quality management, what else are 
     bankers looking for? Organized and complete financial 
     statements, according to Henry Walker, senior vice president 
     at Farmers & Merchants Bank in Long Beach. The quality of 
     your record keeping is a reflection of how you manage your 
     business, he said.
       Assessing management and financial strength is a two-way 
     street, Walker said. Is the lender you are considering strong 
     enough to weather an economic downturn without jeopardizing 
     your loan?
       ``It's a long-term relationship you're looking for, and you 
     shouldn't lose track of that because of a point [of interest] 
     here or there,'' he said.
       Planning company strategy before seeking outside money is 
     also important, Friedman

[[Page 18780]]

     said. Friedman Bag invested in an intensive total quality 
     management program and months of planning before it landed 
     its bank loan. When the money arrived, the equipment 
     purchases and a move into a new facility were completed 
     within just three to four months of the shareholder buyout in 
     early January. This week the new eight-color press goes 
     online with triple the capacity of its predecessor and a 
     setup time of 45 minutes compared with the five hours if used 
     to take.
       Friedman Bag Co. has come a long way from its modest 
     beginnings collecting, sorting and reselling burlap bags used 
     on farms in the 1920s. Today it employs more than 250 people 
     and has operations in Idaho, Washington and Oregon. It 
     supplies packaging and equipment to the agricultural industry 
     and sandbags to the U.S. military, among others.
       Employee morale has soared along with the company's new 
     prospects. The third generation, including Friedman's son, a 
     company vice president, has a future to look forward to, 
     according to Friedman.
       ``We are a totally different company today,'' he said. ``A 
     new Friedman Bag Co. was born on Jan 5, 1999.''

     

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