Huntington Learning Centers, Inc.

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Huntington Learning Centers, Inc.

496 Kinderkamack Road
Oradell, New Jersey 07649
U.S.A.
Telephone: (201) 261-8400
Fax: (201) 261-8460
Web site: http://www.huntingtonlearningcenter.com

Private Company
Incorporated: 1985
Employees: 60
Sales: $80 million (2002 est.)
NAIC: 611000 Educational Services

Privately owned Huntington Learning Centers, Inc. is the corporate entity that franchises Huntington Learning Centers, the oldest U.S. provider of a wide range of supplemental educational services for students in kindergarten through high school. A sister corporation, Huntington Learning Corp., operates company-owned units of the national chain, comprised by the end of 2002 of 214 units, 36 of which were company owned. Huntington offers personalized instruction in reading, writing, mathematics, phonics, and study skills, as well as preparation for such tests as the SAT. The company believes that many students are trapped in what it calls a cycle of frustration, in which poor performance hurts a child’s confidence and leads to an increasing sense of failure. Huntington assesses a child’s situation through a battery of proprietary diagnostic tests, then prescribes an individualized course of remedy and offers individualized attention from certified teachers, many of whom are full-time public and private school teachers. They help the child to develop basic study skills and systematically restore confidence in order to foster a desire to succeed. Huntington is owned by CEO Dr. Raymond Huntington and his wife Eileen, who is responsible for the operational side of the New Jersey-based business.

Early Years: 1970s

Supplemental education in the form of tutoring is an ancient endeavor, but it was not until 1970 that entrepreneurs began to develop the concept of multi-outlet tutoring. An early pioneer was Kenneth Martyn, a professor of special education at California State University at Los Angeles, who became interested in helping students with reading problems after conducting a study on California’s public school system. His business, The Reading Game, served both remedial and fast-track students, from kindergarten through 12th grade. He opened his first center in Huntington Beach, California, and soon added another 10 in the state before expanding into five other states. A tutor at one of these centers, former junior high art teacher Berry Fowler, decided to strike out on his own and in 1979 formed Achievement Centers Inc. in Portland, Oregon. He soon launched an aggressive effort to franchise his centers, an approach not embraced by Martyn, who franchised only a handful of Reading Game centers in order to maintain quality control. In 1981 Achievement Centers reorganized as Sylvan Learning Centers and was well on its way to becoming the dominant brand in the supplemental education field.

Two years prior to Fowler’s start-up, on the other side of the country, Raymond and Eileen Huntington independently recognized the need for such services and established their own learning centers. Raymond Huntington received a doctorate in statistics in 1974 from Rutgers University, where he taught as both a graduate assistant and as an instructor before going to work for AT&T as a business analyst. His wife Eileen worked as a junior and senior high school teacher and took note of the large numbers of students who lacked basic study and reading skills. They lagged further and further behind their classmates, unable to receive the attention they needed from teachers who were stretched thin because of large class sizes. The Hunting-tons were looking for a business opportunity and, concluding that there was a market for supplemental educational services, decided to launch Huntington Learning Centers.

To finance their start-up, according to Raymond Huntington, “We hocked everything we had,” and relied on personal lines of credit. They scraped together enough money to rent 1,700 square feet of space in an Ordell, New Jersey, office building and opened their first learning center. Huntington recalled those early days in a 1999 interview on CNNfn: “It would be wonderful if we could say that we really had a business plan when we began, but our goal in the beginning was to do something that we felt really good about and over the years, the business has grown and the plan has evolved and the plan has changed. At the beginning though, there wasn’t a business plan. There was just a desire to do what we felt was good and sure to make some money.” What emerged was a three-step approach. The first goal was simple survival, the next was to establish a strong regional network, and the final goal was to take the business to a national level.

Growth During the Late 1970s and 1980s

As soon as the Huntingtons opened the doors of their first center in June 1977 they found an immediate demand for their services, so that the company’s growth was little more than a function of keeping up with the level of interest. From the outset the company helped students ages five through 17, and with the introduction of test preparation coaching within the first few months of opening, Huntington Learning Centers essentially offered the same services as it would 25 years later. Demand was so strong that the Huntingtons opened a second outlet in Livingston, New Jersey, in 1978. In the beginning the couple shared all administrative and operational responsibilities and together gained a business education on the fly, sometimes learning by making mistakes. For instance, they had signed a three-year lease on their original office space but never thought to negotiate an option on future years. As the lease drew to a close they were surprised when the landlord informed them that they would have to move because an insurance company was ready to take over the space. As a result, the center was relocated to River Edge, New Jersey, in June 1980.

Over the first seven years in business the Huntingtons gradually expanded their chain of learning centers so that by 1985 they had a dozen outlets, all but one (located in Abbington, Pennsylvania) operating in New Jersey. With their first two goals met, they started to think about taking their business to the national level. It was also during this period that the Hunting-tons first learned of Sylvan through an article in the Wall Street Journal. Sylvan, although founded two years after Huntington, was now a 200-unit chain with a presence in 39 states. Although both companies were pursuing similar educational goals, their approaches in some cases differed significantly. Sylvan guaranteed that students would exhibit a certain level of improvement or the center would provide additional instruction. The Hunting-tons, on the other hand, believed that such an approach was inappropriate. A more significant divergence involved how the two companies chose to motivate their students. Sylvan rewarded correct answers with plastic tokens, redeemable for prizes in the “Sylvan Store.” Again, the Huntingtons viewed such a technique as inappropriate, opting instead to rely on praise and the satisfaction of success to motivate pupils.

Where Huntington and Sylvan agreed was on the use of franchising to grow the business. Rather than take on outside investors to expand Huntington Learning Centers, the Hunting-tons decided to let franchisees fund its growth. To move to this next stage of development, the business was reorganized with Huntington Learning Centers, Inc. created to handle the franchise operation and Huntington Learning Corp. to be responsible for the company-owned centers. The first franchise was sold to an attorney and his wife, who opened their learning center in 1985 in Langhorne, New Jersey. Huntington charged a $25,000 initial fee and an 8 percent royalty, the fee ultimately increasing to its 2002 level of $38,000. In its first year of franchising the company sold approximately 12 franchises. In the following two years, it sold 30 each year, then leveled off to between 10 and 20 franchises each year after that. In order to fuel the growth of company-owned units, the Huntingtons filed a registration with the Securities and Exchange Commission in July 1986 for an initial public offering of 1.1 million shares of common stock priced at $6 to $6.50 per share, but because of a lack of investor interest the offering never took place and Huntington Learning Centers remained a private company.

As the business grew, Raymond and Eileen Huntington began to separate their roles in the company and in the final years of the 1980s he began to focus his attention on administration while she concentrated on the operational side of the business. To support the increased number of learning centers and students, Huntington invested in a scheduling and billing-based computer system that was instrumental in securing the viability of the chain, which by the end of the decade was 100 units in size, 16 company owned. Huntington continued its growth in the 1990s, spurred in large part by an increasing nationwide concern that the public school system was all too often ineffective, sending to college and the general workforce high school graduates who lacked basic math and reading skills.

Company Perspectives:

By adhering to one basic principle—help children reach their full potential—we have grown from one center to hundreds of centers nationwide.

Overexpansion and Complications: Late 1990s

By the end of 1998 the Huntington chain was generating an estimated $52 million in annual revenues and was comprised of 174 units, 32 company owned. The company was particularly aggressive in moving into the Baltimore area, the home of Sylvan, which by contrast was now generating nearly $450 million in annual revenues. Huntington also launched an effort to substantially increase the number of company-owned centers, opening 17 in 1999 and another 20 in 2000. When the Huntingtons were interviewed by CNNfn in October 1999, the chain had reached the 200 level and they talked of an “auspicious goal” of having 650 franchised and company units by 2007. In 2000 Huntington added 20 company-owned centers but the expansion proved much too aggressive, and almost resulted in disaster for the owners. An advance of money from Huntington Learning Centers to Huntington Learning Corp. put the former in a position where it was unable to pay some creditors in a timely manner. One of the creditors, Baltimore advertising agency Trahan, Burden & Charles (TBC), had been contracted for services in September 2000 but was less than patient when Huntington began to default on its payments. Discussions about a payment plan fell apart and TBC’s president and chief creative officer took drastic steps to resolve the matter. He first swore out a criminal complaint against Raymond Huntington, accusing him of intentionally passing a bad check in order to fraudulently obtain services from TBC.

Because TBC took the position that Huntington Learning Centers was a Maryland business, Raymond Huntington, who lived in New Jersey, was treated as a fugitive from Maryland and as a consequence was arrested and held at the Bergen County Jail in New Jersey for the purpose of extradition to Maryland. His attorneys intervened, however, and the Baltimore prosecutor dropped the criminal charges. TBC then joined with two other creditors—New York-based Jesse James Creative Inc. and Charlotte, North Carolina-based Avery Bell Advertising Inc. (Huntington’s national advertising agency)—and seven days later filed a court petition to force Huntington into involuntary Chapter 7 bankruptcy, whereby the company’s assets would be sold in order to meet its obligations. Huntington’s lawyers argued that Maryland was the improper venue for the filing and sought a dismissal of the petition or to at least have the matter moved to New Jersey, arguing that Huntington Learning Centers had always been a profitable business and that TBC s “tactics have been so severe that they’ve really been an impediment rather than an assistance in resolving things between the two companies.” By the time the court heard the motion in July, Jesse James Creative had been paid and Avery Bell was dropped from the case because it was actually a creditor of the sister company, Huntington Learning Corp. As a consequence, TBC was the sole remaining litigant. The judge, however, denied the motion and the case remained in Baltimore. Over the next two months Huntington was able to raise the necessary funds to pay off its debt to TBC and the two parties returned to court on September 11, 2001. With TBC paid in full, the petition was officially dropped. Because of the terrorist attacks that took place that morning in New York City and Washington D.C., the matter became the last order of business in the Baltimore courts for the day.

Huntington backed off on its aggressive growth strategy and sold a number of company-owned units, which decreased from 69 in 2000 to 36 in 2002. In the same period the number of franchises grew from 143 to 178. Prospects for the supplemental education market remained promising for the foreseeable future, especially in light of federal legislation mandating that chronically failing schools make supplemental educational services available to students. Huntington was already becoming involved with urban school districts, contracted to provide in-school services. While it was highly unlikely that Huntington would come close to reaching its ambitious goal of 650 centers by 2007, it was well positioned to take advantage of the poor state of public education in the United States. As Raymond Huntington commented to Education Week in January 2002, “What’s nice about our business is that we can make money while helping kids.”

Principal Competitors

Sylvan Learning Systems, Inc.; Kaplan, Inc.

Key Dates:

1977:: First Huntington Learning Center opens in Oradell, New Jersey.
1978:: Second center opens.
1980:: Expired lease forces Oradell operation to move to River Edge, New Jersey.
1985:: Huntington begins franchising. 1999: Huntington chain reaches 200 units.