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Founder of NEC School Empire to Retire

February 10, 1988|ERIC SCHINE

John J. McNaughton, chairman of National Education Corp., the country's largest and most diversified network of vocational schools and training programs, has announced that he will retire from the company he founded 34 years ago.

During his career, McNaughton has successfully tapped the mushrooming nationwide demand for home study and vocational schools. McNaughton, who recently turned 65, said in an interview that he was stepping down as of Thursday to comply with the company's mandatory retirement rules. McNaughton did not indicate who might succeed him as chairman.

NEC, which had sales of $380 million in 1987, now teaches courses on everything from auto mechanics to automated computer engineering.

It has more than 35,000 students enrolled in its more than 52 schools across the country and an additional 150,000 students are enrolled in NEC correspondence courses.

Several acquisitions in recent years have moved the company toward providing in-house technical training for corporations, a rapidly growing market that could expand to a $40-billion-a-year industry in 1988, according to David Bright, president and chief executive of NEC.

There are about 7,000 vocational schools nationwide today with an enrollment of 2.5 million students, according to the National Assn. of Trade & Technical Schools. Vocational schools, whose enrollment has grown at an annual pace of from 10% to 15% through much of the 1980s, have grown into a $9-billion-a-year industry, according to Bright.

National Education, now based in Irvine, got off to an inauspicious start in Los Angeles in 1953 as the Malibu Archery Co., a mail-order house that sold Japanese bows and arrows.

"I was originally in the advertising business and a lot of our accounts in those days were mail-order companies," McNaughton said.

From the archery business came the idea to offer correspondence courses on forestry. While still working actively in the advertising business, McNaughton created the North American School of Conservation and hired a retired game warden to teach students how to assist foresters in tasks such as fire watching.

The courses were a hit and McNaughton used the profits to buy other correspondence course operations, such as drafting, handwriting, painting and motorcycle repair.

By 1961, the company had grown to about $3 million and McNaughton took it public, raising $300,000 in a stock offering.

With that money, McNaughton branched out from correspondence courses to make several acquisitions of vocational schools. He quit advertising to devote full time to the business and, in 1965, moved the company from Los Angeles to Newport Beach. In 1986, the company moved to its present headquarters in Irvine.

In the late 1960s, NEC purchased a California chain of real estate licensing schools. In 1971, it acquired the Spartan School of Aeronautics, which teaches professional flying and flight maintenance. In 1976, the company acquired several electronics and broadcasting schools from CBS.

One reason for NEC's rapid growth has been its ability to find jobs for its vocational school graduates, most of whom already have high school diplomas. Fully 85% of graduates from NEC's vocational schools find jobs in the field of their choice, according to Byam Stevens, an analyst with the New York brokerage house of H. G. Wellington.

In 1979, NEC outbid Ronald Perlman in a "white knight" acquisition of Intext, a publisher of educational materials. The acquisition was important, Bright said, because it moved NEC into the corporate training field, an area the company now is emphasizing for growth.

Last fall, NEC acquired Chicago-based Advanced Systems in a stock swap valued at $250 million and merged the operation with its Deltak subsidiary, also based in Chicago. The combined subsidiaries are expected to bring in revenue of $200 million a year by providing technical training, particularly in data processing and other computer tasks, to employees of large corporations.

NEC, which trades on the New York Stock Exchange, reported earnings of 40 cents a share in 1987 but should earn $1.65 a share in 1988, Stevens said. Expenses associated with the Advanced Systems acquisition brought last year's earnings down from what otherwise would have been $1.25 a share, the analyst said.

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