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New Oriental Announces Results for the Fiscal Quarter Ended August 31, 2006
October 17, 2006 at 3:27 AM EDT

BEIJING, Oct 17, 2006 /Xinhua-PRNewswire via COMTEX News Network/ -- New Oriental Education and Technology Group Inc. (NYSE: EDU), the largest provider of private educational services in China, today announced its unaudited financial results for the fiscal quarter ended August 31, 2006, which is the first quarter for New Oriental's fiscal year 2007(1).

    Highlights for the Fiscal Quarter Ended August 31, 2006
    -- Total net revenues increased by 31.4% year-over-year to RMB429.3
       million (US$54.0 million) from RMB326.8 million in the first quarter of
       fiscal year 2006.
    -- Net income increased by 100.8% year-over-year to RMB165.1 million
       (US$20.8 million) from RMB82.2 million in the first quarter of fiscal
       year 2006, and net income excluding share-based compensation expenses
       (non-GAAP) increased by 57.5% year-over-year to RMB170.7 million
       (US$21.5 million).
    -- Basic and diluted earnings per ADS were RMB6.60 (US$0.83) and RMB5.84
       (US$0.73), respectively. Excluding share-based compensation expenses
       (non-GAAP), basic and diluted earnings per ADS were RMB6.83 (US$0.86)
       and RMB6.04 (US$0.76), respectively.  Each ADS represents four common
       shares.
    -- Total student enrollments in language training and test preparation
       courses increased by 25.9% year-over-year to approximately 337,400 from
       approximately 268,000 in the first quarter of fiscal year 2006.
    -- Opened 7 new schools in the fiscal quarter bringing the total number of
       schools and learning centers to 32 and 115 (including the 32 schools),
       respectively, as of August 31, 2006, up from 25 schools and 111
       learning centers (including the 25 schools) as of May 31, 2006,
       respectively.

''We are very pleased with the results of the first quarter of our fiscal year 2007,'' said New Oriental's Chairman and Chief Executive Officer, Mr. Michael Yu. ''We saw strong growth in our student enrollment as we continued to leverage our highly recognized brand name, leading market position and unparalleled national network to provide innovative and inspirational instruction to a growing student base of all ages in China.''

New Oriental's Chief Financial Officer, Mr. Louis T. Hsieh, added, ''Our recent successful NYSE IPO demonstrates investors' confidence in the long-term prospects of China's private education market as well as New Oriental's leading market position.'' Mr. Hsieh continued, ''Today, New Oriental operates the largest network of private schools and learning centers in China, with locations in 31 cities. In the quarters ahead, we will continue to expand this geographic network, while increasing student enrollments and educational program and service offerings in our existing locations. We are also exploring strategic relationships to help expand our content distribution channels and educational programs and service offerings.''

Mr. Hsieh further noted that the first quarter of the Company's fiscal year is typically the strongest quarter in terms of revenue and net income as a large number of students take advantage of the summer holiday period to take courses in private schools. For example, in the first fiscal quarter of 2006 (June 1 to August 31, 2005), the Company generated net revenues of RMB326.8 million compared to net revenues of RMB127.2 million in the second fiscal quarter (September 1 to November 30, 2005). In addition, net income for the first fiscal quarter of 2006 was RMB82.2 million compared to a net loss of RMB8.7 million in the second fiscal quarter of 2006.

Financial Results for the Fiscal Quarter Ended August 31, 2006

For the first fiscal quarter of 2007, New Oriental reported net revenues of RMB429.3 million (US$54.0 million), representing a 31.4% increase year-over-year.

Net revenues from educational programs and services for the first fiscal quarter were RMB411.9 million (US$51.8 million), representing a 30.8% increase year-over-year. The growth was mainly driven by the increase in the number of student enrollments in language training and test preparation courses. Total student enrollments in language training and test preparation courses in the first fiscal quarter of 2007 increased by 25.9% year-over-year to approximately 337,400 from approximately 268,000 in the first quarter of fiscal year 2006.

Total operating costs and expenses for the quarter were RMB249.2 million (US$31.3 million), a 7.7% increase year-over-year.

Cost of revenues increased by 21.9% year-over-year to RMB138.6 million (US$17.4 million), primarily due to the increased number of courses offered to a larger student base.

Selling and marketing expenses increased by 61.4% year-over-year to RMB35.7 million (US$4.5 million), primarily due to brand promotion expenses.

General and administrative expenses decreased by 21.7% year-over-year to RMB74.8 million (US$9.4 million), primarily due to lower share-based compensation expenses in the first fiscal quarter of 2007 as compared to the corresponding period last year. Excluding share-based compensation expenses, general and administrative expenses were comparable to the same period of last fiscal year.

Total share-based compensation expenses, which were allocated to related operating costs and expenses, decreased to RMB5.7 million (US$0.7 million) in the first fiscal quarter of 2007 from RMB26.2 million in the first fiscal quarter of 2006.

Operating margin for the quarter was 42.0%, compared to 29.2% in the corresponding period last year. Excluding share-based compensation expenses (non-GAAP), operating margin for the quarter would have been 43.3%, compared to 37.2% in the corresponding period of the prior year. This increase was primarily due to the improved operating efficiency as revenue growth outpaced the growth in operating costs and expenses.

Net income for the quarter was RMB165.1 million (US$20.8 million), representing a 100.8% increase from the first fiscal quarter of 2006. Basic and diluted earnings per share amounted to RMB1.65 (US$0.21) and RMB1.46 (US$0.18), respectively, and basic and diluted earnings per ADS were RMB6.60 (US$0.83) and RMB5.84 (US$0.73), respectively.

Net income excluding share-based compensation expenses (non-GAAP) was RMB170.7 million (US$21.5 million). Basic and diluted earnings per share excluding share-based compensation expenses (non-GAAP) were RMB1.71 (US$0.21) and RMB1.51 (US$0.19), respectively, and basic and diluted earnings per ADS excluding share-based compensation expenses (non-GAAP) were RMB6.83 (US$0.86) and RMB6.04 (US$0.76), respectively.

Capital expenditures for the quarter were RMB32.3 million (US$4.1 million).

As of August 31, 2006, New Oriental had cash and cash equivalents of RMB294.9 million (US$37.1 million). Net operating cash flow for the first quarter of fiscal year 2007 was RMB139.3 million (US$17.5 million).

Outlook for Fiscal Second Quarter 2007

New Oriental expects its total net revenues in the second quarter of fiscal year 2007 (September 1 to November 30, 2006) to be in the range of RMB148 million (US$18.6 million) to RMB158 million (US$19.9 million), representing year-over-year growth in the range of 16.5% to 24.4%, respectively. This forecast reflects New Oriental's current and preliminary view, which is subject to change.

The Company notes that due to seasonality of the Chinese education market, the second quarter is normally the slowest period of the fiscal year, with revenues typically significantly below those of the first quarter.

Conference Call Information

New Oriental's management will host an earnings conference call at 8 AM on October 17, 2006 U.S. Eastern Daylight Time (8 PM on October 17, 2006 Beijing/Hong Kong time).

    Dial-in details for the earnings conference call are as follows:

    US: 1 617 213 8066
    Hong Kong: 852 3002 1672

Please dial-in 10 minutes before the call is scheduled to begin and provide the passcode to join the call. The passcode is ''New Oriental earnings call''.

Additionally, a live and archived webcast of this conference call will be available at http://investor.neworiental.org .

About New Oriental

New Oriental is the largest provider of private educational services in China based on the number of program offerings, total student enrollments and geographic presence. New Oriental offers a wide range of educational programs, services and products consisting primarily of English and other foreign language training, test preparation courses for major admissions and assessment tests in the United States, the PRC and Commonwealth countries, primary and secondary school education, development and distribution of educational content, software and other technology, and online education. New Oriental's ADSs, each of which represents four common shares, currently trade on the New York Stock Exchange under the symbol ''EDU.''

Safe Harbor Statement

This announcement contains forward-looking statements. These statements are made under the ''safe harbor'' provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as ''will,'' ''expects,'' ''anticipates,'' ''future,'' ''intends,'' ''plans,'' ''believes,'' ''estimates'' and similar statements. Among other things, the outlook for second quarter of fiscal year 2007 and quotations from management in this announcement, as well as New Oriental's strategic and operational plans, contain forward-looking statements. New Oriental may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about New Oriental's beliefs and expectations, are forward-looking statements. Forward- looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: our growth strategies; our future business development, results of operations and financial condition; our ability to attract students without a significant decrease in course fees; our ability to continue to hire, train and retain qualified teachers; our ability to maintain and enhance our ''New Oriental'' brand; our ability to effectively and efficiently manage the expansion of our school network and successfully execute our growth strategy; the outcome of ongoing, or any future, litigation or arbitration, including those relating to copyright and other intellectual property rights; competition in the private education sector in China; changes in our revenues and certain cost or expense items as a percentage of our revenues; the expected growth of the Chinese private education market; and Chinese governmental policies relating to private educational services and providers of such services. Further information regarding these and other risks is included in our registration statement on Form F-1 and other documents filed with the Securities and Exchange Commission. New Oriental does not undertake any obligation to update any forward-looking statement, except as required under applicable law. All information provided in this press release and in the attachments is as of October 17, 2006, and New Oriental undertakes no duty to update such information, except as required under applicable law.

About Non-GAAP Financial Measures

To supplement New Oriental's consolidated financial results presented in accordance with GAAP, New Oriental uses the following measures defined as non- GAAP financial measures by the SEC: operating margin excluding share-based compensation expenses, net income excluding share-based compensation expenses and basic and diluted earnings per share and per ADS excluding share-based compensation expenses. The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. For more information on these non-GAAP financial measures, please see the table captioned ''Reconciliations of non-GAAP measures to the most comparable GAAP measures'' set forth at the end of this release.

New Oriental believes that these non-GAAP financial measures provide meaningful supplemental information regarding its performance and liquidity by excluding share-based expenses that may not be indicative of its operating performance from a cash perspective. New Oriental believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing its performance and when planning and forecasting future periods. These non-GAAP financial measures also facilitate management's internal comparisons to New Oriental's historical performance and liquidity. New Oriental computes its non-GAAP financial measures using the same consistent method from quarter to quarter. New Oriental believes these

non-GAAP financial measures are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision-making. A limitation of using non-GAAP net income excluding share-based compensation expenses, and basic and diluted earnings per share and per ADS excluding share-based compensation expenses is that these non-GAAP measures exclude share-based compensation charge that has been and will continue to be for the foreseeable future a significant recurring expense in our business. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from each non-GAAP measure. The accompanying tables have more details on the reconciliations between GAAP financial measures that are most directly comparable to non-GAAP financial measures.

    (1) This announcement contains translations of certain RMB amounts into
        U.S. dollars at specified rates solely for the convenience of readers.
        Unless otherwise noted, all translations from RMB to U.S. dollars are
        made at a rate of RMB7.9538 to US$1.00, the effective noon buying rate
        as of August 31, 2006 in The City of New York for cable transfers of
        RMB as certified for customs purposes by the Federal Reserve Bank of
        New York.

                 NEW ORIENTAL EDUCATION & TECHNOLOGY GROUP INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (In thousands)

                                           As of August 31        As of May 31
                                                 2006                 2006
                                              (Unaudited)           (Audited)
                                             RMB         USD            RMB
    ASSETS:
    Current assets:
     Cash and cash equivalents             294,948      37,083        261,854
     Restricted cash                         3,000         377          3,000
     Term deposits                           1,000         126             --
     Accounts receivable, net                1,542         194          3,035
     Inventory                              43,174       5,428         36,418
     Prepaid expenses and other current
      assets                                42,974       5,403         35,655

     Total current assets                  386,638      48,611        339,962

     Property, plant and equipment, net    712,312      89,556        706,565
     Land use right, net                    25,318       3,183         25,456
     Deposit for acquiring property and
      equipment                                 --          --          1,175
     Amounts due from related parties        2,691         338          8,527
     Deferred tax assets                     3,870         487          5,163
     Long term prepaid rent                  1,038         131          1,077
     Trade mark                              1,637         206          1,637

     Total assets                        1,133,504     142,512      1,089,562

    LIABILITIES AND SHAREHOLDERS'
    EQUITY
    Current liabilities:
     Short-term borrowings                      --          --         35,000
     Accounts payable-trade                 51,140       6,430         36,183
     Accrued expenses and other current
      liabilities                          128,223      16,121         91,596
     Dividend payable                           --          --            772
     Income tax payable                     18,413       2,315          9,151
     Current portion of long-term debt      42,998       5,406         47,603
     Amount due to related parties             162          20            389
     Deferred revenue                      135,728      17,065        244,524

     Total current liabilities             376,664      47,357        465,218


     Long-term debt, less current portion   64,445       8,102        102,638

     Total long-term liabilities            64,445       8,102        102,638

     Minority interest                         200          25            200

     Total liabilities                     441,309      55,484        568,056

    SHAREHOLDERS' EQUITY
     Series A convertible preferred
      shares (US$0.01 par value; 11,111,111
      shares authorized as of August 31,
      2006 and May 31, 2006; 11,111,111 and
      nil shares issued and outstanding as
      of August 31, 2006 and May 31, 2006)
      (liquidation value US$22,500)            920         116            920

     Common Shares (US$ 0.01 par value;
      150,000,000 shares authorized as of
      August 31, 2006 and May 31, 2006;
      100,000,000 shares issued and
      outstanding as of August 31, 2006
      and May 31, 2006)                      8,277       1,041          8,277

     Additional paid-in capital            315,208      39,630        309,519
     Retained earnings                     367,930      46,259        202,871
     Accumulated other comprehensive loss     (140)        (18)           (81)
     Total shareholders' equity            692,195      87,028        521,506
     Total liabilities and shareholders'
      equity                             1,133,504     142,512      1,089,562


                 NEW ORIENTAL EDUCATION & TECHNOLOGY GROUP INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
             (In thousands except for per share and per ADS amounts)

                                          For the Three Months Ended August 31
                                                   2006                2005
                                                (Unaudited)         (Unaudited)
                                             RMB           USD          RMB
    Net Revenues:
     Educational programs and services     411,914       51,788       314,821
     Books and others                       17,419        2,190        12,021
    Total net revenues                     429,333       53,978       326,842

    Operating costs and expenses (note 1):
     Cost of revenues                      138,637       17,430       113,773
     Selling and marketing                  35,732        4,492        22,141
     General and administrative             74,790        9,403        95,489

     Total operating costs and expenses    249,159       31,325       231,403
     Operating income                      180,174       22,653        95,439

     Other income (expenses),net            (1,917)        (241)       (3,136)

     Income tax expense                    (13,198)      (1,659)      (17,901)
     Minority interest, net of tax              --           --           (12)

     Income from continuing operations     165,059       20,753        74,390

     Income on discontinued operations          --           --         7,811

     Net Income                            165,059       20,753        82,201

     Net income per share-basic               1.65         0.21          0.82
     Net income per share-diluted             1.46         0.18          0.74

     Net income per ADS-basic (note 2)        6.60         0.83          3.28
     Net income per ADS-diluted (note 2)      5.84         0.73          2.96

    Notes:

    Note 1:  Share-based compensation expenses are included in the operating
             costs and expenses as follows:

                                       For the Three Months Ended August 31
                                             2006                      2005
                                          (Unaudited)              (Unaudited)
                                      RMB              USD              RMB
     Cost of revenues                 143               18                65
     Selling and marketing             99               12               793
     General and
      administrative                5,447              685            25,367

    Note 2: Each ADS represents four common shares.


                 NEW ORIENTAL EDUCATION & TECHNOLOGY GROUP INC.
           RECONCILIATION OF NON-GAAP MEASURES TO THE MOST COMPARABLE
                                  GAAP MEASURES
                 (In thousands except share and per ADS amounts)

                                       For the Three Months Ended August 31
                                           2006                        2005
                                       (Unaudited)                  (Unaudited)
                                     RMB              USD               RMB

     GAAP net income               165,059           20,752            82,201
     Share-based
      compensation expense           5,689              715            26,225
     Non-GAAP net income           170,748           21,467           108,426

    GAAP net income per ADS
     - basic (note 1)                 6.60             0.83              3.28
    GAAP net income per ADS
     - diluted (note 1)               5.84             0.73              2.96

     Non-GAAP net income per ADS
     - basic (note 1)                 6.83             0.86              4.34
     Non-GAAP net income per ADS
     - diluted (note 1)               6.04             0.76              3.90


     Shares used in
      calculated basic
      net income per
      ADS (note 1)             100,000,000      100,000,000       100,000,000

     Shares used in
      calculated diluted
      net income per
      ADS (note 1)             113,131,319      113,131,319       111,111,111


    Note 1: Each ADS represents four common shares.


    For more information, please contact:

    In China:
     Ms. Sisi Zhao
     New Oriental Education and Technology Group Inc.
     Tel:   +86-10-6260-5566 x8203
     Email: zhaosisi@staff.neworiental.org

     Mr. Rory Macpherson
     Ogilvy Public Relations Worldwide
     Tel:   +86-10-8520-6553
     Email: rory.macpherson@ogilvy.com

    In the United States:
     Mr. Thomas Smith
     Ogilvy Public Relations Worldwide
     Tel:   +1-212-880-5269
     Email: thomas.smith@ogilvypr.com

SOURCE New Oriental Education & Technology Group Inc.

In China - Ms. Sisi Zhao of New Oriental Education and Technology Group Inc.,
+86-10-6260-5566 x8203, or zhaosisi@staff.neworiental.org; or Mr. Rory Macpherson of
Ogilvy Public Relations Worldwide, +86-10-8520-6553, or rory.macpherson@ogilvy.com;
or In the United States - Mr. Thomas Smith of Ogilvy Public Relations Worldwide,
+1-212-880-5269, or thomas.smith@ogilvypr.com
http://investor.neworiental.org