New Oriental Responds to the Muddy Waters Report
New Oriental Education and Technology Group Inc. (NYSE: EDU) today responded to the allegations raised in a report dated July 18, 2012 issued by Muddy Waters. New Oriental believes that the Muddy Waters report contains numerous errors of facts, misleading speculations and malicious interpretations of events.
As previously disclosed, New Oriental had 664 Company owned and operated schools and learning centers as of May 31, 2012. The Muddy Waters report alleged that a significant number of these schools and learning centers were instead operated by franchisees, and that the Company consolidates these franchisees' results of operations and assets as though they were the Company's own. The Muddy Waters report is wrong. New Oriental stands firmly by its statement that all of the 664 schools and learning centers as of May 31, 2012 were, and are, its own. Although New Oriental started a small pilot program beginning in fiscal year 2010 whereby it permits third parties in certain small cities to offer its "Pop Kids" English program and "New Oriental Star" kindergarten program under a brand name cooperation model, that pilot program is immaterial to the Company. Moreover, New Oriental has never included these cooperation facilities, which never exceeded 21 facilities in total, in the counts of its own schools and learning centers, nor has New Oriental included student enrollments from these cooperation facilities as its own student enrollments.
New Oriental has properly recorded license and training fees paid to New Oriental by these cooperation facilities in New Oriental's revenues according to U.S. GAAP. For the fiscal years ended May 31, 2010 and 2011, New Oriental recognized revenues in an aggregate amount of US$35,000 and US$249,000, respectively, from license and training fees received from the cooperation facilities, representing 0.009% and 0.045% of New Oriental's total revenues, respectively.
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