Operator: Good evening, and thank you for standing by for New Oriental's Fourth and Fiscal Year 2012 Earnings Conference Call. At this time, all participants are in listen-only mode. After management's prepared remarks, there will be a question-and-answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time.

I would now like to turn the meeting over to your host for today's conference, Ms. Sisi Zhao.

Sisi Zhao - IR: Hello, everyone, and welcome to New Oriental's fourth fiscal quarter and fiscal year 2012 earnings conference call. Our financial results for the periods were released earlier today and are available on the Company's website as well as on newswire services.

Today, you will hear from Louis Hsieh, New Oriental's President and Chief Financial Officer. After his prepared remarks, Louis will be available to answer your questions.

Before we continue, please note that the discussion today will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1994. Forward-looking statements involve inherent risks and uncertainties. As such, our results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in our public filings with the SEC. New Oriental does not undertake any obligation to update any forward-looking statements, except as required under applicable law.

As a reminder, this conference is being recorded. In addition, a webcast of this conference call will be available on New Oriental's Investor Relations' website at investor.neworiental.org.

I would now turn the call over to New Oriental's President and CFO, Louis. Louis, please?

Louis Hsieh - President and CFO: Thank you Sisi. Hello every one and thank you for joining us today. This has been another successful year for New Oriental and I am pleased to report that we are moving into a new fiscal year in a stronger position than ever before.

Over the last 12 months, we have extended our undisputed leadership position in China's private education market sector and put even more distance between New Oriental and our competitors in terms of brand recognition, market share, service quality and reputation, and we've achieved this while (successfully tooling) up our business to take advantage of major growth opportunities in new geographies and fast-growing segments.

Our results for the first fiscal year speak to its success. Student enrollments hit 2.4 million, up 15% year-over-year; revenue grew 38.3% year-over-year to $771.7 million, and in spite of heavy investment in expansion with net of 177 new facilities, bringing our total to 664. We delivered a very impressive increase in GAAP net income of 30.4% to $132.7 million. Non-GAAP net income increased 32.5% to $156.8 million.

I’d like to spend a couple of minutes talking about the key drivers of this growth and highlight some of the exciting trends that we are building on. First and foremost, I want to address the tremendous growth opportunity beyond China's Tier 1 cities. This has been a major factor in our success in fiscal year 2012, and I'm confident this will be a vital engine of our growth in fiscal year 2013 and beyond.

As we have stated previously, in addition to enhancing our market-leading brand name and maintaining the highest standards in teaching and content quality, one of our other primary goals is to establish New Oriental as the number one or number two language and test prep tutoring service providers for K-12 in every one of our lucrative and fast-growing city markets. To achieve this strategic imperative, we must invest in growing learning centers at a rapid pace, to achieve critical mass and economies of scale, which will drive long-term sustained and increasing profitability.

In fiscal year 2012, second and third tier cities achieved about 43% of revenue growth, contributing around 48% of our total revenue, whereas Beijing and Shanghai collectively recorded about 29% revenue growth and accounted for about 37% of total revenue.

The cities around Beijing like Shijazhuang and Zhangjiakou are good examples of an emerging paradigm within student attitudes. Previously many students from these cities would have travelled to Beijing during the summer and winter break to take classes to one of our boarding schools in the capital, but now New Oriental has branches across these cities where we offer the same or comparable premium standard education that a student can get in Beijing. So, now more and more students choose to stay in their hometown, taking New Oriental courses locally instead of travelling into Beijing during these holidays.

A similar behavior is occurring with New Oriental Shanghai schools and in the surrounding areas. Looking longer term, I believe, we have only begun discuss the massive opportunity of these fast growing markets. Over the next fiscal year, we are continuingly to aggressively invest in penetrating these lower tier cities. In fiscal ’13, we intend to open over 200 new learning centers. The vast majority of them will be small centers, 300 to 700 square meters designed for our VIP and K-12 classes rather than large scale test prep courses.

The vast majority of these centers will be located in cities outside Beijing and Shanghai, while it obviously means there’s significant CapEx outlay upfront, these smaller centers typically are profitable in their first year of operation as they fill out more rapidly.

We will endeavor to manage that expansion carefully in order to ensure that these centers will not have a long-term drag on margins. Furthermore, we expect most of our small centers will be at mature levels of utilization within two years compared to the average three to four years, it takes for larger center to ramp up.

To be clear, we are still nowhere near to limits of expansion in the tier one cities. We are confident that we will continue to experience robust growth year. It’s just not blockbuster levels and are seeing at the smaller cities. While growth in our traditional business lines like adult English in CET 4 and CET 6 test prep are slowing in Beijing and Shanghai, we continue to see great potential to grow some of the other business lines such as K-12, overseas test prep and VIP in Beijing and Shanghai.

Looking more broadly at the performance across out business lines, the key takeaways from fiscal year 2012 is our continued success in developing winning product offerings to suite changing learning habits and quickly dominating in these new markets.

We’ve finished strongly year across the board. Our VIP personalized classes have been our star performer. In fiscal year 2012 VIP classes saw year-over-year enrolment growth of 61% and year-over-year revenue growth of over 71% to about $207 million. This illustrates the enormous demand for more personalized process both in the Tier 1 and lower tiered markets. Crucially only New Oriental has the branding power and track record to command a premium fees that these courses command. So, I'm very confident in long-term prospects for this segment.

Our K-12 all-subjects tutoring school business also had a great year. We recorded year-over-year enrolment growth of 25% over 1.3 million students and year-over-year revenue growth of over 52% to $294 million. Again despite the strong performance last year we see continued growth potential in this segment. It is clear to us that market demand is shifting towards VIP and K-12 to 12 segments so we are very encouraged that we have had such a strong market presence here in a relatively short period of time.

K-12 and VIP accounted for 37% and 27% of revenue in fiscal year 2012, respectively versus 33% and 21% respectively in fiscal year 2011. Please note that these figures reflect some overlap as many of our K-12 students are also taking courses in the VIP format.

One teacher to one student up to one teacher to six students. There are of course lower margin offerings but these are also the segments with the best long term, growth opportunities particularly in the lower-tiered cities. Having said that, we continue to deliver robust growth in the overseas test preparation business. To an extent New Oriental remains a clear and undisputed market leader. Enrollments in fiscal '12 increased 7.3% year-over-year to over 340,000, while revenues jumped 43% to $238,000.

Outside the classroom, we're also rapidly expanding our Vision Study Consulting business to help students study overseas continue in China as probably be more affordable for more families than we've already positioned – sorry let me start that again. Outside of the classroom, we also are rapidly growing our Vision Overseas Study Consulting business.

Interest in studying overseas continues to increase in China as the possibility becomes more affordable for more families and we are ideally positioned to capitalize on this existing dominance in Chinese test prep – overseas test prep, naturally, the students who seek our advice and counseling. Vision Consulting recorded year-over-year revenue growth of approximately 85% to about $42.5 million in this fiscal year.

Before we get into the G&A, a quick review of some financial highlights for the quarter and the year. The detailed numbers and figures are available in your press release. Looking at enrollments, as I have mentioned, for the full fiscal year grew at a very encouraging 15% as our new learning centers ramped up to mature levels of utilization. I want to highlight that the relatively low enrollment growth of 7.7% in the fourth fiscal quarter was expected as I implied last quarter that Chinese New Year had early holiday. Students enrolled for their spring courses at the end of the third fiscal quarter which naturally means that the enrollments in a little lower in the following quarter. As you'll recall, enrollments grew by 21.8% in Q3 last year, primarily due to a spike in spring and registrations in February following the early Chinese New Year.

Operating margin for fiscal 2012 was 15.2% compared to 17.1% in the fiscal 2011. Non-GAAP operating margin which excludes share-based compensation expense for the fiscal quarter was 18.3% compared to 20.1% in 2011. We are encouraged that we maintain a healthy operating margin despite an aggressive pace in investment and plan to slow down that pace in investment into next year.

For the fourth fiscal quarter, general and administrative expenses increased by 55%, year-over-year to $71.8 million. Non-GAAP G&A expense which excludes share-based compensation expense was $64.1 million, a 49% increase year-over-year. This was primarily due to increased headcount in line with our expansion.

During the quarter, we opened 56 new learning centers in the quarter and also continued to meet investing content and new programs develop the offerings as well as and improving teacher quality.

I'm pleased with our performance this year 2012. Over the last 12 months, we demonstrated clearly that New Oriental is proactively and creatively managing our business to achieve long-term and deliver long-term value for our shareholders. This is not a Company that is contempt to coast along on its reputation alone. This is a Company that's working hard to sustain its market dominance for years to come.

Moving into fiscal year 2013, we're very confident New Oriental is ideally positioned to sustain long-term growth. In the immediate term we are conscious that China faces some macro headwinds. After many years of double digit growth there are signs that the economy is decelerating, but education is very resilient discretionary spending category for Chinese consumers. We do expect that this slowdown will have some limited impact on our business. However we believe that the growth potential for New Oriental is enormous as we push into untapped markets outside of Tier 1 cities and are offering to changing learning habits in China.

Clearly there are some downward pressure on margins as we are in a transition period in investing lower tier cities to capture. The growth opportunity in addition to student preferences are shifting towards lower margin offerings. However I am confident that this is a correct strategy to for sustained long term growth. Looking at guidance for the year ahead we currently expect total revenues in the first quarter of fiscal year 2013 to be in the range of $342.7 million to $356.3 million representing year-over-year growth in the range of 26% to 31% respectively.

The forecast takes into account slower growth in Beijing and Shanghai. The macroeconomic slowdown I just mentioned and the expected lack of RMB currency translation benefits seems to have haltered and in some cases reversed in periods vis-�-vis the U.S. dollar. The forecast for New Oriental's current view and subject to change.

The SEC investigation. On July 13, 2012 the company was informed that U.S. Securities and Exchange Commission had issued a formal order of investigation captioned ‘In the Matter of New Oriental Education & Technology Group Inc.’ The Company believes that the investigation concerns whether there is a sufficient basis for the consolidation of Beijing New Oriental Education & Technology Group Co., Ltd., a variable interest entity of the Company, and its wholly-owned subsidiary, into the Company's consolidated financial statements. The Company intends to fully cooperate with the SEC in its investigation.

The company’s outside independent auditors Deloitte Touche Tohmatsu have not as yet completed the audit for the year ending May 31, 2012. However, Deloitte continues to believe that the Company’s historical financial statements are appropriate. Please note that in light of sensitive nature of the SEC investigation I will not take any questions of comments further on the situation in this Q&A session other than to reiterate that we intend to fully cooperate with the SEC in the investigation.

At this point I will take your question. Operator, please begin.

Operator: Philip Wan, Morgan Stanley.

Philip Wan - Morgan Stanley: My first question is about your first quarter guidance which appears soft. Could you please elaborate a little bit more on which business lines are slowing down and why and also could you share with us your full year expectation in terms of the enrollment and ASP growth for the year?

Louis Hsieh - President and CFO: For the first quarter there are several reasons why the guidance is a little bit lower than normal. One reason is that Beijing and Shanghai have begun to slowdown as we mentioned in there. In fact in RMB terms, Beijing and Shanghai only grew 24% and 20% last year, respectively. Well, (indiscernible) the U.S. dollar translation benefit the growth rate has really slowdown from 29 down to 20 or so. So that will take the slowdown. The reason for that is a lot of that – all the cities around Beijing and Shanghai are cannibalizing that because the quality of New Oriental Education in those cities is quite good, and so students are finding it no long necessary to travel to Beijing and Shanghai to take those classes. So that's one factor. Our second factor is relating to the fact that our investment today is in cities outside Beijing and Shanghai because the growth rate is much higher, so we expect those to continue to grow rapidly. A third factor is last year we had a very strong Q1, remember our revenues were up 41%, profits were up 45%. So that makes it very challenging on year-over-year comps, so we just thought try to be a little bit more conservative, and so those are primary the reasons. Foreign currency translation, some slowdown in Beijing and Shanghai, as you know Beijing and Shanghai both have new school heads, so there is going to be a transition period, and then the issues with managing -- with the cannibalization. The fourth factor obviously is a slowing Chinese economy. I think even though we seem very resilient, we're still growing (37%) a year. It was not immune from a slowing Chinese economy, especially consumer discretionary spending. As far as guidance for the year, I think our revenue guidance will somewhere be – probably similar to our first quarter guidance 25% to 30% -- 26% to 31%. I think the profit guidance is the one that's difficult because we're expanding so rapidly. In these lower margin businesses, we haven't got the efficiencies down yet. We need another one or two quarters to fix the efficiencies and get the margins turning the right way, so I think we’ll get 25% to 30% probably on the top-line and somewhere between 22% and 25% on the bottom-line and as I said that’s our preliminary view. As far as enrollment increase, we increased the 2.4 million or 15% last year. I would expect that number to come down a little bit given the larger base and the slowdown in the general economy, so I would expect us to grow enrollment roman somewhere in the probably 10% to 13% range. So that takes us about 2.7 million enrollments.

Philip Wan - Morgan Stanley: You mentioned slowdown in Beijing Shanghai, is it mainly for the overseas test preparation?

Louis Hsieh - President and CFO: It’s partly overseas test preparation; it really is more the summer camps, the boarding schools. So, in the past we used to have thousands of students who would pays us like RMB 5,000, RMB 6,000 RMB 8,000 to come into Beijing for 10 days and study either CET 4 or CET 6 SAT, a whole bunch of test, but as we’ve been successful in growing like I said either in Shanghai, our Shanghai school is very good, but our Hangzhou school and our Suzhou schools are just as good. So students who used to come from Hangzhou and Suzhou to go to Shanghai to take this no longer are travelling there, so the margins for this business actually quite high. Instead of RMB 5,000 per student, if they stay home in Hangzhou or Suzhou the ASP is RMB 1,000 and so it’s we’re victim of our own success, but it’s a right thing to do. I showed you our quality is getting quite good across the country, same thing as we explain in Beijing, and so I think that’s just a – it’s a factor. I think Beijing and Shanghai truly without sounding too bad have been mismanaged the last couple years and so we’re hopeful of the new management teams in place there will also begin to drive growth, especially the K-12 and the overseas test prep business as well. So I think as Beijing and Shanghai still have long way, but they’re growing on a RMB terms in the low 20s, whereas the rest of network is growing in the high 30s, low 40s. So the emphasis has to be on the Tier 2 cities. We’re already so big in Beijing and Shanghai. We’re over $200 million a year in Beijing, over almost about $100 million in Shanghai. The base is getting so large. It’s getting more (indiscernible) ourselves out.

Philip Wan - Morgan Stanley: Then quickly on the VIP business, you’ve provided cash revenues for the year and I just wonder how does that compare to the revenues that you actually recognized during the year?

Louis Hsieh - President and CFO: Well, the cash revenue is when they sign up for the course. So a lot of the cash revenue gets put into deferred revenue as it gets paid out over the course of the year. Some of that cash revenue never gets recognized because of students who cancel just before the class starts. So it’s a good proxy for demand, but it’s not a one-to-one.

Philip Wan - Morgan Stanley: Do you have roughly the level of the cancellation as percentage of total?

Louis Hsieh - President and CFO: It’s pretty low. It’s like 1% or 2%.

Philip Wan - Morgan Stanley: Lastly, could you also provide the recognized revenue for the year, so I can get a comparison against your cash revenue?

Louis Hsieh - President and CFO: The recognized revenue for the year is $771 million. I don’t know what the total gross revenue was. Total gross revenue will be 4% higher (indiscernible) business tax.

Philip Wan - Morgan Stanley: No, I mean for your VIP business?

Louis Hsieh - President and CFO: I don’t have that breakdown sorry. Sisi can probably get that for you.

Operator: Chenyi Lu, Cowen and Company.

Chenyi Lu - Cowen and Company: I have two questions. Regarding your school expansion in 2013 you're talking about it's going to be over 200 new learning centers. Can you give us a breakdown as to the schedule of the school expansion, are you going to be more focused on second half of fiscal year 2013 that will be my first question? Then after that I've got another question.

Louis Hsieh - President and CFO: I mean ideally if I could do it I would want expansion in Q2 and Q4. The reason is Q2 is a slow quarter if you add the learning centers then you can ramp them up by the way in Q3 during the winter and also in Q4 it's always a busy quarter, and Q1 is busier so if ca ramp up the expansion in the Q4 and then do it in Q1. But it doesn't work up that way. So, we end up expanding relatively the same all year around I think the total capacity add for this year will be much lower than last year even though the numbers look higher. That's how we've quoted them in square meters. Last year we added net 177 learning synergies, when it was 1050 square meters on average that means we get to 2000 square meters. For this year even if we get 200 or something (lesser) they are higher number we're unlikely to add more than 150,000, 160,000 square meters so the net add is actually much lower which means that I think it won't be as negative to margins as last year. So, that's how we're trying to manage these so that they become profitable quickly and in that way the margin picture will turn relatively quickly. So, we didn't need another quarter or two.

Chenyi Lu - Cowen and Company: So my next question also relates to the operating margins just to build the 100 what you said the answer. So can you give us the view on operating margin in 2013 without (indiscernible) in the fiscal year 2014?

Louis Hsieh - President and CFO: I think the difficulty is we will bottom sometime in 2013. Unfortunately it probably won't be Q1. So if it's not Q1, which is the current quarter we're in, Q1 is 60% of profit, it will make a dent in the rest of it. So, we believe we will bottom sometime in Q2. But if you go to core year-over-year comparisons, it just start to get better, but Q1 will not because we added 177 learning centers and like 100 and something two quarters beforehand and those haven't filled up yet. As we mentioned earlier, the pickup has been a little bit slower than we thought. The new enrolments are not as fast as in past years because of the economic slowdown in China.

Chenyi Lu - Cowen and Company: So, do you expect margin going to – on an annual basis to be flat or probably slightly down year-over-year in 2013?

Louis Hsieh - President and CFO: We're going to fight like hell to get it flat or up but we haven't been winning this one in the last year, year-and-a-half. We do our best, but like I said, we're also fighting our own school heads because – and legitimate so. I think we've taken a different picture. We are focused on profit but in cities that are high profit margin and growing really fast, we're not going to slow down the learning center growth. So, for example, the city like Hangzhou, Hangzhou we have like 30% profit margins and if you want to have learning centers, you can be as welcome as they would because I guess it's a high profit number, not counting corporate overhead. The same is (Shenyang). So, there are all cities that are really well managed that are growing like crazy, I'm not going to slow them down. Some cities that are not as well managed and they still want to have learning centers, those are the ones we're going to target to try to slow down the learning center growth.

Operator: Jeffrey Meuler, Baird.

Jeffrey Meuler - Baird: Louis, I guess, could you just go over the impact that Chinese New Year had on Q4? I understood why it negatively impacted Q2 and while Q3 may have been artificially high, but could you just kind of clarify on the impact on Q4?

Louis Hsieh - President and CFO: Yeah, what happened with Chinese New Year is that it occurred on January 23rd. So if you look on a revenue basis, the timing was too early. So instead of running two sessions during the winter, we really only ran one session. So that had a negative impact on revenues and profit for Q3, that's the warning we had. Now there's another impact though on enrollments. So what happens during Q3 is that because Chinese New Year is so early and the cut off for our Q3 is February the 28th, the students come back early, because they left early for Chinese New Year. They come back in the middle of February. That means when they come back they have two weeks before our quarter ends to sign up for their spring classes. That's why you saw a 21.7% jump in enrollments in Q3. Those enrollments are actually for Q4. So when Q4 came along, the students that already enrolled during the Q3 period for the Q4, therefore those enrollments in Q4 was like 7.7%. If you blend the two together, you're right at 15% again.

Jeffrey Meuler - Baird: It sounds like if you look at the recent weeks over the last month it's tracking up in the low double digits?

Louis Hsieh - President and CFO: It is right around the low double digits, so it – but the problem now is that the tickets are getting high. There's lot of VIP students. So the revenue number is actually quite high relative to the enrollment number. So, as we move to smaller classes and higher price classes, the revenue number is tracking higher than the enrollment increases.

Jeffrey Meuler - Baird: Then just in terms of the recent growth kind of being slower than it was at any point during the 2008-2009 downturn, excluding quarters where there's kind of unusual event, I guess could you just speak to that in terms of what's driving it as it just this penetration rate in Beijing and Shanghai? Is there anything on the competitive front, I guess if you could just address that. Thank you.

Louis Hsieh - President and CFO: I think Beijing and Shanghai, it is – we are pretty mature in both cities and also we face very stiff competition in Beijing and Shanghai. The other thing is, I think as people don't feel as good right because the economy is not strong, because it is really slowing. So, we (deserted) that BMW sales are terrible in China this year and same with the product bags and so you're seeing a across-the-board pull back in spending in the luxury sector and New Oriental is one of those luxury spends. So, I think we are seeing a slight slowdown, although, I mean, I don’t know when these are at 31% revenue growth. So, I think we are hit much less so but we are going to get hit. At the same time, as I said earlier, we believe Beijing and Shanghai have not been managed as well, and so that's why the two new school heads need time to transition, so give them six months. So, that's why Beijing and Shanghai will be under short-term pressure. The third issue relates to the cannibalization. As we build out the whole country, the quality of our instruction is becoming very, very good across all of China with the systems we put in, with the same content and teacher training facilities. Therefore, the students are finding it less and less necessary to travel to the Tier 1 cities to get the education they get in the Tier 2 cities. So, because of all these factors – now, obviously they pay less in the Tier 2 cities than the Tier 1 cities. So, all these factors have a dampening effect on our revenue. However, dampening – and of course, the fourth one is, as you guys really highlighted, is the fact that we report in U.S. dollars. So, we're no longer going to get the RMB 5% translation benefit. So, if you look at it, we just took down our revenue projections 5% down which is equivalent to the 5% we got from the translation benefits.

Jeffrey Meuler - Baird: So, I guess in local currency terms, what do you view as a sustainable ASP increase given all of the mix shifts you have both between geographies as well as between…

Louis Hsieh - President and CFO: So, if we look at this on (a few terms), I think our growth rate is 25% to 30%. So, obviously, we know RMB appreciation. I think our ASP increase is about 13% to 14% and our students about 10% to 11%, so I think that’s where you get the number.

Operator: Steve Zhang, Macquarie.

Steve Zhang - Macquarie Securities: In terms of the macro impact, which segment of your business are you seeing the most weakness? Is it overseas test prep? I would assume that’s the – I guess what you mentioned more luxurious item.

Louis Hsieh - President and CFO: Yeah, the overseas test prep it seems to have a little bit of lower student base but the revenues are fantastic at 43%, so that’s telling me is that we are getting fewer students, so we are losing actually the bigger class students and the ones who are willing to pay anything are still willing to pay anything. And so the VIP of overseas test prep is not slowing down. So that’s the contrary thing, right. You would expect the highest paid ticket to slow down. It’s not the case. People with money still have money. But I think you’re seeing a slowdown in a number of smaller class students in overseas test prep. It also could be a fact that as parents don’t feel as good as they did in years past. They may not be as confident in sending their children overseas, or they may take lower class – lower-cost alternatives than New Oriental in the test prep area. There are a lot of schools that compete with us that price a lot lower than we do.

Steve Zhang - Macquarie Securities: Okay. In terms of pricing power maybe I could get a little more granularity on this. Are you seeing less pricing power in some of the U-Can and POP Kids segment given the macro environment?

Louis Hsieh - President and CFO: We just really began to face this macro environment in the last three months. We are continuing to raise prices. Last quarter our ASPs were up 14% on a blended basis. So, we haven't really tone back the price measure, so we may do that if demand slacks off significantly. So we would maybe look at that as a way to drive out more students, but as of now we have not really slowdown our price increases.

Operator: Mark Marostica, Piper Jaffray.

Mark Marostica - Piper Jaffray: Just following up on the ASP theme. I'm curious, Louis, what you are seeing in terms of ASP increases in tier two cities as opposed to Beijing and Shanghai?

Louis Hsieh - President and CFO: Well tier two cities pricing is actually quite healthy, so it’s exact – it’s just like Beijing and Shanghai were 10 years ago. So they're actually quite healthy, but what they do is because when you blended with Beijing and Shanghai, it looks like the pricing is going down and this is what I talked about before, but it's not. So I think is that for us the pricing is fine. The pricing in Tier 2 cities are actually quite strong and Beijing and Shanghai is also quite strong, but it maybe not as strong as in years past, but the blended effect is not going to look like the price is going up that much, right, because the Tier 2s have a lower ASPs than Tier 1s. Mark, this is something I highlighted a couple of quarters ago.

Mark Marostica - Piper Jaffray: Then on the relative basis are you seeing more strength in VIP or K-12 in tier two cities?

Louis Hsieh - President and CFO: It's both, it's K-12 primarily, but then many of the parents want them to take VIP as part -- VIP is just a format, so lot of K-12 is booming on tier two and tier three cities and then what happens is lot of the parents want their kids to take one-on-one physics or one-on-one chemistry and so they are both doing very well, basically they work together.

Mark Marostica - Piper Jaffray: Last question, you talked about 22% to 25% profit growth, are your referring to GAAP or non-GAAP?

Louis Hsieh - President and CFO: GAAP.

Operator: Ella Ji, Oppenheimer & Co.

Ella Ji - Oppenheimer & Co.: Louis, I just want to discuss further with you regarding this macro slowdown. It’s little bit complex thing to us that you’re still seeing very strong growth in the VIP sector and you said you do not plan to slow down the price increases in the near term, so what exactly -- which sector or geographically where are you seeing a slowdown of the amount?

Louis Hsieh - President and CFO: You see some slowdown in the number of overseas test prep.…

Ella Ji - Oppenheimer & Co.: … because of the supply.

Louis Hsieh - President and CFO: You see a continuous slowdown in adult English. You see some slowdown in enrollment number of overseas test prep and K-12 is very strong. VIP is very strong, but those are our newer businesses right, also they haven’t really hit critical mass yet, so they are expected to be quite strong because number one, VIP and K-12 are applicable everywhere in China, everyone of our 50 cities has those, where something like overseas test prep is stronger in the tier one cities where there is lot of colleges, I think like adult English are stronger in the tier one cities where there is a lot of businesses, so the one that universal that goes across all of China is K-12 and VIP and you are seeing that reflected out in the strong growth. It is very early in the penetration of those cities.

Ella Ji - Oppenheimer & Co.: So you mentioned softness in overseas and also adult English?

Louis Hsieh - President and CFO: Yeah.

Ella Ji - Oppenheimer & Co.: Do you think it’s also because of some landscape change in competition on the market?

Louis Hsieh - President and CFO: I don’t know we always have the competition. I don’t know if that – I don’t know of any players that challenge us in overseas test prep. I think, yeah, at some point the number of Chinese students can’t keep growing. I mean, it has been going up by 30% 40% a year in students going overseas, I don’t see that number continuing. So sometimes you are going to have to plateau out.

Ella Ji - Oppenheimer & Co.: Then in terms of your sales and marketing spending, those have been trending higher, growing above the revenue growth in the past two quarters. So could you talk about your strategies in sales and marketing going forward, especially now we may face slower revenue…?

Louis Hsieh - President and CFO: Obviously. For the year it’s the same, right, 14.8%, 14.8% is the same year-over-year, but yeah, it started off lower (and worked a bit) higher. Part of that is because of the shift in Chinese New Year. Our school heads kind of panicked and sort of marketing more to (indiscernible) in Q3. Also in Q4 it’s usually a high marketing spending quarter because we’re preparing for the busy summer quarter and I think we’re spending more money in Beijing and Shanghai marketing than in the past because the growth rates has slowed there. So I think those three reasons is why the marketing maybe a bit higher than normal. For the whole year it’s flat year-over-year 14.8%.

Ella Ji - Oppenheimer & Co.: So what’s the outlook for fiscal year ‘13?

Louis Hsieh - President and CFO: Well, it should be lower than ‘12, but that varies, depending on school and then we'll adjust the marketing spending depending on how the business does. So because Beijing and Shanghai were not getting as many boarding students earlier in the quarter we spent more on marketing to get those boarding students.

Ella Ji - Oppenheimer & Co.: Then in terms of teachers and the staff hiring plan for next year how does that trend year-over-year?

Louis Hsieh - President and CFO: The teaching -- we still need to hire 5,000 teachers or so net five to 10. So, that will continue to be the same. If we add 200 learning center of that capacity about 150,000 square meters we're going to add probably 300,000 more students, so we would probably add another 5,000 teachers. The key is not add as much staff G&A staff and so if we can cut the staff then our margins will go up right away.

Ella Ji - Oppenheimer & Co.: Lastly, I want to ask you about the corporate structure change announcement on July 11. Could you provide more details in how is that going to impact the shareholder structure for the listing company going forward?

Louis Hsieh - President and CFO: It doesn't impact it at all, right. What happened was, when New Oriental set up its original VIE in 2002 and then 2006 there was a lot of founders. New Oriental had a lot of old founders in the company there's like 11 of them who were the shareholders of the VIE. In the last six years since the IPO 10 of those people have left the company so they no longer have any shares or minimal shares of the company and they are not involved at all in management or anything related to the company. So, last year after all the scrutiny and on – and the frauds that were coming out of those. We took it on ourselves. Well, let's clean up our mess now. I mean, let's get rid of the other 10 shareholders so we could consolidate the VIE into – Michael, you are a CEO. He get control before anyway, 53% but making a 100% because those other guys have nothing to do with the Company. There have been cases in other Chinese companies where the VIE shareholder who are disgruntled refused to sign even though out of contract they have to. So, we wanted to avoid future problems by cleaning up our VIE now. But it seems like in doing that we triggered a review by the SEC which is creating the current problems for us. I think originally you probably thought, oh, it's another (Jack Mont) situation or something. It is not. This is a completely up our board to just clean up the structure so that the old shareholders who don't have any involvement with the Company cannot influence the Company. This was – so, you understand this is done with the best intentions.

Ella Ji - Oppenheimer & Co.: The SEC investigation is triggered by this corporate structure change?

Louis Hsieh - President and CFO: I don't know. Like I said, Friday, the 13th was not a good day for me. So, we don't know all the details yet. We are working closely with the SEC. We are fully cooperating. We will get to the bottom of this.

Operator: Trace Urdan, Wells Fargo Securities.

Trace Urdan - Wells Fargo Securities: Louis, I wondered if you could comment on the management changes in Beijing and Shanghai and to what extent you believe that current weakness in those markets is related to simply the management transition and whether you would see that more on the top line or whether there's any sort of margin impact associated with that (indiscernible).

Louis Hsieh - President and CFO: It goes with both, top and bottom line Trace. Let's take one city at a time; Shanghai was run by Wang Haitao who's been with New Oriental for like 12 years. He's an experienced manager, very, very smart guy, great teacher. But honestly he's not as charismatic, not as energetic. So the last two or three years, Shanghai has not grown, it has grown about 20%, 25% a year. It hasn't kept up with Beijing even though it should, keeps up a small base. So ever since the last (2000), I think we've been contemplating this change. But at the time we had nobody to replace it. He's a fantastic school head, just not fit for Shanghai, because you need somebody with more energy, more charisma. Then over the last two years, there's a young guy in (Sheyang) named (Chen Hao). He's a superstar. He took Sheyang in the middle of nowhere to over 30% profit margin, not kind of going overhead. So (Sheyang's) profit margin is only one point below Shanghai and Shenyang is not as lucrative a city as Shanghai. So this guy has done 50% and 70% top and bottom line growth for four years. So he was the best young school head we had. So, once he was ready, we moved him to Shanghai and right now the department heads in Shanghai love him. So it seems to be a very good fit. He's very aggressive, very hard working. So we expect good things from Shanghai in the upcoming quarters. Wang Haitao has done a great job, he's a great administrator, he knows everybody. Everybody likes him. So we moved him to Beijing and since where he lacks in charisma and energy level, Michael Yu has. So Michael Yu, and (Chenggang) is obviously our COO, he's very good at operational issues. So the three of them together are now running Beijing school and (coaching done) as well. So you've got our whole senior brain trust, except me running Beijing school, because we are all local in Beijing. So it's easy, so it's basically shared price and that's acceptable to everybody at Beijing. So I think this system is working. Wang Hatiao does all the administrative type thing. Michael and (Chenggang) do more of the spiritual, charismatic strategic things. Then (indiscernible) who is my VP Finance works with the Beijing Finance Manager to keep the cost in line. So, I think this is the best system we can have to take care of our two most important schools.

Operator: Eric Wen, Mirae Assets.

Eric Wen - Mirae Assets: I just have two questions. First question is Louis you previously mentioned that New Oriental intends to grow its top line, bottom line by both 30%. Do you mean that U.S. dollar or local currency?

Louis Hsieh - President and CFO: By U.S. dollar, so I think if the RMB stops appreciating, we'll probably take it down 25%. I would have meant 30%, anyway because we're going so fast, but I think with the slowdown in China I want to give myself some room. So, I think 25%, 30%, closer to 30% on the top line and probably closer to 22% to 25% in the bottom line.

Operator: Anita Chen, Jefferies.

Anita Chen - Jefferies: I just have the following question on teachers, (were expecting) so quickly. Do you have any Chinese (training) recording qualified teachers and how to manage it?

Louis Hsieh - President and CFO: We always have that challenge and that's why we invested heavily in the last two years in this teacher training system and materials that allows 75 people to spend most of their time, almost all their time training teachers when you train 5,000 teachers a year. So it is a challenge. That challenge and also finding good school heads is our two biggest challenges.

Operator: Brandon Dobell, William Blair.

Brandon Dobell - William Blair: In relation to your comments about I guess less pricing power or the kind of consumer discretionary slowdown, do you see any change in the cost structure primarily teacher salaries or rent, are they following a same trend or are they still staying strong even though pricing is now weaker?

Louis Hsieh - President and CFO: Teacher salaries are going up is not as bad as a couple of years ago when inflation was higher, but there is a additional cost that's costing us more which is the social welfare payments. So the government is encouraging us to take up – we pay – the part of this – the employees were withheld from their salaries to pay for their social security or their retirement. So that number has gone up a lot. So I would say probably 12% of salaries now is going to social welfare costs and that’s I think the big – it's a negative for our bottom line.

Operator: Chao Wang, Merrill Lynch.

Chao Wang - Merrill Lynch: Firstly, I noticed that gross margin actually expanded 80 bps in the quarter, although operating margin declined. So does that imply utilization rate was improving, while other expenses were kind of out of control? Specifically within G&A, I'm wondering how much is labor related costs and how does that ratio compare to previous quarters.

Louis Hsieh - President and CFO: G&A is almost all labor and its all labor related to opening up new learning centers that haven't started yet. So the big increase in G&A is people working on learning centers being hired for the learning centers before they've opened, right, so that's the big cost. Gross margin was up 50 bps for the year, so we are getting better utilization, but it's been swap by the fact that we added 177 learning centers, which means we added – you do the math we've added 3,000, 4,000 of people who didn't produce a profit this year.

Operator: Fei Fang, Goldman Sachs.

Fei Fang - Goldman Sachs: This is Fei Fang on behalf of Catherine Leung. I have a quick question also for your sales and marketing, how much of the growth is related to advertising spend versus headcount increase?

Louis Hsieh - President and CFO: Both have gone up a lot. I think the advertising for this last quarter was quite high, it's about 40%, 50%. The headcount is slowing down because the VIPs (indiscernible) more students per headcount, but I think advertising spend in the last quarter and half really gone up and that's because we were challenged to get more students into Beijing and Shanghai for this boarding program during the summer and also because when business begins to slow, the natural inclination is to market more.

Operator: Kevin Tan, Joho.

Kevin Tan - Joho Capital: Louis, just one quick one on Q4 revenue and enrollment growth respectively for kids, high school and overseas test?

Louis Hsieh - President and CFO: Q4, I just have Beijing, hold on. Sisi can send this to you, is that okay, Kevin?

Kevin Tan - Joho Capital: Yeah, that's fine.

Louis Hsieh - President and CFO: You said Kevin the growth rates for those four programs, I have it in separate sheet and I can't find it now.

Operator: Jennifer Kao, Credit Suisse.

Jennifer Kao - Credit Suisse: (Chenggang Zhou in speech) mentioned some focus for fiscal year ’13 and it seems to me that the Company’s focus has been number one overseas test prep; number two, Vision Overseas; and number three, Global Study Tour; and then K-12, et cetera. I’m interested to understand how New Oriental views and positions Global Study Tour as it had only like 10,000 enrollments for fiscal year ’12, but contributed nicely to the top line and margins I think is quite low for this business right?

Louis Hsieh - President and CFO: I think the Study Tour is quite high margins and also I think it’s a very important piece as we locked our students up both basically for the Study Tour, for the SAT test prep, for the Study Consulting it means all part of the same, and English like I said it’s all part of the same marketing tool. It’s very popular, it’s high dollars high profit and it’s similar to the boarding programs in Beijing and Shanghai I was talking about. So it’s similar to that and those are slowing down and I think that’s partly because our schools around Beijing and Shanghai are getting better, it’s also partly because of the slowdown in China in general. People don’t want to spend large amounts of dollar on travel and vacation. As such the vacation for the kids is to look at different colleges. They feel like that’s the expense that’s not necessary.

Operator: (Ken Shi, SAC)

Ken Shi - SAC: Louis, thanks for the presentation and again we had another strong quarter with cash balance still growing. Remember we had a discussion earlier this year about potential use of this cash balance to return to shareholder by stock buyback where share prices volatile, is this deal viable in this environment?

Louis Hsieh - President and CFO: We announced the dividend, so we will look at other return of capital depending on the share price movements. We were announced the $50 million dividend last time.

Operator: Jin Yoon, Nomura.

Jin Yoon - Nomura: I apologize if this question has been asked before, but your expansion plan of couple hundred new school or small outlets going forward, I guess what the strategy behind that concerning the fact that you are seeing cannibalization, concerning the fact that you are seeing a slowdown in potential pricing and these new schools are not going to be profitable for 18 month plus. In this environment is there a need to expand so aggressively in markets where you’re not going to unprofitable for a long time anyways?

Louis Hsieh - President and CFO: I think all those statements are incorrect. I think these schools are profitable in year one. These schools are necessary because in the smaller cities you build a 2,000 square meter learning center. It’s going to take five or six years to fill up. These fill up within a year, year and a half, but this is just the way it’s done in these cities right now. So it’s sort of like large, large Walmarts everywhere. In the smaller cities you typically have your smaller facilities. So this is the sort of the new model for second and third tier cities and because in second and third tier cities there isn’t really much adult English overseas test prep, that’s why you need the big centers for. So these are more VIP and kids centers. So it’s exactly the model we need for this size city and that’s what we’re doing it.

Operator: Ladies and gentlemen, we are now approaching the end of the conference call. I’ll now turn the call back to New Oriental’s President and CFO Mr. Louis Hsieh for his closing remarks.

Louis Hsieh - President and CFO: I just want to thank everyone for taking the time on this call. It’s bit of a shocker, but I think we will do our best to pull through. (That's it). Look forward to talking to you guys on the road shows. Bye.

Operator: Thank you. Ladies and gentlemen, that does conclude our conference for today. You may now disconnect.