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Penguin Group Delivers Strong Results in 2006

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MAIN NEWS HEADLINES
March 1 – March 8, 2007 Edition

Penguin Group

Delivers Strong

Results in 2006

NEW YORK, NY/2/26/07–Penguin Group [all companies around the world, including DK] today reported its operating results for the year ending December 31, 2006. Underlying sales were up 3 percent, while underlying operating profits were up 22 percent, compared with the previous year, despite the failure of a major U.S. distributor.

Penguin Group’s profitability was raised due to investments in key publishing programs, digital opportunities, emerging markets as well as operations/back-office efficiencies. The company’s higher backlist sales, a reduction in overall returns, tight control of working capital and seamless supply chain performance also contributed to the increase in profitability. Penguin Group is part of Pearson (FTSE: PSON; NYSE: PSO), the international media company.

In 2006, Penguin Group (USA):

Achieved Record New York Times Bestseller Performance Achieved Growth in Core Imprints Achieved Strong Paperback Sales: Trade and Mass Market Achieved Strong Trade Paperback Sales with Three Multi-Million-Copy Trade Paperback Bestsellers Achieved Growth in the Premium Paperback Format, Contributing to Increased Mass Market Profitability Achieved Lower Returns Achieved Backlist Growth Published a Pulitzer Prize Winner as well as a Winner of a National Book Critics Circle Award, the Orange Prize and Other Prestigious Awards Grew New Hardcover Bestsellers by Building Authors first in Mass Market Format Continued to Dominate Paranormal Fiction Increased Audio Sales

Globally in 2006, Penguin delivered strong performances and achieved very good growth throughout the Group. In addition to the strong results delivered in the U.S., outstanding performances were also attained in the UK, Australia and Canada as well as DK. Penguin Group also expanded its leadership positions in emerging markets such as India, China and South Africa.

Looking ahead to 2007: Penguin Group will continue to actively pursue digital initiatives. Penguin Group (USA) is publishing internationally renowned authors whose new books are expected to be among the most highly anticipated titles of the year.

David Shanks, CEO, Penguin Group (USA), commented, “Despite ongoing U.S. marketplace challenges, in 2006 we achieved strong performances across the corporation that exceeded our targets for the year. We continued to leverage and build on our key strengths, resulting in a record number of New York Times bestsellers, core imprint growth, new multi-million-copy bestsellers, very good mass market growth, and the winning of some of the top awards in our industry.

“Looking at 2007, we are off to a strong start, and very excited about the quality and depth of our upcoming list, led by some of the most prestigious and important book launches in our industry, including The Age of Turbulence by former Federal Reserve Chairman Alan Greenspan, A Thousand Splendid Suns by The Kite Runner author Khaled Hosseini, The Assault on Reason by former Vice President Al Gore, and Book of the Dead, a new book from #1 New York Times bestselling author Patricia Cornwell.”

John Makinson, Chairman and CEO of Penguin Group, stated, “These excellent results reflect outstanding contributions from every corner of our company. In 2006 we published more bestsellers than ever before, carried home the world’s most prestigious literary prizes, and reinvigorated the heart of our backlist – Penguin Classics. Our underlying profits increased by almost a quarter, tangible reward for a company-wide focus on margin improvement and cash generation. We continue to extend our leadership positions in emerging markets and are implementing a digital strategy that will help us take full advantage of a market brimming with challenge and opportunity. We are confident of continued profit growth in 2007.”

Achieved Record New York Times Bestseller Performance

The year 2006 was one of excellent all-around publishing at Penguin Group. This was demonstrated by a record number of bestsellers achieved, by the number of “make” books, and by the literary, design, and recording awards our books garnered.

Penguin Group (USA) placed a record 139 books on The New York Times bestseller list in 2006 (surpassing 2005’s full-year number, 129, by ten). Also, Penguin Group (USA)’s bestsellers had more staying power than ever before in 2006, with a total of 809 overall weeks (up 119 weeks over 2005’s full-year total of 690).

Among Penguin Group (USA)’s many bestsellers were books that contributed to the national conversation about key issues and policy, including Fiasco by Thomas E. Ricks (The Penguin Press) (in Congressional hearings), Game of Shadows by Mark Fainaru-Wada and Lance Williams (Gotham) (on the cover of The New York Times and in the courts) and The Omnivore’s Dilemma by Michael Pollan (The Penguin Press) (in the halls of corporate America).

Achieved Growth in Core Imprints

In 2006, when the overall U.S. retail consumer book publishing marketplace growth rate was down nearly 3 percent [according to the U.S. Census Bureau], Penguin Group (USA)’s performance was up. G. P. Putnam’s Sons, Viking, Dutton, and Penguin Classics imprints all had fantastic years in 2006, particularly with long-time house authors who showed growth in sales since their last books. Penguin Group (USA)’s strong performance is a testament to aggressive, intelligent, and creative publishing as well as innovative marketing and selling.

G.P. Putnam’s Sons was the industry’s #1 hardcover imprint in 2006, with 26 New York Times bestsellers. Putnam has led the publishing industry with more hardcover New York Times bestsellers than any other single imprint in the publishing world for more than fifteen consecutive years. In addition, nine of Putnam’s New York Times repeat-bestselling authors grew by an average of 7.5% over their previous books. Five New York Times bestselling Putnam authors – W.E.B. Griffin, John Sandford, Daniel Silva, Robert B. Parker and Stuart Woods – achieved personal bests in 2006.

Viking had 12 New York Times bestsellers in 2006. Two Viking titles, Mayflower by Nathaniel Philbrick and Special Topics in Calamity Physics by Marisha Pessl, were among The Ten Best Books of 2006 selected by The New York Times Book Review. Mayflower, with more than 400,000 copies shipped, stayed on The New York Times Hardcover Nonfiction Bestseller list for 20 weeks, debuting on the list in May and returning to the list in the Fall.

Dutton, with one out of every four titles published in 2006 a New York Times bestseller, had ten bestsellers last year. Dutton’s 2006 New York Times bestsellers included books by Sylvia Browne, Harlan Coben, Eric Jerome Dickey, Raymond Khoury, John Lescroart, Greg Palast and Stephen White.

Penguin Classics sales were up 25 percent in 2006, the imprint’s 60th Anniversary year. Celebrations included the introduction of the Penguin Graphic Deluxe Classics. This new sub-series marries classic literature with stunning graphic cover illustrations. The first six titles, including Voltaire’s Candide, The Portable Dorothy Parker, and The Jungle by Upton Sinclair, were honored as part of the American Institute of Graphic Arts’ prestigious “50 Books / 50 Covers” design competition.

Published a Pulitzer Prize Winner as well as a Winner of a National Book Critics Circle Award, the Orange Prize and Other Prestigious Awards

Penguin Group (USA) authors won an impressive number of prestigious awards in 2006, including a Pulitzer Prize for Fiction – March by Geraldine Brooks (Viking/Penguin) – the second consecutive year the house won a Pulitzer; the Orange Prize for Fiction – On Beauty by Zadie Smith (The Penguin Press/Penguin Books, also published by Penguin UK); a National Book Critics Circle Award – Francine du Plessix Gray’s THEM: A Memoir of Parents (The Penguin Press) – in the autobiography category; and the Michael L. Printz Award – Looking for Alaska by John Green (Dutton) – for excellence in literature for young adults.

Tyler Perry’s Don’t Make a Black Woman Take Off Her Earrings (Riverhead) won the 2006 Quill Award for Book of the Year. Perry also won in the Humor category. Nora Roberts’ Blue Smoke (Putnam) won the Quill Award in the Romance category while T.D. Jakes was the winner in the Religion/Spirituality category for Mama Made the Difference (Putnam).

Achieved Strong Paperback Sales: Trade and Mass Market

In 2006, Penguin Group (USA) further demonstrated its skill for taking paperbacks to the top of bestseller lists and keeping them there. Penguin Group paperback titles held the #1 slot on The New York Times paperback fiction list for 22 straight weeks – a record achievement. This outstanding level of performance carried over into 2007, with Penguin holding nine of the top 15 slots – 66 percent! – on The New York Times paperback fiction list for the week of February 4th.

Achieved Strong Trade Paperback Sales with Three Multi-Million-Copy Trade Paperback Bestsellers

Penguin Group (USA) continues to distinguish itself as the home of multi-million- copy trade paperback bestsellers, including The Kite Runner by Khaled Hosseini (more than 4 million copies in print, through 25 printings, and more than two years – 111 weeks – on The New York Times paperback fiction bestseller list), The Secret Life of Bees by Sue Monk Kidd (more than 4.6 million copies in print, through 27 printings, and 102 weeks on The New York Times paperback fiction bestseller list) and, most recently, The Memory Keeper’s Daughter by Kim Edwards (more than 2.4 million copies in print, through 18 printings, 35 weeks on The New York Times paperback fiction bestseller list, including 15 weeks at its current #1 position). The Memory Keeper’s Daughter has also been #1 for 26 weeks on Publishers Weekly’s Paperback Bestsellers List. Remarkable Rate: Penguin shipped 10,773 copies of The Memory Keeper’s Daughter per day from May 30 through December 2006.

Achieved Growth in the Premium Paperback Format, Contributing to Increased Mass Market Profitability

Penguin Group (USA)’s overall mass market performance in 2006 was strong, with Penguin’s invention, the Premium Edition, contributing significantly to the increased profitability. The company continues to aggressively publish bestsellers in this format and have 21 Penguin Premium editions scheduled for publication in 2007.

Achieved Backlist Growth

Strong backlist sales were underpinned by the 60th Anniversary of Penguin Classics, with promotions, new formats, eye-catching repackaging, and special editions driving Penguin Classics’ best-ever year for sales across all markets. Last fall Penguin Classics launched its Book Club on Amazon.com. Significant new sales growth was achieved with each of the first two Penguin Classics Book Club title selections: Fifth Business by Robertson Davies and Kristin Lavransdatter by Sigrid Undset.

Grew New Hardcover Bestsellers by Building Authors in Mass Market Format First

Penguin Group (USA) discovered and launched the careers of New York Times-bestselling authors with bestselling paperback originals before they achieved New York Times hardcover bestsellers. This feat revives a publishing strategy that had gone cold in the industry years ago. Also, Berkley is now the #1 marketplace leader at turning paranormal romance and fantasy mass market paperback authors into hardcover bestsellers. In 2006, Penguin Group (USA) had more success with this publishing pattern than any other house, with Laurell K. Hamilton, Charlaine Harris, and Christine Feehan all placing titles on The New York Times hardcover fiction bestseller list, resulting in three New York Times hardcover fiction bestsellers from Berkley Hardcover and one from Ace Hardcover for the year.

Continued to Dominate Paranormal Fiction

Leslie Gelbman and her Berkley/NAL team are the marketplace leader in the Paranormal Romance category, publishing such New York Times bestselling authors as Laurell K. Hamilton, Christine Feehan, and J.R. Ward. The Paranormal Romance book market keeps growing, with Paranormal Romances making up an estimated 20 to 25 percent of U.S. romance book sales in 2006. This represents an 18 percent increase over 2005. Roc, NAL’s science fiction/fantasy imprint, is at the forefront of another growing Paranormal Romance sub-category, Dark Urban Fantasy/Dark Urban Noir. And less than two months into 2007, Ace author Patricia Briggs’ Blood Bound has already hit The New York Times bestseller list.

Increased Audio Sales

Penguin Audio gross sales were up 6 percent in 2006 as the division achieved its most successful sales numbers ever. Penguin Audio won two Publishers Weekly 2006 Listen-Up Awards and five Penguin Audio books are finalists for 2007 Audies – the most ever for the audio division.

Achieved Record Young Readers Bestsellers

Penguin Young Readers Group had a record year in 2006. With 27 New York Times bestsellers, the Group set a new bestseller performance record (besting the 2005 full-year record total of 25). In addition, the Group’s 197 weeks on The New York Times list was 30 more than last year’s total of 167. Its five #1 New York Times bestsellers in 2006 included Fairyopolis: A Flower Fairies Journal by Cicely Mary Barker (Warne), with a total of 52 weeks since November 2005; The Little Engine That Could by Watty Piper, illustrated by Loren Long (Philomel Books), which became a #1 New York Times bestseller in the wake of its national position as Jumpstart’s Read for the Record title in the program’s inaugural year, and Heat by Mike Lupica (Philomel Books), his second #1 New York Times bestseller. The Group excels in publishing New York Times bestselling Young Readers titles by such authors as Lupica, Clive Cussler, Jan Karon and Robert B. Parker, who also write adult bestsellers.

Increased Online and eBook Sales

Penguin Group (USA) online sales have continued to experience large year-over-year growth. Looking at 2006, the Penguin Group (USA) website (http://us.penguingroup.com) attracted more than 2.8 million unique visitors and online sales in the US increased nearly 30 percent, year-over-year. In addition, eBook sales through third party retailers were up 17 percent year-over-year.

Delivered Strong Growth Globally: the UK, DK, Australia and Canada

Penguin UK: 2006 was a year of outstanding progress, with sales growth well ahead of the market. This was fueled by a record number of bestsellers — 59 titles in the BookScan top ten bestseller list in 2006 versus 54 in 2005. In 2006, Penguin books enjoyed a total of 361 weeks in the charts as against 319 weeks in the previous year. It was also a great year for fiction, as Penguin’s share of the fiction market grew by 19 percent (while the overall fiction market grew by only 3 percent) led by A Short History of Tractors in Ukrainian by Marina Lewycka as well as some very strong hardcover fiction performances by key repeating authors Marian Keyes, Clive Cussler, Lesley Pearse, PJ Tracy and Dick Francis. The year 2006 was also a stellar one for book awards. Titles from the Hamish Hamilton imprint alone won the UK’s three biggest literary prizes: The Whitbread Book of the Year – Matisse the Master by Hilary Spurling; The Orange Prize for Fiction – On Beauty by Zadie Smith and The Man Booker Prize – The Inheritance of Loss by Kiran Desai. Strong backlist sales were underpinned by the 60th Anniversary of Penguin Classics, with promotions, new formats, eye-catching repackaging and special editions driving Penguin Classics’ best ever year for sales across all markets. UK and European sales of Classics were up 20 percent year-on-year.

DK had a year of growth in all markets thanks to a very strong publishing program. Highlights included Pick Me Up, a new kind of reference book inspired by the Internet, styled like a video game, and informed by pop culture, which hit #8 on The New York Times bestseller list in the US and #1 in the Children’s Reference category in the UK; Rainforest, DIY, Weapon, Shipwreck Detective and the Marvel Encyclopedia were also big sellers in the second half. DK won a host of awards including The James Beard Award for The Cook’s Book and The Practical Preschool Award for Miriam Stoppard’s Toddler series. DK’s International licensing division put in a particularly strong performance in Central and Eastern Europe and Mexico while BradyGames, publishers of the world’s leading video strategy guides, and now part of DK, saw big sales around the globe from the World of Warcraft franchise and other games

Penguin Australia, following its record year in 2005, continued to perform well in 2006. Penguin’s total market share was nearly 17 percent, more than 6.7 percent ahead of its nearest competitor. Five of the country’s top ten bestsellers for the year came from Penguin. The market leader in fiction with more than 19 percent, Penguin had the highest selling Australian novel of 2006 with Bryce Courtenay’s Sylvia. In the nonfiction category, Penguin’s market share of 14.75 percent was five percentage points ahead of its nearest rival. Its children’s division had another exceptional year, with 15.75 percent market share, nearly 7 percent ahead of its nearest rival.

Penguin Canada had a banner year in 2006 with 53 titles making the national bestseller lists. Last year’s #1 bestselling books numbered 14 and included Margaret MacMillan’s Nixon in China, Stuart McLean’s Secrets from the Vinyl Café (6 weeks at #1) and Matthew Skelton’s Endymion Spring. In the Spring of 2006, Penguin Canada Publisher David Davidar announced a three-year initiative to deepen and strengthen Penguin Canada’s publishing program, with the company launching one new Canadian series every year through 2008.

Expanded Leadership Positions in Emerging Markets such as India, China, and South Africa

Penguin Group continued to grow its businesses globally in 2006. The company has raised its flag in emerging markets with enormous growth opportunities – Penguin Group being the first international English language trade publisher to establish offices in India and China – and has been able to further expand its global revenue streams, in some cases reaching new market-share heights and launching innovative publishing programs. Of particular note:

Penguin India, which celebrates its 20th Anniversary this year, once again was the market-share leader in 2006, with 23 percent, more than double its closest competitor. Penguin India was the first international publisher in India to develop a sustained publishing program in a language other than English and its local publishing program in 2006 was 21 percent ahead of 2005. Penguin publishes nearly all of India’s top bestselling authors, including Kiran Desai, Vikram Chandra, William Dalrymple, and Mani Bhaumik, with Amitav Gosh the latest world-class new writer to join the list. In 2006, Penguin India launched a new imprint, Portfolio, to cater specifically to the business segment, named after Penguin Group (USA)’s dedicated business book imprint.

Penguin China sold three times as many English-language books in the country in 2006 than it did in 2005. At the 2006 Beijing Book Fair, Penguin Group announced its first Chinese-language publishing program to appear under the Penguin brand. In a joint project with the Chongqing Publishing Group, a list of ten Penguin Classics titles will be published in Chinese beginning in 2007. Influential Guangxi-based publishing house Jieli published the first Spot books by Eric Hill in simplified Chinese under license in September 2006. Penguin China continues to acquire worldwide English rights to between four and six Chinese titles each year.

DK launched dk.china.com, a new website to showcase DK’s local publishing in this growing territory. DK grew local language licensed sales to China by 40 percent and signed an agreement to publish Travel Guides in Chinese for the first time.

Penguin South Africa’s Spud, the critically acclaimed #1-bestselling debut comic novel by John van de Ruit, has been the fastest-selling local fiction title in the South African market in decades. When Spud was first published in September 2005, it quickly rose into the Top 5 on The Sunday Times (SA) bestseller list and has been #1 for a total of 26 weeks – many of those weeks consecutively. Spud remained in the Top Ten continuously for more than one year and was the #1 bestseller of South African titles distributed by Exclusive Books. Penguin Group (USA)’s Young Readers imprint Razorbill will publish Spud in October 2007.

Looking Ahead

Penguin Group Actively Pursues Digital Initiatives

The impact of digital technology on book publishing is global in scope and Penguin Group is taking a leadership position in 2007.

John Makinson, Chairman and CEO, Penguin Group, has observed that “digital technology affects every area of our business because it forces us to rethink how we create content, how we store it, sell it, license it, manufacture it, and protect it.”

Going forward in 2007, Penguin Group is pursuing a number of digital initiatives, including:

Establishing a virtual online library – with words, images and data – across Pearson, fully searchable by anyone in the world, with a global data base. No one can predict the speed at which individual product and format applications take off, but this digital archive will put Penguin Group in a position to respond rapidly as new digital formats become viable in the marketplace.

Further improving Penguin Group’s global websites with new tools, including new search engines, content management tools and customer relationship management systems. In partnership with Pearson Technology, Penguin is developing a plan to put these tools in place and give company websites much better functionality.

Coordinating Penguin Group’s digital activities around the world, with the appointment of one individual to coordinate and, in some cases, direct new technology initiatives and programs.

Forging relationships with technology companies, search engines, bloggers, content aggregators, electronic retailers, online book communities and social networks.

Testing new pricing, marketing, and publishing ideas in the world of digital technology.

Launching travel.dk.com, a website that integrates user-generated content with DK Eyewitness content and allows the user to create, print and share personalized travel guides.