Take-Two Interactive Software Inc (TTWO) 2007 Q2 法說會逐字稿

Greetings ladies and gentlemen, and welcome to the Take-Two Interactive conference call.

At this time, all participants are in a listen-only mode.

A brief question and answer session will follow will follow the formal presentation.

(OPERATOR INSTRUCTIONS).

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ms.

Cindi Buckwalter for Take-Two Interactive.

Thank you, Ms.

Buckwalter, you may begin.

Thank you.

Welcome, and thank you all for joining us for today's call.

My name is Cindi Buckwalter, Executive Vice President for Take-Two Interactive.

Today's one hour call will be led by Strauss Zelnick, Chairman of Take-Two, Ben Feder, our CEO, and Lainie Goldstein, our CFO.

We are also joined by Seth Krauss, Take-Two's Chief Legal Counsel.

The entire team will be available to answer questions you may have during the Q&A session following our prepared remarks.

Before we begin, I would first like to quickly review our Safe Harbor statement by reminding everyone that the statements made during this call that are not historical facts are considered forward-looking statements under Federal securities laws.

These forward-looking statements are based on the beliefs of our management as well as assumptions made by and information currently available to us at this time.

Actual operating results may vary significantly from these forward-looking statements based on a variety of factors.

These important factors are described in our filings with the SEC including our 10(K) for the fiscal year ended October 31, 2007, which may be obtained from our Web site at www.Take2Games.com or by contacting the SEC.

Now let me turn the call over to Strauss.

Thanks, Cindi, and good afternoon everyone.

Thank you all for joining us today.

On our last conference call with you, which was back in April, we spoke about our determination to revitalize Take-Two.

We also said that the new management team would take actions within our first 100 days to address the major challenges facing the company.

Now we are still about a month shy of that official 100 day mark and our process is still ongoing.

We've made progress on many fronts which we'll discuss in a few minutes.

We are also planning another conference call which is now scheduled for July 9 to provide further detail on our action plans.

Also on today's call we will be reviewing the financial results of our second quarter which were right in line with the expectations we provided in our April conference call.

We will also discuss our financial outlook for the remainder of the year which remains unchanged.

I'd like to remind all of you of something we said on the last conference call.

The focus of our efforts at Take-Two, our strategy here, is to be the most creative, the most innovative and most efficient company in our industry.

And I'm very pleased to say that two months into our process, we are more confident than ever that the company can achieve these objectives and we are all on the same page trying to achieve the same thing.

Our goal is to make great games and to delight consumers, and in so doing we expect to delight our employees and our shareholders.

As you know, our efforts during the initial period have been focused in five critical areas.

First, ensuring that we have the right organizational structure to meet our goals.

Second, assessing all of our business units and developing strategic alternatives for any businesses that we determine to be noncore or unprofitable or marginal.

Third, taking steps to maximize the value of critical relationships such as hardware suppliers and product licensors.

Fourth, reinforcing a disciplined product investment strategy and, fifth, working aggressively to resolve litigation and regulatory issues effectively and appropriately.

Ben is going the talk about our progress in each of these five areas shortly.

What I'd like to emphasize is how pleased we have with what we have found at Take-Two so far.

The senior management team is very professional, very confident and very focused and committed to the success of the company.

Our development teams are also highly focused on making great games, our watch word around here.

There are many exciting products in the pipeline.

All the titles planned for fiscal 2007 are on track and look great.

And throughout the company our people seem to be responding positively to the atmosphere of openness and communication and we hope that that's becoming a distinguishing feature of this new Take-Two.

In short, the revitalization program is off to a very strong start.

We really couldn't have asked for any more.

We are confident that Take-Two is on track to become more responsive, more disciplined, more cost efficient and that that will lead to reinforce and enhance our creative spirit that makes great games.

We think efficiency leads to creativity and that they are firmly entwined.

With that said, I would like to turn the call over to Ben.

Thanks, Strauss.

We've made solid progress in many of the critical areas that we targeted for improvement and we expect to accomplish even more in the remaining period of our 100 day plan.

I'd like to personally thank the Take-Two team which has devoted significant time and energy to this process.

Let me take you through the five areas of focus.

In terms of our first priority area, organizational structure, today we are announcing several significant restructuring initiatives.

Overall we expect these initiatives to reduced fixed overhead on an annualized run rate basis by approximately $25 million by the end of fiscal 2008.

Approximately 60% of this amount represents a reduction of operating expenses and the remaining 40% is a reduction of cost of goods sold.

I should emphasize that this figure represents only those cost reductions that we have identified to date as part of our restructuring plan.

We are committed to continually pursuing opportunities to improve the efficiencies of our company.

As for the specific actions we are taking, first we significantly restructured our international operations to consolidate and align marketing, sales, operations, according to the business functions as opposed to geography.

This has allowed to us eliminate an entire layer of management and to create more efficient responses and transparent international organization.

Second, we are consolidating the west coast, on the west coast the management, marketing and business development operations of 2K and 2K Sports labels.

This is expected to result in better communication with the 2K organization, move us closer to our sports development teams and other key resources, reduce our lease expense and enhance overall efficiency.

With our 2K operations centralized on the west coast, we can better focus on the growth opportunities in this business.

Third, all administrative functions for labels and studios such as HR, legal affairs, finance and IT will now report to Take-Two corporate rather than their individual business units.

This will improve control and accountability.

Fourth and finally, we have consolidated our third party PC distribution business into our North American sales organization.

Excluding any asset impairments we expect to recognize restructuring costs of approximately $15 million related to these actions.

About half of these costs will be recognized during the balance of fiscal 2007 and the remainder in fiscal 2008.

While we are very pleased to have accomplished this significant realignment in such a short period of time, we will continue to explore additional opportunities to enhance the organizational effectiveness and productivity of our business.

In addition to the organizational restructuring, we also pledge to assess all business units and develop strategic alternatives for any operations that are noncore, unprofitable, or marginal.

Now obviously publishing is Take-Two's core business and that will be the primary focus of our resources and energies.

Within publishing we consider the Rockstar, 2K, 2K Sports, and Global Star labels to be core holdings.

We are in active discussions regarding possible alternatives for Jack of All Games and Joytech.

However, I want to emphasize that we are supporting these businesses and we will continue to support these businesses and operate them if we cannot reach terms that make economic sense.

Our third priority is to maximize the value of critical external relationships, specifically with licensors.

We are continuing to work on this important aspect of our business and we will provide an update on our July 9 call.

Reinforcing a disciplined product investment strategy is our fourth focus area.

We have extensively reviewed the products in our pipeline.

While we are comfortable with the economic assumptions underlying most of the titles, we did write off several products in development that were planned for release beyond fiscal 2007.

More importantly, we are instituting a green light process designed to support and enhance our reputation for creativity and assure the economic viability of every product.

We will have more to say about this on on the green light process on the July 9 call as well.

Finally we are committed to working aggressively to resolve our outstanding litigation and regulatory issues.

We've been in regular contact with the Manhattan District Attorney and the SEC to assure them of our continued cooperation.

While we can't speculate as to the course of their investigations we will continue to work with the D.A.

and the SEC towards a resolution of any outstanding issue.

I'd like to touch on two additional topics, our financial results for the quarter.

and our product pipeline.

With respect to our financial performance, net revenue for the second quarter was $205 million, or about 23% below the same period last year, and slightly better than we forecast on our last call.

Our loss per share was $0.71, the same as last year, which was right in line with our expectations.

Non-GAAP net loss per share excluding unusual charges on stock-based compensation in both the 2007 and 2006 periods was $0.41 in the second quarter of this year versus$0.52 in the same quarter last year a year ago.

Lainie will provide additional detail on our financial results in a moment.

We reiterating our guidance that we provided on our last call.

For the full year we expect 1.2 to $1.25 billion in net revenue with break even results on a GAAP basis.

note that both our revenue and earnings guidance exclude any potential impact from our restructuring.

We also provided initial guidance for our third and fourth quarters as detailed in our press release and upon which Lainie will elaborate in a moment.

We are pleased to report our product pipeline for fiscal 2007 remains on schedule.

We remain confident in the release dates of our key second half titles, Grand Theft Auto 4 for XBox 360 and PlayStation 3, and BioShock for XBox 360 and PC.

We look forward to the release of two new sports titles this summer, The Bigs, and All-Pro Football 2k8.

To summarize, we have made great progress in a short period of time to deliver on the strategic actions to which we committed previously.

I'd like to echo the point Strauss made about our confidence in the future and our high regard for the people at Take-Two.

Together, we are making great strides in revitalizing the company and building on a great creative organization.

Now it gives me great pleasure to turn the call over to Lainie Goldstein.

As you know, we announced today that Lainie has been made our CFO.

The decision to promote Lainie reflects her talent and professionalism and our confidence in her as well as her contributions since taking upon leadership of the finance team on a interim basis during the challenging period for the organization.

So with that, Lainie?

Thanks, Ben, and good afternoon everyone.

I will be covering several topics today.

First, a review of second quarter results and second our outlook for the remainder of fiscal 2007.

Before we begin I would like to note our new financial statement presentation and the financial tables of our press release.

In addition to reporting our GAAP financial results, we have also provided detail on various non-recurring and/or non-cash charges such as professional fees related to our stock options investigation, various unusual regulatory matters, expenses relating to our management and board changes in Q2, stock-based compensation expense and related tax effects.

We have provided this information in order to better reflect the performance of our business on an operating basis.

We have also provided a reconciliation of our non-GAAP results to our GAAP results.

Now to our Q2 results.

Net revenue was $205 million compared to $265 million a year ago.

Our GAAP net loss, which includes a total of $21.6 million in unusual charges and stock-based compensation expenses, was $51 million or $0.71 per share.

This compares to the net loss of $50 million or $0.71 per share in the second quarter of 2006.

Our 2007 Q2 net loss included an $18.9 million valuation allowance against deferred tax assets and caused to us realize no tax benefit for the carry forward tax effects of this loss.

Looking at our results in a pretax basis, our loss from operations was approximately $51 million compared to $77 million last year.

Our decline in revenue year over year was primarily due to the strong sales last year of the Elder Scrolls 4: Oblivion which was launched in the 2006 second quarter and represented about $81 million of revenue in that period.

Offsetting the decrease from The Elder Scrolls our leading titles this quarter were Grand Theft Auto Vice City Stories and Major League Baseball 2K7, each which have sold over 1 million units in the quarter.

Our sports business was once again a strong contributor to revenue.

Sports titles represented over 35% of our publishing revenue in the second quarter.

Looking at the break down of our total business, publishing revenue was 75% of the quarter's revenue, the distribution revenue at 25%, about the same as Q2 last year.

Our distribution business decreased by about 21% from last year's second quarter, due primarily to the decline of volume and average selling prices of legacy platform titles.

In looking at our consolidated results, our total gross profit margin for the quarter increased significantly this year to 22% compared to less than 7% last year.

This increase was due to above average royalty costs for the Elder Scrolls and approximately $80 million of impairment charges in Q2 last year primarily related to our studio closures compared to a $5.2 million impairment charge this year.

Additionally this quarter, we enjoyed a significant increase in the gross profit margin of our sports products; primarily Major League Baseball 2K7, NBA 2K7 and College Hoops 2K7, all of which had higher sales than their prior versions and comparable software development costs.

Also per unit royalties were lower for our Major League Baseball 2K7 title this year.

Since we have one additional MLB title planned for release this summer, The Bigs, our minimum annual royalty for MLB is amortized over a greater number of units which reduced the per unit royalty costs.

Our operating expenses in the second quarter were approximately $97 million up about $2 million from last year's second quarter.

This was primarily driven by $9 million of charges related to the management and Board changes this quarter.

Additionally, G&A expenses rose this year, largely due to higher professional fees associated with the option investigation and responses to the SEC and the Manhattan D.A.

Our R&D expenses declined as a result of our development studio closures in Q2 2006 and higher costs last year related to severance expenses.

Our selling and marketing expenses also declined year over year, due primarily to a significant marketing campaign last year in connection with the launch of the Elder Scrolls.

Lastly, we realized impairment charges of about $6 million in Q2 last year from write offs of intangibles and trademarks.

The last area of discussion on our income statement relates to taxes.

You'll see that our effective income tax rate for our second quarter is negative 3%, a significant reduction from our 35% effective tax rate in Q2 of 2006.

As a reminder, as we discussed on our year end call, in light of our domestic cumulative losses for the past three years, we are required under FASB-109 to record a valuation allowance to reduce our deferred tax assets.

Basically what this means is that fiscal 2007, despite of book loss we are not recognizing the tax benefit of this loss, which would have reduced our net loss.

Instead, we effectively incurred a non-cash income tax expense of $18.9 million, or $0.26 per share due to our inability to record a benefit for the 2007 U.S.

losses.

It's important to note that as we generate taxable income in the U.S.

for future periods we will realize the benefit of the reversal of the valuation allowance.

Moving on to our balance sheet, at the end of Q2, we had approximately $108.5 million in cash.

Net accounts receivable at the end of the second quarter were approximately $70 million compared to $143 million at the end of Q4 and $130 million at this time last year.

Our DSO in Q2 were approximately 31 days, compared to 48 days in the fourth quarter and 44 days in the second quarter last year.

Our accounts receivable reserve stood at $53 million at the end of the quarter representing approximately 43% of gross receivables.

Our Q2 reserves were approximately 11% of trailing six months revenue, and about 7% of trailing nine months revenue, lower than last year's Q2 levels as many of our publishing titles were introduced at lower average selling prices this year, due to the industry's console transition.

Inventories for the end of the quarter were approximately $80 million, down significantly from $96 million at year end and $92 million at Q2 last year.

Due to our reduced sales volume and continued focus on managed inventory level.

Our software development costs and licenses totaled about $156 million at the end of the quarter compared to approximately $117 million at year end and about $106 million at this time last year.

The increase is primarily related to the key titles planned for release over the next 12 months including Grand Theft Auto Four, BioShock and All-Pro Football 2K8.

We currently have over 35 titles in various stages of development on current and next-generation platform.

Now two comments about our guidance as detailed in our press release.

For fiscal 2007 we have reiterated our full year guidance of break even on a GAAP basis including stock-based compensation expense of $0.22 per share but excluding any reorganization and restructuring charges, and $1.2 billion to $1.25 billion in revenue.

Included in the reorganization expenses is additional stock-based compensation of $0.03 per share.

Additionally, fiscal 2007 estimates only reflect tax expense to the company's international operations.

For Q3, we expect net revenue in the range of $195 million to $215 million with a GAAP net loss per share in the range of $0.60 to $0.65 including stock-based compensation expense of $0.06 per share, but excluding any reorganization and restructuring charges.

Additionally, third quarter estimates reflect no tax benefit as discussed earlier.

For Q4 we expect net revenue in the range of $520 million to $550 million, with GAAP net income per share in the range of $1.35 to $1.40, including stock-based compensation of $0.06 per share but excludes any reorganization and restructuring charges.

Included in the Q4 reorganization expense is additional stock-based compensation of $0.03 per share.

Fourth quarter estimates reflect only tax expensed for international operations as well.

Let me provide some additional data points on our 2007 outlook.

We expect our total revenue mix to be split about 75% publishing and 25% distribution.

This is fairly comparable to what we experienced in 2006, however, the projected mix of business in publishing will be more favorable from a margin standpoint.

On a blended basis for publishing distribution we expect gross margins for fiscal 2007 to be in line with the levels we achieved in Q4 of 2006.

A significant portion of Rockstar's revenue will come from our premium priced Grand Theft Auto 4, on next-gen platform compared to 2006 when a large part of Rockstar's business was lower priced catalog products on current gen platforms.

The 2K games we expect a greater percentage of sales to come from higher margins internally developed and owned titles led by Bio Shock.

Now let me give you an idea of where we see our operating expenses trending.

We are obviously coming off a recent period of high G&A spend based on some of the regulatory challenges we've had along with our business reorganization.

We see Q3 levels improving slightly compared to Q2, based on reduced professional fees.

Selling and market is closely tied to our product releases so we can expect a larger marketing spend overall in 2007, about in line with the prior year selling and marketing as a percentage of sales.

R&D will fluctuate from quarter to quarter, based on what products our teams that we are working on but on an annual basis, we will expect R&D to be about comparable to 2006.

Depreciation and amortization to grow at about the same rate as last year.

As for taxes, you can expect any additional current year U.S.

losses to be recorded without tax benefit while future profits will benefit from the reversal of the valuation allowance on our deferred tax assets.

As a result, our losses in the short term are magnified as income earned in all jurisdictions outside the U.S.

should result in taxes spent.

Taking these factors together, we believe we can show a meaningful improvement in our operating performance in the balance of 2007.

Looking into 2008, we see additional opportunities to capitalize on the strength of our core franchises and our sports business.

While the benefits of our restructuring will begin to be realized in fiscal 2007, the impact of these operational changes will be reflected more significantly in our fiscal 2008 results.

At this point I will turn the call back to Strauss.

Thanks, Lainie.

I would like to conclude the formal portion of the call by reminding everyone that we do wish to maintain open lines of communications in the weeks and months ahead.

We will be communicating with you again very soon in early July, and will provide additional elements of our 100 day plan.

We will also be in touch with you at E3.

We hope that your takeaway from the call is that we are moving ahead aggressively.

We have already made a lot of progress on the initiatives that we outlined and we think those initiatives will lead to enhanced profitability and enhanced shareholder value.

We will now been happy to take your questions.

Operator?

Thank you.

(OPERATOR INSTRUCTIONS).

Our first question come from the line of Heath Terry with Credit Suisse.

Please proceed with your question.

Thank you.

I was wondering if you could give us an idea or talk about what kind of progress you're making on the licensing front, particularly getting any kind of relief from your partners on the sports side?

And to the extent that that's actually an important goal for you.

And also if you could give us an update on at least, now that you've been in the role for a while, your, how your philosophy around licensing products like the upcoming Fantastic Four movie and some of the other licenses that the company has done in the past has changed?

Well, in terms of the sports business, we've expressed a commitment to that business going forward.

We are trying to optimize the business.

And there are a couple ways you optimize the business.

First and most important thing is make the best titles in the business and the company already achieved that goal.

And frankly not on our watch.

Our games rate about 20-points on average more highly than our big competitor in this space.

And we think consumers are going to come to the conclusion that these are the games to have.

And we like the business.

It's an annual business.

We also have exclusivity in a key business which is the baseball business.

We think we are set up until ways to build a good profitable business there and some of the progress we are going to make is simply going to be volume related as we sell more units, as these new platforms grow and as people become, begin to realize their expectations for a great sports game will be more closely in line with the games we produce.

There are potentially opportunities to enhance the nature of the relationships we have with licensors.

We don't have anything to announce right now.

Obviously it's something that we are focused on.

I don't think it's the be all and ends all of the business.

I think if we can achieve a win win situation with the licensors, where we sell more games and they are great, they do will and we do well and that's part of our goal.

On the licenses side I feel really good about Fantastic Four.

I'm not sure what else I can tell you about it.

Our core business around here is creating our own intellectual property.

There are also certain instances where licenses can be very valuable to us and generally speaking, the experience that I've had and we've had in the video game business of good license and a bad game doesn't yield a good result.

A great game without a license yields a great result.

A great game and a great license can indeed yield a great result.

So you can take away from that sort of how I feel about the business.

At the end of the day what's a common almost of success?

A great game.

Sure.

And then as you look at the business longer term, is there anything about what you found about Take-Two that would suggest that over time your margins aren't going to be in line with those of the other companies your size in the industry besides obviously the component of your business that's distribution?

Right, if the pull out the distribution business then the question would simply be, is there any reason for the cost of our operating and our gross margins to be different.

And the only thing that would change it is if we made choices that meant we operated either more or less expensively than our competitors.

There's one material difference which is that we do have a stated strategy which is not everyone's strategy, to make the very best games in the business for next-gen consoles.

That's an expensive proposition.

We try to be efficient in the way we do it.

We are very focused on efficiency.

We think efficiency and creativity go hand in hand, that they are not all in conflict.

Everyone knows that producing games for next-gen consoles is complex and expensive.

Not everyone can do it.

That is what we do.

And we think if you are going to make the very, very best games you have to put your resources there.

If that includes hiring and attracting the very best personnel, then that could change your percentage margin but hopefully you would be doing it if you're rational to increased profitability.

One of the things I have encouraged analysts to think about as they look at our company is while margins are interesting, at the end of the day what do you really want to know about?

You want to know about your return on invested capital, and how much cash flow we are generating in a given year, and are we going to make more money around here than this company used to make.

Sitting here at the cusp of enormous growth, without regard to Take-Two, in the next-consoles, this going to occur.

I am not saying we'll benefit from it.

I believe we will.

I don't have a crystal ball.

I can only tell you we are doing the best we can.

All of us have enough of a crystal ball to know that the next several years is going to be a period of wonderful growth driven by next-gen consoles and there are only a small handful of us who are competing aggressively in this space.

It may, on a pound for pound basis therefore cost us more to compete and make a great game and market it.

If we made the right decision and the market grows and I believe it didn't I believe it will we are going to make more cash flow, and that's what I think everyone ought to be focused on that.

Obviously at the end of the day we will be judged on what happens to our stock price and our stock price will reflect all of those thing.

I'm a little bit less focused on operating margins than I am on our return on invested capital, the value of what we are creating in terms of cash flow on an ongoing basis and what what happens to our stock price.

Great.

Thank you.

Our next question comes from the line of Tony Gikas with Piper Jaffray.

Please proceed with your question.

Hi, good afternoon.

Thanks for taking my questions.

A couple of questions.

Do weak sales of the PlayStation 3 hardware system at a high price point impact the launch of GTA 4 at all in your view?

Second part of that question, will there be any premium versions that you can talk about yet and will the PS3 or XBox 360 versions be differentiated in any way?

And then I have a quick follow up.

Well, just in terms of the release date, no, we are confirming the release date and we are Boeing to meet the release date, so let me just say that clearly.

And we think that frankly the release of Grand Theft Auto four is going to have a materially beneficial impact on the sales of PS3 Certainly, if history is any guide that's going to be the case.

We think this is a must own title and that will help the platform.

I think plenty has been written about the price point.

I probably don't need to jump on that band wagon but I think if you look at history, next-generation consoles sell in at certain price points.

They are often introduced as price points.

Those tend to be reduced when they reduce selling increasing.

Obviously we have seen a coming for XBox 360 for the title.

And because the consoles do differ there will be some differences in the games.

My kids actually have three game consoles at home and sometimes play the same titles on different consoles and they see some difference and they find that compelling.

These obviously are not going to be identical experiences but they are going to be very, very close.

In terms of the premium version we announced a special addition for GTA 4 That will be premium priced and very nicely packaged, actually.

I've seen a mock-up of the package.

It's a beautiful, beautiful product and that's been previously announced.

Will the premium version be perhaps the only version available in the first weeks of the launch or will both versions be available.

Day and date.

Can you help us with a housekeeping question with a tax rate for next year?

Will you be paying taxes?

We won't be paying taxes in the U.S.

but we will continue to pay taxes in our international operations.

Okay.

And then how about your view of software growth in the market this year, guys?

For the overall industry looking at calendar '07 and perhaps calendar '08 if you have an opinion.

We focus on Take-Two primarily and I wouldn't want to opine on the industry although as Strauss said we think that we foresee growth for the next couple of years based on next-gen console.

We're pretty sanguine about the prospects for growth industry-wide.

I wouldn't comment on specific growth

Tony I probably read the same research you do.

Most people field like the titles per platform are going to go up with the next-generation console, they were an average of roughly ten, a lot of analysts feel the number is 12 or 13.

I think as consoles get better you can do more of them as the population of gamers gets broader and as we go from early adopters to the general population you may well see that happen.

I certainly hope so.

I will tell you our plans are not driven by that.

Okay.

Thank you.

Our next question comes from the line of John Taylor with Arcadia Investment Group Corporation.

Please proceed with your question.

I have a couple of questions.

It looks like you're going to change your presentation in your statements to us and you are no longer breaking out software development costs and IP.

I wonder if that's going to be in the 10(Q) because I think that's a valuable thing for us to look at separately.

Are you going to give us a little more detail in the Q on that?

No, we are grouping them together going forward.

Any reason for that?

It's just discussions with our auditors and just the presentation that's more commonly used.

But it's not commonly used because everybody else is kind of breaking it out separately.

I would ask you to reconsider that because I think they are two totally different line items and it would make us easier on the outside to look at that.

Let me just throw that in there.

Just to be clear it's being driven by our auditors.

Our goal is to be as transparent as possible.

This is less transparency, though.

To be clear.

I hear you.

I would just stress to you that it's being driven by our auditors.

In the second quarter could you give us what the catalog was as a percent of total, please?

It's about a third.

Great.

And then in the fourth quarter, could you give us a sense of what you think the revenue mix is going to look like between the U.S.

and international given the tax situation?

It seems like that might be an important factor.

Lainie, why don't you just give the full year?

Lainie is going to give you the full year.

I'm not sure we can break that outer for the quarter now.

A lot is going to depend, I'm going to guess, how you allocate shipments of GTA --

For the full year, North America is 73% and international is 27%.

For the full year --

Okay.

What's that?

We will give you more detail as we have it.

Last question, the, could you break down the inventory number between published and distribution for us?

Sure.

The inventory for distribution is 62% and publishing was 38%.

Thank you very much.

Our next question comes from the line of Michael Savner with Banc of America Securities.

Please proceed with your question.

Thanks very much.

I would just echo JT's comment as well about comparability and transparency for expenses to get more clarity.

If that's is something that could be considered, I agree, it would be helpful.

Specifically as we look at the GTA release in the fall, is it too late?

Is there any possibility that given the strength of PS 2 hardware at some point in the future we could see a PS 2 version?

I think everyone agrees that it's certainly going to be a hardware driver for next-gen n but clearly we are going to be starting from a lower point than I think people thought a year ago but maybe just talk about any flexibility you have going forward about porting that to an older legacy console.

Michael, it seems unlikely, once you see the game you'll understand why.

We are taking advantage of the features of these new consoles, it's not a port, this is a brand are brand new game.

This is something.

I think it's more than that, Strauss.

The guys at Rockstar are pushing the envelope on the hardware and they are, the hardware itself is pretty impressive and we think that GTA four will be the cutting edge game for PS 3 and for XBox 360.

And so and that's going to drive the gaming experience.

Fair enough.

I assumed that was the answer but I wanted to at least see if a skinnied down version was an option.

Second one, maybe you could give us a little bit more clarity on your strategy development for the Wii The previous management team at the onset didn't really have a lot of effort behind it.

Obviously all the other publishers have ramped up their allocation and resources for it.

As you look at the opportunity on the Wii, do you see any of your existing franchises kind of being core to the Wii platform or is that something you think you will have to develop new franchises or licenses for?

To be perfectly frank I don't think it takes a rocket scientist to realize what's going on with Wii and DS.

I will tell you that very quickly, we turned to both 2K and to Rockstar and said, guys, we need a DS strategy and a Wii strategy and we are working on it.

as we kind of get into the next quarter and see the budget season for 2008 everybody in the company is completely focused on it.

having said that, development cycles are long.

Ports aren't as good as games development for specific game developed for specific platforms and we are looking at all of them across the board, the Wii and DS.

I will tell you that carnival games that we've announced for the Wii have gotten a lot of attention in the marketplace as well as with the first party partners so we are pretty excited about that.

Some have been announced, some of our retitles have been announced and we are looking to put more out on the NDS.

Thanks very much.

Our next question come from the line of Evan Wilson with Pacific Crest, please proceed with your questions.

Thanks for take the questions.

First on the restructuring, could you quantify for us how many heads you expect to reduce across the lines and the way it reads in the press release, for a description, it sounds like most are coming from sales and marketing functions.

Could you plan on a component coming from the development organization as well and if you can give us the headcount for total Take-Two and that development now I appreciate it.

We are not going to actually disclose the actual number.

This is the most sensitive task that we have ahead of us and people, people's lives and livelihoods are engaged here.

I think as I said on the first call this is the thing we do with the most trepidation and most difficulty.

It is a significant percentage of our work force and we will be able to tell when you we are done through this what our headcount is but we'd rather not put a fine point on especially as it is in process right now we are trying to be sensitive to people's needs and goals.

To your point, yes, there is sales and marketing so that is also admin because we centralized overhead and admin so it's really both.

And we told people that we are going to have a strong look at this and try to do this early and that's exactly what we tried to do.

But to be clear, we are taking aggressive steps by any standard.

Great.

Could you give us the headcount for total Take-Two right now?

2100 employees.

Thank you.

As relates to the deferred revenue associated with the episodic content on XBox 360, you can see that $25 million of that moved into short term deferred.

Could you give us any sense of when that's going to hit the P&L and will the, will the $225 million at one time and then the seconds 25 or will be a slow bleed on to the P&L?

The first 25 is for the first episodic consent package that is supposed to go out and that is in March of '08.

And that's why it moved into current because it's in the next 12 months.

And the second 25 will be for the second episodic, the episode.

And that would be later in fiscal year, fiscal '08.

Final question for the January quarter, thanks for providing the detail on fiscal '08 titles.

Can you tell us which one of those fiscal '08 will be there or at least out for the holiday season?

That's it.

Thanks.

I didn't understand the question which one of the fiscal '08?

I didn't follow.

We have detailed specifically by quarter what you guys are leading through October, are there any of those titles that you listed for fiscal '08 that will come before Christmas?

You mean are they going to be ahead of schedule.

No, just, fiscal '08 includes November, December and January, I was wondering what other titles will come out before Christmas.

Only what we've announced is, we've announced what we are comfortable announcing and I wouldn't hazard a guess on any more titles that are coming out before Christmas at this point.

Our next question comes from the line of Arvind Bhatia of Sterne Agee.

Thanks for taking the questions.

A couple quick ones, first, if you can speak to the 2K sports division, give us some time line at this point when you expect that division to be profitable.

And then on GTA 4, the unit shipments pattern here for this one, how should we think about how that will break down between this year and next year, if you could give us at least some broad color on should we expect, should we look at history in terms of how many units you'll ship this year or if you have any other way for us to think about it and what other kind of cash position do you expect to be at at the end of the year?

You have a bunch of questions in there.

In terms of the first one in the sports business, we are no longer going to predict a specific time for profitability.

We did previously say we didn't think the sports business would be on a stand alone basis profitable in calendar '07 but what I also said is its not a significant negative either.

We feel very good about it but we haven't parsed the specific profitability of that line of business for '08 yet.

As we put together our '08 budget plans we will have a point of view on it.

Suffice it to say that to the extent that it's not making money, it's not a big drag by any means on the company as a whole.

To the extent it is making money it probably won't be a huge contributor next year either.

GTA., probably too hard to say what '08 will look like for Grand Theft Auto sales and but we feel very good about it as you'd imagine we would, and no, I don't think you can follow a trend line on a split of '07 and '08 based on a release date because it's much more driven by the platform take-up than anything else, and we can't parse the platform take up.

Your third question?

Your expectation for your cash position.

We don't project that.

We don't project the cash flow forward but we will continue to give you updates as we have them.

Lainie is nodding at me.

With the reorganization and the restructuring charges that we are pulling together we don't have a -- we haven't put together a projection on that right now but we will be working on that going forward.

Great.

Thank you.

Our final question comes from the line of Edward Williams with BMO Capital Markets.

Please proceed with your question.

Good afternoon, a couple questions.

First of all with regards to the sports business, what's your revenue growth could we see in that revenue growth overall '07 versus '06 and how much of that is coming from more SKUs versus increased units sold per SKU?

Looking at the GTA game for a moment, what are you looking for or what should we be looking for as the anticipated average selling price for GTA 4 is compared to what GTA San Andreas did, given the special edition SKU as well as the $6 price point will you use on the GTA four for the regular SKU?

Lainie, why don't you take that?

Grand Theft Auto for the new platforms for the regular edition is, this is going to be priced at $59.99.

I think we announced that previously.

And $89.99 for the special.

On the sports business we do see it growing materially year over year.

But we don't have the exact figures.

We don't break out those figures.

Any idea how the sports business growth, how much of it is coming from the increased units per SKU versus from additional SKUs such as The Bigs and All-Pro Football?

Actually it's a combination of the units volume as well as pricing.

As you'd imagine both are very, very important to us in terms of the license relationships.

In terms of how we are doing in the market we care about units per SKU.

Looking at GTA again for a moment, what's the expectation at this point, is it that a third of the units are going to be special edition or 20% or what's embedded in your guidance for the fourth quarter?

It's actually a fairly small number.

We deliberately try to limit the number of special editions going out.

They are special packages for our most loyal fans and we don't expect a bulk of GTA 4 to be kind of standard edition as opposed to special edition.

Two final housekeeping questions, what is your expected share base in the fourth quarter, in your profitable quarter?

And then what is the current headcount at your studios?

We have it for the overall but what is it for the development teams?

In Q4, the share base is 74,341,000 shares, approximately.

And as far as headcount at the studios currently?

Bear with us for one second.

About 1750 heads.

That's publishing.

At the end of April it was about 1300 roughly in the studios.

Thank you very much.

Well, thank you very much for joining us today since we have no more questions and we really appreciate your attending and we will catch up with you again on July 9.

Thank you, all.

Thank you.

Ladies and gentlemen, this concludes today's teleconference.

You may disconnect your lines at this time.

Thank you for your participation.