McAfee, Inc. Reports Results for the Third Quarter of 2010

SANTA CLARA, Calif., October 28, 2010 - McAfee, Inc. (NYSE:MFE) today reported financial results for the third quarter ended September 30, 2010.

Third Quarter 2010 Highlights:

• Entered into a definitive agreement to be acquired by Intel Corporation for $48 per share in cash, valuing the deal at $7.7 billion
• Revenue reached a third quarter record of $523 million, an increase of eight percent year-over-year
• Deferred revenue reached a record $1.4 billion, an increase of eight percent year-over-year
• Cash flow from operations reached $139 million, bringing total cash and marketable securities to $1.0 billion at quarter end. Year to date, cash flow from operations reached a record $431 million, an increase of 23 percent year-over-year.
• GAAP and non-GAAP earnings per diluted share were $0.30 and $0.67, respectively. Non-GAAP earnings per diluted share was a record and increased nine percent year-over-year.

Executive Commentary:
“We are pleased to deliver strong third quarter results that serve as a testament to our strategy and execution. These results also reflect the validation and confidence our customers, partners and employees have in the proposed acquisition of McAfee by Intel,” said McAfee president and chief executive officer, Dave DeWalt. “Our revenue growth was the result of broad based demand for our security solutions portfolio across our corporate and consumer segments. With this, we effectively controlled expenses and delivered record year-to-date operating cash flow.”

“Looking ahead, we are confident in our security market leadership and we are uniquely positioned for continued market share gains. McAfee’s cloud-based endpoint to network interlock strategy is clearly gaining traction as we provide customers leading products and services for the latest demands in mobility, virtualization and embedded security solutions. We believe the rapid expansion of internet enabled devices will continue to drive demand for cloud optimized security solutions for the most complete protection against the evolving global threat landscape,” continued DeWalt.

Third Quarter 2010 Financial Summary and Operational Metrics:

Third Quarter 2010 Balance Sheet and Cash Flow Summary:

• Cash and marketable securities was $1.0 billion at the end of the third quarter of 2010
• Cash flow from operations was $139 million
• Days sales outstanding (DSOs) were 48 days
• Deferred costs of revenue and prepaid expenses associated with revenue-sharing and royalty arrangements were $303 million
• Deferred revenue reached a record of $1.4 billion
• Approximately 77 percent of revenue during the third quarter of 2010 came from prior period deferred revenue

Key Announcements:

• McAfee completed the acquisition of privately owned tenCube, the provider of the WaveSecure mobile security service
• McAfee hosted its third annual customer and partner event, FOCUS 10, which attracted thousands of attendees and tripled its number of partners attending
• McAfee appointed Gert-Jan Schenk as president of its Europe, Middle East and Africa region
• McAfee unveiled its “Security Connected” initiative, enabling partners, developers and customers to apply a more intelligent, effective and sustainable approach to securing digital information. As part of this initiative, McAfee released the first two of four new connected security platforms, McAfee Endpoint Security 9 and McAfee Security Management 5.
• McAfee delivered McAfee Management for Optimized Virtualized Environments AntiVirus (MOVE AV), which makes virtual desktop security simpler and more scalable for large enterprise deployments
• McAfee was named a leader in the Data Leak Prevention Suites market (Forrester Research Inc.’s “The Forrester Wave™: Data Leak Prevention Suites, Q4, 2010, October 2010”). McAfee was also named a leader in the Gartner “Magic Quadrant for Mobile Data Protection,” as published on September 7, 2010.
• McAfee announced the general availability of the McAfee® Enterprise Mobility Management (McAfee® EMM®) 9.0 platform, which deepens support for iPhone and other iOS devices, as well as expands Android support and provides greater control for administrators
• McAfee EMM will provide Motorola smartphone users with advanced security to address corporate market demand, including the increased use of mobile productivity apps

Financial Outlook:

• McAfee expects net revenue in the fourth quarter of 2010 of $530 million to $550 million
• The company expects fourth quarter 2010 GAAP net income of $0.29 to $0.33 per diluted share and non-GAAP net income of $0.67 to $0.71 per diluted share
• This guidance reflects an assumed 29 percent annual GAAP tax rate and a 24 percent annual non-GAAP tax rate for 2010

Conference Call Information:

• The company will host a conference call today at 1:30 P.M. Pacific, 4:30 P.M. Eastern to discuss its quarterly results. Participants should call (800) 809-7467 (U.S. toll-free) or (706) 679-4671 (international). The passcode is 45023515.
• Attendees should dial in at least 15 minutes prior to the conference call
• A replay of the call will be available until November 11, by calling (800) 642-1687 (U.S. toll-free) or (706) 645-9291 (international)
• A Web cast of the call may also be found on the Internet through McAfee’s Investor Relations Web site at http://investor.mcafee.com

Disclosure Statements and Discussion of Non-GAAP Financial Measures:

Management evaluates and makes operating decisions using various performance measures. In addition to reporting financial results in accordance with GAAP, we also consider adjusted gross profit, operating income and net income, which we refer to as "non-GAAP gross profit," "non-GAAP operating income" and "non-GAAP net income." In calculating non-GAAP gross profit, non-GAAP operating income and non-GAAP net income, management adjusts for certain items to facilitate its review of the comparability of the company's operating performance on a period-to-period basis because such items are not, in management's review, related to the company's ongoing operating performance.

Non-GAAP gross profit excludes amortization of purchased technology, stock-based compensation expense and certain other items. Non-GAAP net income and non-GAAP operating income exclude amortization of purchased technology and intangibles, stock-based compensation expenses, acquisition-related costs, restructuring charges, provision for income taxes and certain other items. Management used a 24 percent non-GAAP effective tax rate to calculate non-GAAP net income in 2010 and 2009. Management believes the 24 percent effective tax rate is reflective of a long-term normalized tax rate under the global McAfee operating structure.

We present non-GAAP gross profit, non-GAAP operating income and non-GAAP net income because we consider each to be an important supplemental measure of our performance. Management uses these non-GAAP financial measures to make operational and investment decisions, to evaluate the company's performance and to forecast and to determine compensation. Further, management utilizes these performance measures for purposes of comparison with its business plan and individual operating budgets and allocation of resources. In addition, when evaluating potential acquisitions, management adjusts for the items described above in its evaluation of target performance.

We further believe that these non-GAAP financial measures are useful to investors in providing greater transparency to the information used by management in its operational decision making. We believe that calculating non-GAAP gross profit, non-GAAP operating income and non-GAAP net income also facilitates a comparison of McAfee's underlying operating performance with that of other companies in our industry, which may from time to time use similar non-GAAP financial measures to supplement their GAAP results. However, non-GAAP gross profit, non-GAAP operating income and non-GAAP net income have limitations as analytical tools, and you should not consider these measures in isolation or as a substitute for GAAP gross profit, GAAP operating income and GAAP net income or any other performance measure determined in accordance with GAAP. In the future, we expect to continue to incur expenses similar to certain of the non-GAAP adjustments described above and exclusion of these items in the presentation of our non-GAAP financial measures should not be construed as an inference that all of these costs are unusual, infrequent or non-recurring. Investors and potential investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as analytical tools. Some of the limitations in relying on non-GAAP net income are:

• Amortization of purchased technology and intangibles, though not directly affecting our current cash position, represents the loss in value as the technology in our industry evolves, is advanced or is replaced over time. The expense associated with this loss in value is not included in the non-GAAP net income presentation and therefore does not reflect the full economic effect of the ongoing cost of maintaining our current technological position in our competitive industry, which is addressed through our research and development program.
• The company regularly engages in acquisition and integration activities as part of its ongoing business. Therefore, we expect to continue to experience acquisition and retention bonuses, direct acquisition costs and integration costs related to acquisition activity in future periods.
• The company's income tax expense will ultimately be based on its GAAP taxable income and actual tax rates in effect, which may differ significantly from the 24 percent rate assumed in our non-GAAP financial measures for 2010 and 2009
• Other companies, including companies in our industry, may calculate non-GAAP net income differently than we do, limiting its usefulness as a comparative tool

In addition, many of the adjustments to our GAAP financial statements result in the exclusion of items that are recurring and will be reflected in the company's financial results for the foreseeable future. The company compensates for these limitations by providing specific information regarding the GAAP amounts excluded from the non-GAAP financial measures. The company further compensates for the limitations of our use of non-GAAP financial measures by presenting comparable GAAP measures equally or more prominently. The company evaluates the non-GAAP financial measures together with the most directly comparable GAAP financial measure.

Investors and potential investors are encouraged to review the reconciliation of non-GAAP financial measures contained within this press release with our GAAP financial measures. For more information, see the consolidated statements of income and the "Reconciliation of GAAP to Non-GAAP Financial Measures" contained in this press release.

Forward-Looking Statements:

This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward looking statements include statements regarding the preliminary results for the quarter ended September 30, 2010; guidance on expected results for the fourth quarter of 2010; and tax rates for 2010. Forward looking statements also include statements about the security market, the demand for and value of McAfee's security solutions, and McAfee’s strategy, market leadership and positioning for continued market share gains. Actual results could vary, perhaps materially, and the expected results may not occur. In particular, actual results are subject to other risks, including that the announcement and pendency of the acquisition by Intel could disrupt McAfee’s business. In addition, McAfee may not achieve its planned revenue realization rates or sales targets, succeed in its efforts to grow its business or combat effectively the security threats of the future, leverage its relationships and opportunities to the degree expected or capture market share, notwithstanding related commitment or related investment. McAfee may not benefit from its acquisitions, strategic alliances or partnerships as anticipated; the company's product and service offerings may not continue to interoperate effectively with operating systems causing delayed or lost sales or increased expenses; the company may experience delays in product development or the release of previously announced products; the company may experience delayed or lost sales and revenue as a result of outages in integrated systems on which it is highly dependent; or the company may not satisfactorily anticipate or meet its customers' needs or expectations. Actual results are also subject to a number of other factors, including customer and distributor demand fluctuations, currency fluctuations, and macro and other economic conditions both in the United States and internationally, including the adverse global economic conditions. The forward-looking statements contained in this release are also subject to other risks and uncertainties, including those more fully described in McAfee's filings with the SEC including its quarterly report on Form 10-Q for the period ended June 30, 2010. McAfee does not undertake to update any forward looking statements.

About McAfee, Inc.:

McAfee, Inc., headquartered in Santa Clara, California, is the world's largest dedicated security technology company. McAfee is relentlessly committed to tackling the world's toughest security challenges. The company delivers proactive and proven solutions and services that help secure systems and networks around the world, allowing users to safely connect to the Internet, browse and shop the web more securely. Backed by an award-winning research team, McAfee creates innovative products that empower home users, businesses, the public sector and service providers by enabling them to prove compliance with regulations, protect data, prevent disruptions, identify vulnerabilities, and continuously monitor and improve their security. http://www.mcafee.com

McAfee and/or other noted McAfee related products contained herein are registered trademarks or trademarks of McAfee, Inc., and/or its affiliates in the U.S. and/or other countries. McAfee Red in connection with security is distinctive of McAfee brand products. Any other non-McAfee related products, registered and/or unregistered trademarks contained herein are only by reference and are the sole property of their respective owners. © 2010 McAfee, Inc. All rights reserved.

(A) Deferred costs of revenue and prepaid expenses primarily associated with revenue-sharing and royalty arrangements were $299.5M and $271.8M as of June 30, 2010 and December 31, 2009, respectively.
(B) Short term and long term deferred revenue were $1,097.2M and $345.3M as of September 30, 2010 and $1,068.7M and $338.8M as of December 31, 2009, respectively.

(B) In the three and nine months ended September 30, 2009, cost of net revenue includes $2.7M of acquisition-related costs.

Items (1) through (10) on the “Reconciliation of GAAP to Non-GAAP Financial Measures” table are listed to the right of certain categories under “Net Revenue”, “Gross profit,” “Operating income,” “Net income” and “Net income per share - diluted” and correspond to the categories explained in further detail below under paragraphs (1) through (10).

The non-GAAP financial measures are non-GAAP net revenue, non-GAAP operating income, non-GAAP net income and non-GAAP net income per share — diluted, which adjust for the following items: the impact of signature file update, stock-based compensation expense, amortization of purchased technology and intangibles, restructuring charges, acquisition-related costs, loss on sale/disposal of assets and technology, investigation-related and other costs, marketable securities (accretion) impairment, income taxes and certain other items. We believe that the presentation of these non-GAAP financial measures is useful to investors, and such measures are used by our management, for the reasons associated with each of the adjusting items as described below:

This presentation includes a non-GAAP net revenue measure. Our non-GAAP net revenue measure is not meant to be considered in isolation or as a substitute for a comparable GAAP net revenue measure, and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. For a detailed explanation of the adjustment made to the comparable GAAP net revenue measure, the reasons why management uses this measure, the usefulness of this measure and the material limitations of this measure, see item (1) on the Reconciliation of GAAP to Non-GAAP Financial Measures.

This presentation includes a non-GAAP net revenue measure. Our non-GAAP net revenue measure is not meant to be considered in isolation or as a substitute for a comparable GAAP net revenue measure, and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. For a detailed explanation of the adjustment made to the comparable GAAP net revenue measure, the reasons why management uses this measure, the usefulness of this measure and the material limitations of this measure, see item (1) on the Reconciliation of GAAP to Non-GAAP Financial Measures.

McAfee, Inc.
Kate Scolnick, 408-346-5223 (Investors)
kate_scolnick@mcafee.com
or
Brandie Claborn, 972-987-2124 (Investors)
brandie_ claborn@mcafee.com
or
Tracy Ross, 408-346-5965 (Media)
tracy_ross@mc afee.com

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