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

McAfee to Acquire tenCube, Plans to Deliver Next Generation Mobility Platform

• Non-GAAP Revenue of $495 million (increase of six percent year-over-year); GAAP Revenue of $489 million (increase of four percent year-over-year)
• Non-GAAP Earnings Per Share of $0.63 (increase of five percent year-over-year); GAAP Earnings Per Share of $0.25 (increase of 39 percent year-over-year)
• Deferred Revenue of $1.4 billion (increase of five percent year-over-year)
• Cash Flow from Operations of

SANTA CLARA, Calif., July 29, 2010 - McAfee, Inc. (NYSE:MFE) today reported financial results for the second quarter ended June 30, 2010.

Second Quarter 2010 Financial Highlights:

• Non-GAAP and GAAP revenue was $495 million and $489 million, respectively. Non-GAAP revenue was a second quarter record and an increase of six percent year-over-year.
• Deferred revenue reached a second quarter record of $1.4 billion, an increase of five percent year-over-year
• Cash flow from operations reached $134 million, an increase of 152 percent year-over-year, bringing the total of cash and marketable securities to $804 million at quarter end
• Currency fluctuations had a negative impact on revenue of $12 million quarter-over-quarter and $5 million year-over-year. Currency fluctuations had a negative impact on deferred revenue of $46 million quarter-over-quarter and $66 million year-over-year.
• Non-GAAP and GAAP earnings per diluted share were $0.63 and $0.25, respectively. Non-GAAP earnings per diluted share was a second quarter record and represented an increase of five percent year-over-year.

Executive Commentary:
“For the second quarter we’re proud to report another strong quarter and are especially pleased to see the solid non-GAAP earnings per share, strong operating cash flow, coupled with solid consumer and corporate bookings,” said McAfee president and chief executive officer Dave DeWalt.

“Despite foreign currency headwinds, we improved operating leverage resulting in better than expected non-GAAP earnings per share of $0.63 and we generated operating cash flow of $134 million, attesting to the strength of our business model. Our financial foundation is set for continued growth with leading solutions, a world class sales force and the strongest partner relationships in our history. We also saw an all time record of consumer revenue in the quarter. We were extremely pleased to be able to extend our relationship with our two largest OEM partners and to see a near record quarter of multi-million dollar orders from our corporate customers," continued DeWalt.

Second Quarter 2010 Financial Summary and Operational Metrics:

*A complete reconciliation of GAAP to non-GAAP results is set forth in the attachment to this press release.
***Management evaluates and reviews growth rates adjusted for the impact of foreign currency fluctuations to provide a framework for assessing how our underlying business performed. Current period GAAP and non-GAAP results are converted using the comparable average prior-period exchange rates. The current period deferred revenue balance has been adjusted for foreign currency impacts over the last 12 months.

Corporate Business:

• GAAP revenue grew two percent year-over-year to $298 million in the second quarter of 2010, up three percent constant currency
• McAfee closed 474 deals greater than $100,000 in value, including 78 deals greater than $500,000 in value and 30 deals greater than $1 million in value

Consumer Business:

• GAAP revenue grew eight percent year-over-year to a record $191 million in the second quarter of 2010, up nine percent constant currency
• McAfee signed or extended 25 agreements and launched 67 new or enhanced online partnerships, bringing the total to over 200 brand name partners worldwide

North America:

• GAAP revenue grew eight percent year-over-year to $286 million in the second quarter of 2010
• GAAP revenue accounted for 58 percent of total revenue for the second quarter of 2010 and 57 percent for the second quarter of 2009

International:

• GAAP revenue reached $203 million in the second quarter of 2010, flat when compared to the same period last year, up two percent constant currency
• Currency fluctuations had a negative impact of $5 million on revenue year-over-year and $12 million quarter-over-quarter

Balance Sheet and Cash Flow Summary:

• Cash and marketable securities was $804 million at the end of the second quarter of 2010, reflecting a net cash outlay of $33 million for the acquisition of Trust Digital which closed June 2010
• The company repurchased approximately 4.6 million shares of its common stock for $150 million under its $500 million stock repurchase program with $200 million remaining available under our current Board approved authorization
• Cash flow from operations reached $134 million
• Days sales outstanding (DSOs) were 45 days, down six days compared to the same period last year primarily due to strong cash collections
• Deferred revenue reached $1.4 billion at the end of the second quarter of 2010, including a negative foreign currency impact of approximately $46 million quarter-over-quarter
• Approximately 80 percent of revenue during the second quarter

Key Announcements:

• Jonathan Chadwick has joined the company as chief financial officer
• Earlier this quarter, McAfee acquired privately owned Trust Digital. With Trust Digital's strong foot-hold in the mobile security market, McAfee will extend its endpoint market and address a wide range of mobile operating systems including iPhone OS, Android, Web OS, Windows Mobile and Symbian.
• Today McAfee announced it has agreed to acquire privately owned tenCube, provider of WaveSecure mobile security service.  Adding WaveSecure's locate, lock, back-up and wipe technology to Trust Digital's enterprise mobility management and McAfee's mobile security technology gives McAfee the capabilities it needs to deliver the industry's most complete next generation mobility platform.
• McAfee opened its new state-of-the-art facility in Cork, Ireland and announced third quarter plans to open a new McAfee Labs facility in Santiago, Chile
• McAfee released its McAfee® SaaS Web Protection, a new Software-as-a-Service Web security solution that combines the robust enterprise-grade reporting capabilities and features from McAfee solutions
• McAfee now has original equipment manufacturer relationships to provide antivirus technology to two-thirds of world’s secured universal serial bus (USB) device manufacturers
• McAfee launched McAfee® Internet Security and McAfee® Family Protection for Mac. McAfee Internet Security empowers consumers to surf the web safely, while McAfee Family Protection allows parents to filter inappropriate content for their children.
• McAfee launched McAfee® Identity Protection, one of the most comprehensive and easy to use identity protection services on the market
• The company released McAfee® Family Protection iPhone, iPod touch and iPad Edition, which provide strong parental controls to keep children safe when they are browsing the Internet on an Apple mobile device

Financial Outlook:

• McAfee expects GAAP net revenue in the third quarter of 2010 of $505 million to $520 million
• The company expects third quarter 2010 GAAP net income of $0.29 to $0.33 per diluted share and non-GAAP net income of $0.62 to $0.66 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 45021797
• Attendees should dial in at least 15 minutes prior to the conference call
• A replay of the call will be available until May 14, 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://inves tor.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 net revenue, gross profit, operating income and net income, which we refer to as “non-GAAP net revenue,” "non-GAAP gross profit," "non-GAAP operating income" and "non-GAAP net income." In calculating non-GAAP net revenue, 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 net revenue primarily includes prior period deferred revenue that was originally scheduled to be recognized in the second quarter of 2010 from the balance sheet but became delayed until future periods because of the remediation actions taken related to the antivirus signature file update we released on April 21, 2010 that impacted some of our customers’ computers (“DAT 5958”).

Non-GAAP gross profit excludes expenses related to our DAT 5958 remediation actions, amortization of purchased technology, stock-based compensation expense and certain other items. Non-GAAP net income and non-GAAP operating income exclude expenses related to our DAT 5958 remediation actions, 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 net revenue because we believe it provides supplemental information that shows the financial impact of the remediation actions taken related to DAT 5958. 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 net revenue, 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 net revenue, 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 net revenue, 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 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 net revenue, gross profit, operating income and net income. 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 June 30, 2010; guidance on expected results for the third quarter of 2010; and tax rates for 2010. Forward looking statements also include statements about the demand for and value of McAfee's security solutions and McAfee's financial foundation, business strategy, business model, market positioning, relationships, opportunities, and continued growth. 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 negative impact of foreign currency fluctuations may exceed McAfee's estimate; the financial impact and reputational harm associated with McAfee’s release in the second quarter of an antivirus signature file update that impacted some of its customers’ computers may have some residual impact that exceeds McAfee's estimate. 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, build upon its technology leadership, leverage its relationships and opportunities to the degree expected, capture market share, notwithstanding related commitment or related investment, or successfully repurchase stock under its stock repurchase program. McAfee may not benefit from its acquisitions, strategic alliances, partnerships or stock repurchase program as anticipated; customers may not respond as favorably as anticipated to the company's product or technical support offerings; 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; the company may not satisfactorily anticipate or meet its customers' needs or expectations; or the industry shift to security suites may not be adopted to the extent anticipated. 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 company may experience further declines in the fair value of its investment securities or realize losses relating to other than temporary declines in its investment securities given 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 March 31, 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.

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, 650-245-8466 (Media)
tracy_ross@mc afee.com

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