McAfee, Inc. Reports Record Results for the Fourth Quarter and Full Year 2010

McAfee, Inc. (NYSE:MFE) today reported record financial results for the fourth quarter and full year ended December 31, 2010.

As previously announced a supplemental management commentary document has been posted to our Web site at http://investor.mcafee.com rather than conducting an earnings conference call today.

Fourth Quarter and Full Year 2010 Highlights:

Fourth Quarter 2010:

• Record fourth quarter revenue reached $550 million, an increase of five percent year-over-year
• Record deferred revenue reached $1.5 billion, an increase of nine percent year-over-year
• Non-GAAP earnings per diluted share for the fourth quarter were $0.67 and GAAP earnings per diluted share were $0.38. These Non-GAAP results included an additional negative $0.02 impact from foreign exchange and pre-merger investments from previous guidance.
• Cash flow from operations for the fourth quarter reached $164 million
• Acquisition by Intel on track for close in the first quarter of 2011

Full Year 2010:

• Record full year 2010 revenue reached $2.1 billion, an increase of seven percent year-over-year
• Record cash flow from operations reached $595 million, an increase of 20 percent year-over-year. Total cash and marketable securities at year end was a record $1.2 billion.
• Record full year 2010 non-GAAP earnings per diluted share reached $2.57, an increase of six percent year-over-year. GAAP earnings per diluted share reached a record $1.17, an increase of seven percent year-over-year.

Executive Commentary:

"In 2010 we delivered record revenue, deferred revenue, non-GAAP earnings per diluted share and operating cash flow. Our performance accelerated throughout the year and we ended the fourth quarter achieving very strong record results. As we enter 2011, the momentum we have in our business serves as strong validation of our strategy and the confidence that our customers, partners and employees have in the proposed combination of McAfee and Intel. We remain very comfortable with our ability as a wholly-owned subsidiary of Intel to effectively drive innovation in the security industry for years to come,” said McAfee President and Chief Executive Officer, Dave DeWalt

"Looking forward we expect to continue to define the marketplace with our comprehensive portfolio of endpoint, network and cloud-based security technologies. With the proliferation of IP connected devices and continued growth in the security threat landscape, McAfee is very well positioned to further expand the global reach of our security protection driven by growth trends in mobility, virtualization and embedded devices,” continued DeWalt.

Key Announcements:

McAfee announced the general availability of the McAfee® Enterprise Mobility Management (McAfee® EMM™) 9.5 software platform which now includes integration with the McAfee® ePolicy Orchestrator® (McAfee ePO™) platform, providing customers with unified management of their endpoint, network and data security products.

McAfee Enterprise Mobility Management (McAfee® EMM™) extends AT&T’s mobile device management solutions with smartphone management capabilities to allow businesses and organization to offer employees their choice of mobile devices across multiple operating systems while delivering highly secure and scalable access to corporate applications.

McAfee was named a leader in the Gartner "Magic Quadrant for Network Intrusion Prevention” published December 6, 2010 and the McAfee® Network Security Platform M-8000 appliance was recognized for raising the bar in NSS Labs’ network intrusion tests by scoring the highest in accuracy and throughput in comparative tests.

McAfee WaveSecure for Android Won "Software of the Year 2010" and McAfee was named a finalist in 15 Categories of SC Magazine 2011 Awards.

McAfee Q3 Threat Report reveals average daily malware growth at an all time high; spam at lowest point since 2008 and McAfee Labs predicts geolocation, mobile devices and Apple will top the list of targets for emerging threats in 2011.

Fourth 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.

Full Year 2010 Financial Summary:

*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.

Fourth Quarter 2010 Balance Sheet and Cash Flow Summary:

• Cash and marketable securities was $1.2 billion at the end of the fourth quarter of 2010
• Cash flow from operations was $164 million
• Days sales outstanding (DSOs) were 57 days
• Deferred costs of revenue and prepaid expenses associated with revenue-sharing and royalty arrangements were $292.0 million
• Deferred revenue reached $1.5 billion
• Approximately 76 percent of revenue came from prior period deferred revenue during the fourth quarter of 2010

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 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 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 in April 2010 that impaired some of our customers' computers. Non-GAAP gross profit excludes expenses related to the remediation actions taken related to the April 2010 antivirus signature file update, 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 the remediation actions taken related to the April 2010 antivirus signature file update, amortization of purchased technology and intangibles, stock-based compensation expenses, acquisition-related costs, restructuring charges, provision for income taxes and certain other items. For 2010 and 2009, management believed that the 24 percent effective tax rate was reflective of a long-term normalized tax rate under the global McAfee legal entity and tax structure as of the respective period end.

We present non-GAAP net revenue, 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 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. Additionally, we expect to continue to incur costs related to our pending acquisition by Intel 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 December 31, 2010 and for the full year. Forward-looking statements include statements about the timing and anticipated benefits of our pending acquisition by Intel and that we will operate as a wholly owned subsidiary of Intel following the closing. Forward looking statements include our expectation that we will to continue to define the marketplace with our comprehensive portfolio of endpoint, network and cloud-based security technologies. Forward-looking statements also include statements about the security market; statements about the growth in security threats and IP connected devices; statements about growth trends in mobility, virtualization and embedded devices; statements about growth in the demand for and value of McAfee's security solutions; and statements about McAfee's strategy, market leadership and market positioning. 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 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 September 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 delivers proactive and proven solutions and services that help secure systems, networks, and mobile devices around the world, allowing users to safely connect to the Internet, browse and shop the Web more securely. Backed by unrivaled McAfee Global Threat Intelligence, 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. McAfee secures your digital world. 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.

Items (1) through (11) 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 (11).

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, litigation-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: