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

$ in Millions, except per share and % data

Q2 2010

Q2 2009

% Change

Constant

Currency

Change ***

Non-GAAP Revenue* $495.3 $468.7 6% 7% GAAP Revenue $489.2 $468.7 4% 5% Non-GAAP Operating Income* $129.4 $125.4 3% 8% Non-GAAP Net Income* $98.2 $94.7 4% 9% Non-GAAP Net Income Per Share* (Diluted) $0.63 $0.60 5% 10% GAAP Operating Income $55.1 $55.9 (1)% 9% GAAP Net Income $39.4 $28.7 38% 52% GAAP Net Income Per Share (Diluted) $0.25 $0.18 39% 54% Deferred Revenue $1,366.5 $1,307.6 5% 10% Cash & Marketable Securities $804.3 $886.1 (9)%

*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 of 2010 came from prior period deferred revenue

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 August 12 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 the McAfee 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 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.

MCAFEE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)

(Unaudited)

June 30,

December 31, 2010 2009 Assets: Cash and marketable securities $ 804,322 $ 950,168 Accounts receivable, net 244,333 294,315 Prepaid expenses, deferred costs of revenue and other current assets (A) 276,323 263,891 Property and equipment, net 129,768 133,016 Deferred income taxes 606,886 604,737 Goodwill, intangibles and other long-term assets, net (A) 1,676,743 1,717,059 Total assets $ 3,738,375 $ 3,963,186 Liabilities: Accounts payable $ 44,121 $ 55,104 Accrued liabilities 329,732 312,299 Deferred revenue 1,366,458 1,407,473 Accrued taxes and other long-term liabilities 64,264 70,772 Total liabilities 1,804,575 1,845,648 Stockholders' Equity: Common stock 1,893 1,868 Treasury stock (1,167,084 ) (845,118 ) Additional paid-in capital 2,336,463 2,251,916 Accumulated other comprehensive loss (26,615 ) (3,291 ) Retained earnings 789,143 712,163 Total stockholders' equity 1,933,800 2,117,538 Total liabilities and stockholders' equity $ 3,738,375 $ 3,963,186 (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. MCAFEE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data)

(Unaudited)

Three Months Ended Six Months Ended June 30, June 30, 2010 2009 2010 2009 Net revenue $ 489,239 $ 468,686 $ 991,984 $ 916,395 Cost of net revenue (A) 109,731 96,783 221,813 190,445 Amortization of purchased technology 20,345 18,439 40,838 37,833 Impact of signature file update 725 - 725 - Gross profit 358,438 353,464 728,608 688,117 Operating costs: Research and development (A) 81,671 78,428 165,536 156,611 Sales and marketing (A) 155,236 157,429 321,464 306,060 General and administrative (A) 45,847 41,767 88,966 79,400 Restructuring charges 9,127 4,145 24,881 9,205 Amortization of intangibles 7,503 10,113 15,145 20,108 Acquisition-related costs 2,815 3,408 4,815 6,684 Impact of signature file update 1,093 - 1,093 - Loss on sale/disposal of assets and technology 56 19 64 78 Investigation-related and other costs - 2,279 - 2,325 Total operating costs 303,348 297,588 621,964 580,471 Income from operations 55,090 55,876 106,644 107,646 Interest and other income, net 122 (797 ) 651 2,180 Impairment of marketable securities - - - (710 ) Income before provision for income taxes 55,212 55,079 107,295 109,116 Provision for income taxes 15,808 26,426 30,315 27,007 Net income $ 39,404 $ 28,653 $ 76,980 $ 82,109 Net income per share - basic $ 0.26 $ 0.18 $ 0.49 $ 0.53 Net income per share - diluted $ 0.25 $ 0.18 $ 0.49 $ 0.52 Shares used in per share calculation - basic 154,456 155,763 156,088 154,748 Shares used in per share calculation - diluted 156,151 158,336 158,347 157,306 (A) Stock-based compensation expense is included as follows: Cost of net revenue $ 1,746 $ 1,637 $ 3,632 $ 2,808 Research and development 6,305 6,355 14,053 13,205 Sales and marketing 11,879 16,432 24,185 26,195 General and administrative 6,659 6,656 14,027 12,907 $ 26,589 $ 31,080 $ 55,897 $ 55,115 MCAFEE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) Six Months Ended June 30, 2010 2009 Cash flows from operating activities: Net income $ 76,980 $ 82,109 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 85,958 83,083 Stock-based compensation expense 55,897 49,057 Excess tax benefit from stock-based awards (4,314 ) (8,444 ) Deferred income taxes 9,730 11,590 Non-cash restructuring charge 19,076 1,589 Impairment of marketable securities - 710 Other non-cash items 2,367

2,594 Changes in assets and liabilities, net of acquisitions: Accounts receivable, net 31,910 55,237 Prepaid expenses, deferred costs of revenue, and other assets (18,434 ) (65,868 ) Accounts payable (9,457 ) 18,262 Accrued taxes and other liabilities 3,167 (48,053 ) Deferred revenue 38,842 17,541 Net cash provided by operating activities 291,722 199,407 Cash flows from investing activities: Purchase of marketable securities (180,476 ) (186,710 ) Proceeds from sales of marketable securities 142,931 14,831 Proceeds from maturities of marketable securities 186,607 44,778 Purchase of property and equipment (36,325 ) (23,479 ) Acquisitions, net of cash acquired (32,470 ) (33,697 ) Other investing activities 1,508 165 Net cash provided by (used in) investing activities 81,775 (184,112 ) Cash flows from financing activities: Proceeds from issuance of common stock under our employee stock benefit plans 25,404 54,302 Excess tax benefit from stock-based awards 4,314 8,444 Repurchase of common stock (321,966 ) (19,748 ) Bank borrowings - 100,000 Payment of accrued purchase price and contingent consideration (19,556 ) - Other financing activities (3,157 ) - Net cash (used in) provided by financing activities (314,961 ) 142,998 Effect of exchange rate fluctuations on cash (56,129 ) 5,091 Net increase in cash and cash equivalents 2,407 163,384 Cash and cash equivalents at beginning of period 677,137 483,302 Cash and cash equivalents at end of period $ 679,544 $ 646,686 MCAFEE, INC. AND SUBSIDIARIES RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (in thousands, except per share data) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 2010 2009 2010 2009 Net revenue: GAAP net revenue $ 489,239 $ 468,686 $ 991,984 $ 916,395 Impact of signature file update (1) 6,105 - 6,105 - Non-GAAP net revenue $ 495,344 $ 468,686 $ 998,089 $ 916,395 Gross profit: GAAP gross profit $ 358,438 $ 353,464 $ 728,608 $ 688,117 Impact of signature file update (1) 6,830 - 6,830 - Stock-based compensation expense (2) 1,746 1,637 3,632 2,808 Amortization of purchased technology (3) 20,345 18,439 40,838 37,833 Non-GAAP gross profit $ 387,359 $ 373,540 $ 779,908 $ 728,758 Operating income: GAAP operating income $ 55,090 $ 55,876 $ 106,644 $ 107,646 Impact of signature file update (1) 7,923 - 7,923 - Stock-based compensation expense (2) 26,589 31,080 55,897 55,115 Amortization of purchased technology (3) 20,345 18,439 40,838 37,833 Amortization of intangibles (3) 7,503 10,113 15,145 20,108 Restructuring charges (4) 9,127 4,145 24,881 9,205 Acquisition-related costs (5) 2,815 3,408 4,815 6,684 Loss on sale/disposal of assets and technology (6) 56 19 64 78 Investigation-related and other costs (7) - 2,279 - 2,325 Non-GAAP operating income $ 129,448 $ 125,359 $ 256,207 $ 238,994 Net income: GAAP net income $ 39,404 $ 28,653 $ 76,980 $ 82,109 Impact of signature file update (1) 7,923 - 7,923 - Stock-based compensation expense (2) 26,589 31,080 55,897 55,115 Amortization of purchased technology (3) 20,345 18,439 40,838 37,833 Amortization of intangibles (3) 7,503 10,113 15,145 20,108 Restructuring charges (4) 9,127 4,145 24,881 9,205 Acquisition-related costs (5) 2,815 3,408 4,815 6,684 Loss on sale/disposal of assets and technology (6) 56 19 64 78 Investigation-related and other costs (7) - 2,279 - 2,325 Marketable securities (accretion) impairment (8) (401 ) - (829 ) 710 Provision for income taxes (9) 15,808 26,426 30,315 27,007 Non-GAAP income before provision for income taxes 129,169 124,562 256,029 241,174 Non-GAAP provision for income taxes (10) 31,001 29,895 61,447 57,882 Non-GAAP net income $ 98,168 $ 94,667 $ 194,582 $ 183,292 Net income per share - diluted: * GAAP net income per share - diluted $ 0.25 $ 0.18 $ 0.49 $ 0.52 Stock-based compensation expense per share (2) 0.17 0.20 0.35 0.35 Other adjustments per share (1), (3)-(10) 0.21 0.22 0.39 0.29 Non-GAAP net income per share - diluted * $ 0.63 $ 0.60 $ 1.23 $ 1.17

Shares used to compute Non-GAAP net income per share - diluted

156,151 158,336 158,347 157,306

Non-GAAP net income per share is computed independently for each period presented. The sum of GAAP net income per share and non-GAAP adjustments may not equal non-GAAP net income per share due to rounding differences.

This presentation includes non-GAAP measures. Our non-GAAP measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures, and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. For a detailed explanation of the adjustments made to comparable GAAP measures, the reasons why management uses these measures, the usefulness of these measures and the material limitations of these measures, see items (1) through (10).

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: (1)

Impact of signature file update primarily reflects the negative impact related to prior-period deferred revenue and additional costs incurred. The deferred revenue was originally scheduled to be recognized from the balance sheet and was delayed into future periods due to actions we took when providing customer care packages to our customers related to our release in April of an anti-virus signature file update that impacted some of our customers. We consider our operating results without this impact when evaluating our ongoing performance as we believe that the exclusion allows for more accurate comparisons of our financial results to previous periods. In addition, we believe it is useful to investors to understand the specific impact of the signature file update on our operating results.

(2)

Stock-based compensation expense consist of expense relating to stock-based awards issued to employees and outside directors including stock options, restricted stock awards and units, restricted stock units with performance-based vesting and our Employee Stock Purchase Plan. Because of varying available valuation methodologies, subjective assumptions and the variety of award types, the Company believes that the exclusion of stock-based compensation expense allows for more accurate comparisons of our operating results to our peer companies, and for a more accurate comparison of our financial results to previous periods. In addition, the Company believes it is useful to investors to understand the specific impact of stock-based compensation expense on our operating results.

(3)

Amortization of purchased technology and intangibles are non-cash charges that can be impacted by the timing and magnitude of our acquisitions. The Company considers its operating results without these charges when evaluating its ongoing performance and/or predicting its earnings trends, and therefore excludes such charges when presenting non-GAAP financial measures. The Company believes the assessment of its operations excluding these costs is relevant to its assessment of internal operations and comparisons to the performance of other companies in its industry.

(4)

Restructuring charges include excess facility and asset-related restructuring charges and severance costs resulting from reductions of personnel driven by modifications to the Company’s business strategy, such as acquisitions or divestitures. These costs may vary in size based on the Company’s restructuring plan. In addition, the Company’s assumptions are continually evaluated, which may increase or reduce the charges in a specific period. The Company’s management excludes these costs when evaluating its ongoing performance and/or predicting its earnings trends, and therefore excludes these charges when presenting non-GAAP financial measures.

(5)

Acquisition-related costs include direct costs of the acquisition and expenses related to acquisition integration activities. Examples of costs directly related to an acquisition include transactions fees, due diligence costs, acquisition retention bonuses and severance, fair value adjustments related to contingent consideration, amounts or recoveries subject to escrow provisions, and certain legal costs related to acquired litigation. These expenses vary significantly in size and amount and are disregarded by the Company’s management when evaluating and predicting earnings trends because these charges are unique to specific acquisitions, and are therefore excluded by the Company when presenting non-GAAP financial measures.

(6)

Loss on sale/disposal of assets and technology relate to the sale or disposal of assets of the Company. These losses or gains can vary significantly in size and amount. The Company’s management excludes these losses or gains when evaluating its ongoing performance and/or predicting its earnings trends, and therefore excludes these items when presenting non-GAAP financial measures. In addition, in periods where the Company realizes gains or incurs losses on the sale of assets and/or technology, the Company believes it is useful to investors to highlight the specific impact of these amounts on its operating results.

(7)

Investigation-related and other costs are charges related to discrete and unusual events where the Company has incurred significant costs which, in the Company’s view, are not incurred in the ordinary course of operations. Recent examples of such charges include legal expenses related to the special committee investigation into the Company’s past stock option granting practices which was completed in December 2007. The Company’s management excludes these costs when evaluating its ongoing performance and/or predicting its earnings trends, and therefore excludes these charges when presenting non-GAAP financial measures. Further, the Company believes it is useful to investors to understand the specific impact of these charges on its operating results.

(8)

Marketable securities (accretion) impairment includes “other than temporary” declines in the fair value of our available-for-sale securities and subsequent recoveries of these losses. The Company’s management excludes these losses/income when evaluating the company’s ongoing performance and/or predicting earning trends, and therefore excludes these losses/income when presenting non-GAAP financial measures.

(9)

Provision for income taxes is our GAAP provision that must be added back to GAAP net income to reconcile to non-GAAP income before taxes.

(10)

Non-GAAP provision for income taxes reflects a 24% non-GAAP effective tax rate in 2010 and 2009 which is used by the Company’s management to calculate non-GAAP net income. Management believes that the 24% effective tax rate is reflective of a long-term normalized tax rate under the global McAfee legal entity and tax structure as of the respective period end.

MCAFEE, INC. AND SUBSIDIARIES PROJECTED GAAP REVENUE AND RECONCILIATION OF PROJECTED GAAP NET INCOME PER SHARE TO PROJECTED NON-GAAP NET INCOME PER SHARE (Unaudited) Q3 FY'10 Projected GAAP revenue range

$505M - $520M

Projected net income per share reconciliation: Projected GAAP net income per share range - diluted $0.29 - $0.33 Add back: Projected stock-based compensation adjustment per share, net of tax (A) $0.12 - $0.16 Projected other adjustments per share, net of tax (B) $0.13 - $0.17 Projected non-GAAP net income per share range - diluted* $0.62 - $0.66 * We believe that providing a forecast of the non-GAAP items set forth above is useful to investors, and such items are used by our management, for the reasons associated with each of the adjusting items as described below. (A)

(B)

Other adjustments include amortization of purchased technology and intangibles, investigation-related and other costs, restructuring charges, acquisition-related costs, loss/gain on sale/disposal of assets and technology, income taxes and certain other items. We exclude these items because we believe they are not directly related to the operation of our business. A more detailed explanation of the reasons why we exclude these categories from our GAAP net income is contained in paragraphs (1) through (10) above under the table entitled “Reconciliation of GAAP to Non-GAAP Financial Measures.”

For Q3 FY’10, this guidance reflects an assumed annual GAAP and non-GAAP tax rate of 29% and 24%, respectively. MCAFEE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED GAAP REVENUE BY PRODUCT GROUPS (in thousands) (Unaudited) Three Months Ended Three Months Ended Three Months Ended Three Months Ended Three Months Ended June 30, 2010 March 31, 2010 December 31, 2009 September 30, 2009 June 30, 2009 McAfee Corporate $ 298,449 61 % $ 312,507 62 % $ 337,910 64 % $ 308,573 64 % $ 291,409 62 %

McAfee Consumer 190,790 39 % 190,238 38 % 187,756 36 % 176,698 36 % 177,277 38 % GAAP net revenue 489,239 100 % $ 502,745 100 % $ 525,666 100 % $ 485,271 100 % $ 468,686 100 % McAfee Corporate (1) 6,105 McAfee Consumer (1) - Non-GAAP adjustments 6,105 McAfee Corporate 304,554 61 % McAfee Consumer 190,790 39 % Non-GAAP net revenue $ 495,344 100 %

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. AND SUBSIDIARIES CONDENSED CONSOLIDATED GAAP REVENUE BY GEOGRAPHY (in thousands) (Unaudited) Three Months Ended Three Months Ended Three Months Ended Three Months Ended Three Months Ended June 30, 2010 March 31, 2010 December 31, 2009 September 30, 2009 June 30, 2009 McAfee North America $ 285,858 58 % $ 284,197 57 %

298,562

57 % $ 273,464 56 % $ 265,389 57 % McAfee International 203,381 42 % 218,548 43 % 227,104 43 % 211,807 44 % 203,297 43 % GAAP net revenue 489,239 100 % $ 502,745 100 % $ 525,666 100 % $ 485,271 100 % $ 468,686 100 % McAfee North America (1) 2,893 McAfee International (1) 3,212 Non-GAAP adjustments 6,105 McAfee North America 288,751 58 % McAfee International 206,593 42 % Non-GAAP net revenue $ 495,344 100 %

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