EX-99.1 2 mi6569ex991.txt EXHIBIT 99.1 Exhibit 99.1 FOR RELEASE AT 4.06PM EDT MEDIA: Siobhan MacDermott McAfee, Inc. (415) 299-2945 Siobhan_macdermott@mcafee.com INVESTORS: Kelsey Doherty McAfee, Inc. (646) 728-1494 Kelsey_doherty@mcafee.com MCAFEE, INC. REPORTS PRELIMINARY SECOND QUARTER 2006 REVENUE OF $277 MILLION PROVIDES UPDATE ON STOCK OPTION REVIEW SANTA CLARA, Calif., July 27, 2006 --McAfee, Inc. (NYSE: MFE) today announced preliminary unaudited results for the second quarter ended June 30, 2006. These results are preliminary because McAfee(R) is in the midst of a previously announced review of stock option grant practices and related accounting. This review will likely result in prior period non-cash stock compensation charges and related tax effects, which could affect the preliminary unaudited second quarter 2006 results being announced today, and may also lead to other cash expenses associated with remediating this matter. In addition, as a result of the ongoing options review, McAfee anticipates that it will not file its Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 on a timely basis. Further, McAfee believes that it is more likely than not that it will restate its financial statements in at least one, and potentially several, prior periods. As a result, McAfee has concluded that its previously issued financial statements should no longer be relied upon. All results reported today are presented without taking into account any adjustments that may be required in connection with the ongoing stock option review and should be considered preliminary until McAfee files its Form 10-Q for the second quarter ended June 30, 2006. For the second quarter ended June 30, 2006, McAfee's consolidated net revenue was $277 million. On a GAAP basis, McAfee's second quarter net earnings were $31 million (includes stock-based compensation expense of $11.2 million, net of tax), or $0.19 per share diluted (includes stock-based compensation expense of $0.07). On a non-GAAP or pro forma basis, second quarter net earnings were $48 million, or $0.30 per share diluted. Pro forma operating margins for the second quarter were 21.0% and GAAP operating margins were 10.0% for the quarter. Second quarter 2006 operating margins include $4 million as a GAAP and pro forma charge for the period relating to an accrual for a potential legal settlement. FINANCIAL HIGHLIGHTS o New McAfee revenue in the quarter grew by 13% year over year, with bookings increasing 3% globally o Overall, McAfee consumer revenue in the quarter grew by 2% year over year to $111 million, with bookings increasing by 11%. Revenue from online consumer services in the quarter grew by 7% year over year with bookings growing 15% year over year o McAfee online consumer services added 1.6 million net new subscribers in the quarter, bringing the total number of unique subscribers to 20.8 million o Deferred revenue grew by $32 million in the quarter to end the quarter at $808 million o McAfee ended the second quarter with cash and cash equivalents, restricted cash, and investments of $1.154 billion FINANCIAL OUTLOOK o McAfee expects net revenue for the third quarter of 2006 to be between $265 million and $285 million and pro forma net earnings to be between $0.26 and $0.32 per share. This guidance reflects an assumed 27% tax rate o McAfee expects full year 2006 net revenue to be between $1.05 billion and $1.15 billion and pro forma net earnings to be between $1.20 and $1.40 per share. This guidance reflects an assumed 27% tax rate. "McAfee had a solid second quarter and the underlying balance sheet fundamentals of the business remain strong," said George Samenuk, chairman and chief executive officer of McAfee, Inc. "We will continue to provide visibility into our business and are committed to helping our investors monitor its progress. The company has a strategy in place and will continue to build, buy, partner and invest to maintain its role as thought leader and primary security provider across its target markets." UPDATE ON STOCK OPTION REVIEW As previously announced, McAfee, through a Special Committee of independent directors with the assistance of independent counsel and forensic accountants, has been engaged in an internal review of its stock option grant practices and related accounting. Although the review is still ongoing, the Special Committee has concluded that, pursuant to the requirements of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), the accounting measurement dates for certain stock options granted differ from the measurement dates previously used for such awards. As a result, new accounting measurement dates will apply to the affected option grants. McAfee believes that it is more likely than not that the amount of such additional adjustments relating to prior periods will be material and that McAfee will restate its financial statements in at least one, and potentially several, prior periods. The tax consequences that may result from these adjustments have not yet been determined. The Special Committee is working to complete its stock option review in a timely manner and the Company intends to file its quarterly report for the period ended June 30, 2006 as soon as practicable after the Special Committee's investigation is concluded. However, at this time, McAfee is not in a position to predict when the stock option review will be completed. BUSINESS HIGHLIGHTS: o McAfee acquired Preventsys, Inc. to further advance its ability to help companies reduce the complexity of managing their security o McAfee announced four new security subscription suites, based on the Falcon platform, to provide consumers with the latest protection against both traditional and emerging threats o McAfee also completed integration of SiteAdvisor and successfully concluded initiatives that re-branded the product as McAfee SiteAdvisor o McAfee recently adopted a Chinese name and established a mobile research laboratory in China o McAfee enhanced its Secure Messaging Gateway and Security Internet Gateway appliances to include new e-mail regulatory compliance, encryption modules and enhanced anti-spam functionality. McAfee also announced VirusScan(R) for Mactel, anti-virus support for Intel-based Apple computers. o McAfee added 21 patents in the second quarter, bringing its total to 220 patents o McAfee appointed Chuck Robel to the McAfee Board of Directors and Audit Committee o The McAfee mobile and consumer business expanded its partnership base through new agreements with British Sky Broadcasting, Cingular Wireless, Willcom, Motorola, StarSoftComm, China Unicom, Baidu, eSys Technologies and Visual Data and Equifax o McAfee Avert(R) Labs officially released protection for the 200,000th threat in its database--demonstrating a 60% decrease in the amount of time it took to double the number of threats in the database since September 2004. It also announced its reemergence in the field of vulnerability discovery and disclosure as a way to raise public awareness of potential points of attack. o McAfee also received strong third-party validation in the second quarter: o McAfee won Computerworld's 21st Century Achievement Award and Leadership Award o McAfee was named a 2006 DICE winner by CMP Technology's Digital Connect Magazine as Overall Winner as well as the category of Channel Criteria Winner o McAfee was awarded CompUSA's prestigious Vendor of the Year Award in the Productivity Software category o McAfee AntiSpyware Enterprise was named the top product in a seven-product comparison performed by Information Security Magazine, and a winner in the Anti-Spyware Category for Redmond Magazine's 2006 Reader's Choice Awards o McAfee Foundstone(R) Enterprise 4.2 has been named a finalist in the sixth annual eWEEK Excellence Awards o McAfee Active Virus Defense was named a winner in the anti-malware category for the InfoSecurity Customer Trust 2006 Awards o McAfee Technical Support was named the winner for "Best Use of Technology" in the annual Call Center Excellence Awards, a finalist in the fourth annual American Business Awards in the "Best Support Organization" category, and one of the "Ten Best Web Support Sites of 2006" by the Association of Support Professionals (ASP) o McAfee VirusScan Mobile earned certification for automated online virus scanning from Symbian Signed mobile application certification program o McAfee achieved a number of enterprise customer wins in the quarter, including Imtech, Corus Group, a worldwide leading re-insurance company, one of the largest local ISP's in Germany, a major global energy supplier, a large financial house, a leading premium drinks business, a large financial Suisse institution and a leading mobile operating systems developer CONFERENCE CALL INFORMATION o 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 888-790-2935 (U.S. toll-free) or 517-623-4381 (international), pass code: MFE o Attendees should dial in at least 15 minutes prior to the conference call. o A replay of the call will be available until August 10th by calling 888-562-7623 (U.S. toll-free) or 402-220-6504 (international) o 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 Pro forma net earnings and pro forma operating margin exclude amortization of purchased technology and intangibles expense, stock-based compensation charges, retention bonuses and severance payments related to acquisitions, gain or loss on sale of assets and technology, restructuring charges, SEC and compliance costs and in process research and development. Pro forma net earnings assume an effective tax rate of 27% for 2006. McAfee management believes that the 27% pro forma effective tax rate is reflective of a long-term normalized tax rate under the global McAfee structure as of the period end. McAfee's management uses pro forma net earnings and pro forma operating results to evaluate the company's operating performance and believes that excluding these items enhances management's and its investors' ability to evaluate McAfee's comparable historical operating results. McAfee is unable to provide a pro forma to GAAP reconciliation of projected net earnings and net earnings per share for the third quarter of 2006 and full year 2006. Among other reasons, such amounts are not known or cannot be reasonably estimated at this time or, in the case of stock options, the amount of any compensation charge (credit) related to stock options may depend on changes in the trading price of McAfee's common stock. McAfee estimates that (i) for the third quarter of 2006 and remainder of 2006 restructuring charges will be in the range of $0.5 million to $1.5 million based on decisions made prior to the second quarter 2006 for which the actions will occur in 2006 but excluding additional restructuring activities that may be taken after June 30, 2006, (ii) for the third quarter of 2006 and remainder of 2006 amortization expense (excluding the impact of potential intangible amounts related to the SiteAdvisor acquisition) will be approximately $2.5 million and $4.5 million on intangibles and trademarks, and $5.4 million and $10.9 million on purchased technology and (iii) for the third quarter of 2006 and remainder of 2006 other expenses related to the IntruVert, Foundstone(R) and Wireless Security Corp., SiteAdvisor and Preventsys acquisitions will be approximately $2.4 million and $4.9 million. The estimate for amortization expense does not include any future impairment of intangible assets with respect to previous acquisitions nor does it include any intangible assets that may be acquired through future acquisitions. FORWARD-LOOKING STATEMENTS This release contains forward-looking statements which include those regarding the preliminary unaudited results for the second quarter ended June 30, 2006 and guidance for the full year 2006, expected operating results for the third quarter and remainder of 2006, the anticipated timing for McAfee's filing of its Form 10-Q for the second quarter of 2006, the possibility that McAfee could conclude that a restatement of its historical financial statements is required and planned new product introductions and related product benefits. Actual results could vary perhaps materially and the expected results may not occur. In particular, McAfee may be required to make adjustments to its unaudited preliminary second quarter results, as well as to its financial results previously reported for prior periods, as a result of its ongoing review into past stock option grants, and McAfee may restate certain prior period financial statements. In addition, actual results are subject to other risks, including that McAfee may not achieve its planned revenue realization rates; succeed in its efforts to grow its business, build upon its technology leadership or capture market share, notwithstanding related commitment or related investment. The company may not benefit from its strategic alliances or partnerships as anticipated, customers may not respond as favorably as anticipated to the company's product or technical support offerings, 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 and macro and other economic conditions both in the U.S. and internationally. 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 annual report on Form 10-K for the year ended December 31, 2005 and its quarterly reports filed on Form 10-Q. FINANCIAL TABLES The completion of the ongoing review of past stock option grants could result in prior period non-cash stock compensation charges and related tax effects, which could affect the preliminary unaudited results and full year guidance reported in this release. Therefore, all results reported in this release are unaudited and should be considered preliminary until the Form 10-Q for the second quarter ended June 30, 2006 is filed with the SEC. ABOUT MCAFEE, INC. McAfee Inc., headquartered in Santa Clara, California and the global leader in Intrusion Prevention and Security Risk Management, delivers proactive and proven solutions and services that secure systems and networks around the world. With its unmatched security expertise and commitment to innovation, McAfee empowers home users, businesses, the public sector, and service providers with the ability to block attacks, prevent disruptions, and continuously track and improve their security. http://www.mcafee.com. # # # McAfee, SiteAdvisor, Intrushield, Foundstone, VirusScan, and Avert are registered trademarks or trademarks of McAfee, Inc. and/or its affiliates in the US and/or other countries. McAfee Red in connection with security is distinctive of McAfee brand products. All other registered and unregistered trademarks herein are the sole property of their respective owners. (C) 2006 McAfee, Inc. All rights reserved. MCAFEE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) (Preliminary and Unaudited)
JUNE 30, DECEMBER 31, 2006 2005 ------------ ------------ Assets: Cash and marketable securities $ 1,153,663 $ 1,257,021 Restricted cash 1,042 51,428 Accounts receivable, net 127,546 158,680 Prepaid expenses, income taxes and other current assets 146,732 106,791 Property and equipment, net 91,126 85,641 Deferred taxes 457,380 448,126 Goodwill, intangibles and other long term assets, net 593,831 534,937 ------------ ------------ Total assets $ 2,571,320 $ 2,642,624 ============ ============ Liabilities: Accounts payable $ 30,821 $ 34,678 Accrued liabilities 233,134 263,855 Deferred revenue 808,039 746,420 Accrued taxes and other long term liabilities 148,883 142,638 ------------ ------------ Total liabilities 1,220,877 1,187,591 Stockholders' equity: Common stock 1,724 1,705 Treasury stock (302,755) (68,395) Additional paid-in capital 1,419,382 1,356,881 Deferred stock-based compensation - (474) Accumulated other comprehensive income 25,825 31,302 Retained earnings 206,267 134,014 ------------ ------------ Total stockholders' equity 1,350,443 1,455,033 ------------ ------------ Total liabilities and stockholders' equity $ 2,571,320 $ 2,642,624 ============ ============
MCAFEE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data) (Preliminary and unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------------- --------------------------- 2006 2005 2006 2005 ------------ ------------ ------------ ------------ Net revenue $ 277,364 $ 245,382 $ 549,331 $ 481,109 Cost of net revenue (1) 42,394 32,970 83,471 67,777 Amortization of purchased technology 5,226 3,886 9,067 7,736 ------------ ------------ ------------ ------------ Gross profit 229,744 208,526 456,793 405,596 Operating costs: Research and development (1) 56,910 44,884 107,887 83,114 Marketing and sales (1) 93,890 76,136 178,756 147,320 General and administrative (1) 41,578 29,543 77,872 61,272 Reimbursement from transition services agreement - (31) - (359) Loss (gain) on sale/disposal of assets and technology 129 (970) 153 (711) Amortization of intangibles 2,846 3,705 5,639 7,233 Restructuring charges 568 3,676 1,119 5,972 SEC and compliance costs 3,352 - 3,772 - IP R&D 460 4,000 460 4,000 Divestiture expense - 201 - 789 Acquisition retention bonuses and severance 2,344 1,393 3,263 2,856 ------------ ------------ ------------ ------------ Total operating costs 202,077 162,537 378,921 311,486 ------------ ------------ ------------ ------------ Income from operations 27,667 45,989 77,872 94,110 Interest and other income, net 7,996 4,584 19,930 8,896 ------------ ------------ ------------ ------------ Income before provision for income taxes 35,663 50,573 97,802 103,006 Provision for income taxes 4,300 8,875 25,549 25,338 ------------ ------------ ------------ ------------ Net income $ 31,363 $ 41,698 $ 72,253 $ 77,668 ============ ============ ============ ============ Net income per share - basic $ 0.20 $ 0.25 $ 0.45 $ 0.48 ============ ============ ============ ============ Net income per share - diluted $ 0.19 $ 0.25 $ 0.44 $ 0.46 ============ ============ ============ ============ Shares used in per share calculation - basic 159,418 163,560 162,163 163,240 ============ ============ ============ ============ Shares used in per share calculation - diluted 161,404 167,379 164,113 167,344 ============ ============ ============ ============
(1) Prior to January 1, 2006, the Company accounted for stock compensation expense under APB 25, "Accounting for Stock Issued to Employees", which measured stock compensation expense using the intrinsic value method. As of January 1, 2006, the Company accounts for stock compensation expense under SFAS 123R, "Share-Based Payment", which requires stock compensation expense to be recognized based on grant date fair value. Periods prior to January 1, 2006, have not been restated to conform with the provisions of SFAS 123R. Stock-based compensation charges (benefits) are included as follows: Cost of net revenue $ 677 $ - $ 1,353 $ - Research and development 4,354 1,264 8,271 (1,239) Marketing and sales 6,262 443 10,953 (292) General and administrative 4,377 661 8,664 607 ------------ ------------ ------------ ------------ $ 15,670 $ 2,368 $ 29,241 $ (924) ============ ============ ============ ============
MCAFEE, INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data) (Preliminary and Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------------------------------------------- 2006 2005 2006 2005 ------------ ------------ ------------ ------------ Net revenue $ 277,364 $ 245,382 $ 549,331 $ 481,109 Cost of net revenue (1) 41,717 32,970 82,118 67,777 Amortization of purchased technology - - - - ------------ ------------ ------------ ------------ Gross profit 235,647 212,412 467,213 413,332 Operating costs: Research and development (1) 52,556 43,620 99,616 84,353 Marketing and sales (1) 87,628 75,693 167,803 147,612 General and administrative (1) 37,201 28,882 69,208 60,665 Reimbursement from transition services agreement - - - - Loss (gain) on sale/disposal of assets and technology - - - - Amortization of intangibles - - - - Restructuring charges - - - - SEC and compliance costs - - - - IP R&D - - - - Divestiture expense - - - - Acquisition retention bonuses and severance - - - - ------------ ------------ ------------ ------------ Total operating costs 177,385 148,195 336,627 292,630 ------------ ------------ ------------ ------------ Income from operations 58,262 64,217 130,586 120,702 Interest and other income, net 7,996 4,584 19,930 8,896 ------------ ------------ ------------ ------------ Income before provision for income taxes 66,258 68,801 150,516 129,598 Provision for income taxes 17,890 17,200 40,639 32,400 ------------ ------------ ------------ ------------ Pro forma net income $ 48,368 $ 51,601 $ 109,877 $ 97,198 ============ ============ ============ ============ Net income per share - diluted $ 0.30 $ 0.31 $ 0.67 $ 0.58 ============ ============ ============ ============ Shares used in per share calculation - diluted 161,404 167,379 164,113 167,344 ============ ============ ============ ============
(1) Excludes stock-based compensation charges (benefits) The accompanying reconciliation of pro forma condensed consolidated statements of income to the condensed consolidated statements of income is an integral part of the above pro forma financial information. The Company believes that the above pro forma information provides useful information to management and investors regarding financial and business trends relating to its financial condition and results of operations. However, this pro forma information will necessarily be different from comparable information provided by other companies and should not be used as an alternative to our operating results and other financial information as determined under accounting principles generally accepted in the United States of America. MCAFEE, INC. AND SUBSIDIARIES RECONCILIATION OF CONDENSED CONSOLIDATED PRO FORMA STATEMENTS OF INCOME TO THE CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands) (Preliminary and Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------------- --------------------------- 2006 2005 2006 2005 ------------ ------------ ------------ ------------ Pro forma net income $ 48,368 $ 51,601 $ 109,877 $ 97,198 Provision for income taxes 17,890 17,200 40,639 32,400 ------------ ------------ ------------ ------------ Pro forma income before provision for income taxes 66,258 68,801 150,516 129,598 Amortization of purchased technology (5,226) (3,886) (9,067) (7,736) Stock-based compensation (charges) benefits (15,670) (2,368) (29,241) 924 Reimbursement from transition services agreement - 31 - 359 (Loss) Gain on sale/disposal of assets and technology (129) 970 (153) 711 Amortization of intangibles (2,846) (3,705) (5,639) (7,233) Restructuring charges (568) (3,676) (1,119) (5,972) SEC and compliance costs (3,352) - (3,772) - IP R&D (460) (4,000) (460) (4,000) Divestiture expense - (201) - (789) Acquisition retention bonuses and severance (2,344) (1,393) (3,263) (2,856) ------------ ------------ ------------ ------------ Income before provision for income taxes $ 35,663 $ 50,573 $ 97,802 $ 103,006 ------------ ------------ ------------ ------------ Provision for income taxes 4,300 8,875 25,549 25,338 ------------ ------------ ------------ ------------ Net income $ 31,363 $ 41,698 $ 72,253 $ 77,668 ============ ============ ============ ============
MCAFEE, INC. REVENUE BY PRODUCT GROUPS - PRESS RELEASE - TOTAL CONSOLIDATED (in thousands)
Q2 '06 Q1 '06 Q4 '05 Q3 '05 Q2 '05 ------------------ ------------------ ------------------ ------------------ ------------------ McAfee $ 277,364 100% $ 271,967 100% $ 253,258 100% $ 252,910 100% $ 245,207 100% McAfee Corporate $ 166,183 60% $ 160,280 59% $ 147,004 58% $ 147,607 58% $ 135,899 55% McAfee Consumer $ 111,181 40% $ 111,687 41% $ 106,254 42% $ 105,303 42% $ 109,308 45% -McAfee.com 94,713 34% 97,512 36% 89,968 36% 87,597 35% 88,582 36% -Retail 16,468 6% 14,175 5% 16,286 6% 17,706 7% 20,726 9% Divested Businesses -NAI Labs - 0% - 0% 21 0% 1 0% 175 0% ---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- ----- Total MFE $ 277,364 100% $ 271,967 100% $ 253,279 100% $ 252,911 100% $ 245,382 100% ========== ===== ========== ===== ========== ===== ========== ===== ========== =====
BOOKINGS BY PRODUCT GROUPS - PRESS RELEASE - TOTAL CONSOLIDATED (in thousands)
Q2 '06 Q1 '06 Q4 '05 Q3 '05 Q2 '05 ------------------ ------------------ ------------------ ------------------ ------------------ McAfee $ 328,167 100% $ 318,061 100% $ 360,735 100% $ 293,819 100% $ 317,466 100% McAfee Corporate $ 183,043 56% $ 169,626 53% $ 225,300 63% $ 171,239 58% $ 187,116 59% -Enterprise 104,243 32% 91,311 29% 136,021 38% 94,560 32% 101,251 32% -SMB 78,800 24% 78,315 24% 89,279 25% 76,679 26% 85,865 27% McAfee Consumer $ 145,124 44% $ 148,435 47% $ 135,435 37% $ 122,580 42% $ 130,350 41% -McAfee.com 130,540 40% 130,140 41% 115,783 32% 102,708 35% 113,866 36% -Retail 14,584 4% 18,295 6% 19,652 5% 19,872 7% 16,484 5% ---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- ----- Total MFE $ 328,167 100% $ 318,061 100% $ 360,735 100% $ 293,819 100% $ 317,466 100% ========== ===== ========== ===== ========== ===== ========== ===== ========== =====