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:
$ in Millions, except per share and % data
Q4 2010
Q4 2009
%Change
%
ChangeConstantCurrency**
Total Net Revenue $549.6 $525.7
5% 8%
Non-GAAP
Operating Income* $138.4 $136.7
1% 12% Non-GAAP Net Income*
$105.2 $102.9 2% 13%
Non-GAAP Net Income Per Share* (Diluted) $0.67
$0.64 4% 15%
GAAP Operating Income $58.7
$72.2 (19%) 1% GAAP Net Income
$60.6 $54.5 11%
37% GAAP Net Income Per Share (Diluted) $0.38
$0.34 13% 40%
Deferred Revenue $1,536.3
$1,407.5 9% 11% Cash &
Marketable Securities $1,183.5 $950.2
25%
*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:
$ in Millions, except per share and % data
Full Year2010
Full Year2009
%Change
%
ChangeConstantCurrency**
Total Non-GAAP Net Revenue $2,070.9
$1,927.3 7% 9% Total GAAP Net Revenue
$2,064.8 $1,927.3 7%
9%
Non-GAAP Operating
Income* $532.8 $504.4 6%
12% Non-GAAP Net Income* $404.0
$384.8 5% 12% Non-GAAP Net
Income Per Share* (Diluted) $2.57 $2.42
6% 13%
GAAP
Operating Income $229.4 $222.3
3% 18% GAAP Net Income $184.1
$173.4 6% 22% GAAP Net
Income Per Share (Diluted) $1.17 $1.09
7% 23%
*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.
MCAFEE, INC. AND SUBSIDIARIESCONDENSED
CONSOLIDATED BALANCE SHEETS(in
thousands)(Unaudited) December
31,2010 December 31,2009 Assets:
Cash and marketable securities $ 1,183,529 $ 950,168 Accounts
receivable, net 348,254 294,315 Prepaid expenses, deferred costs of
revenue and other current assets (A) 292,861 263,891 Property and
equipment, net 167,194 133,016 Deferred income taxes 609,769
604,737 Goodwill, intangibles and other long-term assets, net (A)
1,630,745 1,717,059 Total assets $
4,232,352 $ 3,963,186 Liabilities:
Accounts payable $ 71,349 $ 55,104 Accrued liabilities 343,123
312,299 Deferred revenue (B) 1,536,266 1,407,473 Accrued taxes and
other long-term liabilities 57,517 70,772
Total liabilities 2,008,255 1,845,648 Stockholders'
Equity: Common stock 1,932 1,868 Treasury stock (1,173,645 )
(845,118 ) Additional paid-in capital 2,507,457 2,251,916
Accumulated other comprehensive loss (7,922 ) (3,291 ) Retained
earnings 896,275 712,163 Total
stockholders' equity 2,224,097 2,117,538
Total liabilities and stockholders' equity $ 4,232,352
$ 3,963,186 (A)
Deferred costs of revenue and prepaid
expenses primarily associated with revenue-sharing and royalty
arrangements were $292.0M and $271.8M as of December 31, 2010 and
December 31, 2009, respectively.
(B)
Short term and long term deferred revenue
were $1,147.6M and $388.6M as of December 31, 2010 and $1,068.7M
and $338.8M as of December 31, 2009, respectively.
MCAFEE, INC. AND SUBSIDIARIESCONDENSED
CONSOLIDATED STATEMENTS OF INCOME(in thousands, except per
share data)(Unaudited)
Three Months EndedDecember 31, Twelve Months
EndedDecember 31, 2010 2009 2010
2009 Net revenue $ 549,564 $ 525,666 $
2,064,807 $ 1,927,332 Cost of net revenue (A) (B) 132,660
110,571 476,081 408,426 Amortization of purchased technology 19,429
20,768 80,742 77,961 Impact of signature file update -
- 725 - Gross profit
397,475 394,327 1,507,259 1,440,945 Operating costs:
Research and development (A) 92,067 84,031 343,994 322,872 Sales
and marketing (A) 171,951 177,263 656,011 638,829 General and
administrative (A) 48,911 44,479 184,051 164,659 Restructuring
charges 15,404 2,911 41,683 13,830 Amortization of intangibles
7,152 10,118 29,743 40,718 Acquisition-related costs (benefits)
3,105 (67 ) 16,598 31,731 Litigation-related and other costs -
3,200 4,250 5,525 Impact of signature file update - - 1,093 - Loss
on sale/disposal of assets and technology 157
236 414 474 Total operating costs
338,747 322,171 1,277,837
1,218,638 Income from operations 58,728 72,156 229,422
222,307 Interest and other income (loss), net 376 (623 ) 218 2,626
Impairment of marketable securities - -
- (710 ) Income before provision for income taxes
59,104 71,533 229,640 224,223 Provision (benefit) for income taxes
(1,468 ) 17,011 45,528 50,803
Net income $ 60,572 $ 54,522 $ 184,112 $
173,420 Net income per share - basic $ 0.39 $
0.35 $ 1.19 $ 1.11 Net income per share - diluted $
0.38 $ 0.34 $ 1.17 $ 1.09 Shares used
in per share calculation - basic 154,819
157,820 154,936 156,144 Shares used in
per share calculation - diluted 157,893
161,032 157,385 158,988
(A) Stock-based compensation expense is
included as follows:
Cost of net revenue $ 2,011 $ 1,638 $ 7,655 $ 6,044 Research and
development 9,137 7,119 32,364 27,023 Sales and marketing 12,009
10,848 48,945 47,689 General and administrative 8,641
7,775 30,517 28,338 $ 31,798
$ 27,380 $ 119,481 $ 109,094
(B) In the twelve months ended December
31, 2009, cost of net revenue includes $2.7M of acquisition-related
costs.
MCAFEE, INC. AND SUBSIDIARIESCONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS(in
thousands)(Unaudited) Twelve Months
EndedDecember 31, 2010 2009 Cash
flows from operating activities: Net income $ 184,112 $ 173,420
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization 171,357 172,280
Stock-based compensation expense 119,481 103,036 Excess tax benefit
from stock-based awards (14,458 ) (10,215 ) Deferred income taxes
10,286 11,900 Non-cash restructuring charge 24,381 1,861 Impairment
of marketable securities - 710 Other non-cash items 8,628 6,185
Changes in assets and liabilities, net of acquisitions: Accounts
receivable, net (63,668 ) 33,216 Prepaid expenses, deferred costs
of revenue, and other assets (39,061 ) (98,608 ) Accounts payable
15,560 11,212 Accrued taxes and other liabilities 22,111 (10,370 )
Deferred revenue 155,911 101,757 Net
cash provided by operating activities 594,640
496,384 Cash flows from investing activities: Purchase of
marketable securities (654,313 ) (448,117 ) Proceeds from sales of
marketable securities 161,432 50,623 Proceeds from maturities of
marketable securities 322,498 239,323 Purchase of property and
equipment (86,905 ) (60,535 ) Acquisitions, net of cash acquired
(51,869 ) (171,618 ) Other investing activities 10,403
2,492 Net cash provided by (used in) investing
activities (298,754 ) (387,832 ) Cash flows from
financing activities: Proceeds from issuance of common stock under
our employee stock benefit plans 125,442 90,105 Excess tax benefit
from stock-based awards 14,458 10,215 Repurchase of common stock
(328,527 ) (25,257 ) Bank borrowings - 100,000 Repayment of bank
borrowings - (100,000 ) Payment of accrued purchase price and
contingent consideration (23,856 ) (4,949 ) Other financing
activities (3,157 ) - Net cash (used in)
provided by financing activities (215,640 ) 70,114
Effect of exchange rate fluctuations on cash (18,964
) 15,169 Net increase in cash and cash equivalents
61,282 193,835 Cash and cash equivalents at beginning of period
677,137 483,302 Cash and cash
equivalents at end of period $ 738,419 $ 677,137
MCAFEE, INC. AND SUBSIDIARIESRECONCILIATION OF
GAAP TO NON-GAAP FINANCIAL MEASURES(in thousands, except per
share data)(Unaudited) Three
Months EndedDecember 31, Twelve Months
EndedDecember 31, 2010 2009 2010
2009 Net revenue: GAAP net revenue $ 549,564 $ 525,666 $
2,064,807 $ 1,927,332 Impact of signature file update (1) -
- 6,105 - Non-GAAP net
revenue $ 549,564 $ 525,666 $ 2,070,912 $
1,927,332 Gross profit: GAAP gross profit $ 397,475 $
394,327 $ 1,507,259 $ 1,440,945 Impact of signature file update (1)
- - 6,830 - Stock-based compensation expense (2) 2,011 1,638 7,655
6,044 Amortization of purchased technology (3) 19,429 20,768 80,742
77,961 Acquisition-related costs - -
2,717 Non-GAAP gross profit $ 418,915 $
416,733 $ 1,602,486 $ 1,527,667 Operating
income: GAAP operating income $ 58,728 $ 72,156 $ 229,422 $ 222,307
Impact of signature file update (1) - - 7,923 - Stock-based
compensation expense (2) 31,798 27,380 119,481 109,094 Amortization
of purchased technology (3) 19,429 20,768 80,742 77,961
Amortization of intangibles (3) 7,152 10,118 29,743 40,718
Restructuring charges (4) 15,404 2,911 41,683 13,830
Acquisition-related costs (benefits) (5) 3,105 (67 ) 16,598 34,448
Litigation-related and other costs (6) - 3,200 4,250 5,525 Acquired
intangible asset expensed to research in development (7) 2,582 -
2,582 - Loss on sale/disposal of assets and technology (8)
157 236 414 474 Non-GAAP
operating income $ 138,355 $ 136,702 $ 532,838
$ 504,357 Net income: GAAP net income $ 60,572 $ 54,522 $
184,112 $ 173,420 Impact of signature file update (1) - - 7,923 -
Stock-based compensation expense (2) 31,798 27,380 119,481 109,094
Amortization of purchased technology (3) 19,429 20,768 80,742
77,961 Amortization of intangibles (3) 7,152 10,118 29,743 40,718
Restructuring charges (4) 15,404 2,911 41,683 13,830
Acquisition-related costs (benefits) (5) 3,105 (67 ) 16,598 34,448
Litigation-related and other costs (6) - 3,200 4,250 5,525 Acquired
intangible asset expensed to research in development (7) 2,582 -
2,582 - Loss on sale/disposal of assets and technology (8) 157 236
414 474 Marketable securities (accretion) impairment (9) (348 )
(650 ) (1,499 ) 60 Provision (benefit) for income taxes (10)
(1,468 ) 17,011 45,528 50,803
Non-GAAP income before provision for income taxes 138,383
135,429 531,557 506,333 Non-GAAP provision for income taxes
(11) 33,212 32,503 127,574
121,520 Non-GAAP net income $ 105,171 $
102,926 $ 403,983 $ 384,813 Net income per
share - diluted: * GAAP net income per share - diluted $ 0.38 $
0.34 $ 1.17 $ 1.09 Stock-based compensation expense per share (2)
0.20 0.17 0.76 0.69 Other adjustments per share
(1), (3)-(11)
0.08 0.13 0.64
0.64 Non-GAAP net income per share - diluted * $ 0.67 $ 0.64
$ 2.57 $ 2.42 Shares used to compute Non-GAAP
net income per share - diluted 157,893 161,032
157,385 158,988
*
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 (11).
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:
(1)
Impact of signature file update primarily
reflects the negative impact during the three months ended June 30,
2010, 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 (benefits)
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. Additionally, we have included
direct costs related to our pending acquisition by Intel. 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)
Litigation-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. Examples of such
charges include litigation and investigation-related charges. 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. In the third quarter of 2010, we combined the
“Investigation-related and other costs” and “Legal settlements”
line items which were previously reported separately into this line
item for ease of presentation.
(7)
Acquired intangible asset expensed to
research and development is related to the purchase of an
intangible asset which was expensed to research and development.
The Company’s management excludes this cost when evaluating its
ongoing performance and/or predicting its earnings trends, and
therefore excludes this cost when presenting non-GAAP financial
measures. Further, the Company believes it is useful to investors
to understand the specific impact of this cost on its operating
results.
(8)
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.
(9)
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.
(10)
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.
(11)
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. For 2010 and 2009, management believed that the 24%
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.
MCAFEE, INC. AND SUBSIDIARIESCONDENSED
CONSOLIDATED GAAP REVENUE BY GEOGRAPHY(in
thousands)(Unaudited)
Three Months
EndedDecember 31, 2010
Three Months
EndedSeptember 30, 2010
Three Months EndedJune 30,
2010
Three Months EndedMarch 31,
2010
Three Months
EndedDecember 31, 2009
Three Months
EndedSeptember 30, 2009
McAfee North America $ 311,280 57 % $ 312,279 60 % $ 285,858
58 % $ 284,197 57 % $ 298,562 57 % $ 273,464 56 % McAfee
International 238,284 43 % 210,980 40 % 203,381 42 % 218,548 43 %
227,104 43 % 211,807 44 %
GAAP net revenue $
549,564 100 % $ 523,259 100 % $ 489,239 100 % $ 502,745 100 % $
525,666 100 % $ 485,271 100 % 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 %
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 SUBSIDIARIESCONDENSED
CONSOLIDATED GAAP REVENUE BY PRODUCT GROUPS(in
thousands)(Unaudited)
Three Months
EndedDecember 31, 2010
Three Months
EndedSeptember 30, 2010
Three Months EndedJune 30,
2010
Three Months EndedMarch 31,
2010
Three Months
EndedDecember 31, 2009
Three Months
EndedSeptember 30, 2009
McAfee Corporate $ 340,189 62 % $ 323,897 62 % $ 298,449 61
% $ 312,507 62 % $ 337,910 64 % $ 308,573 64 % McAfee
Consumer 209,375 38 % 199,362 38 % 190,790 39 % 190,238 38 %
187,756 36 % 176,698 36 %
GAAP net revenue $ 549,564 100 %
$ 523,259 100 % 489,239 100 % $ 502,745 100 % $ 525,666 100 % $
485,271 100 % 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.
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