McAfee, Inc. (NYSE: MFE) today reported financial results for the second quarter ended June 30, 2008.”We are very pleased with our strong execution in the second quarter across all geographies and target markets, further validating that our strategic approach is on the right track,” said Dave DeWalt, McAfee’s chief executive officer and president.  “We believe that continued commitment to driving McAfee’s three primary initiatives - extending leadership in endpoint security; interlocking security for the endpoint, network and risk and compliance; and securing emerging platforms including virtual environments and the Web - will position the company for continued industry leadership and solid performance in the second half of this year.”

“With our pending acquisition of Reconnex, McAfee expects to redefine the entire data protection market by bringing together a leader in an emerging segment with our comprehensive portfolio of data protection technologies.  We expect that Reconnex’s unique ability to learn and automate ongoing data protection will enable us to leapfrog other data protection vendors, reinforcing McAfee’s leadership position in security,” continued DeWalt.

Second Quarter Financial Highlights and Operational Metrics:

$ in Millions, except per share and % data

Q2 2008         Q2 2007        % Change

Total Net Revenue                                                            $396.8            $314.8                26%

GAAP Operating Income                                                   $54.4              $38.8                 40%

GAAP Net Income                                                             $47.8               $48.0                 0%

GAAP Net Income

Per Share (Diluted)                                                             $0.30              $0.29                 1%

Non-GAAP Operating Income*                                         $101.8              $74.0               38%

Non-GAAP Net Income*                                                      $83.8             $67.8               24%

Non-GAAP Net Income

Per Share* (Diluted)                                                            $0.52                $0.41            25%

Deferred Revenue                                                          $1,085.8           $907.8             20%

Cash & Marketable Securities                                         $1,131.3         $1,413.8         (20)%

* A complete reconciliation of GAAP to non-GAAP results is set forth in  the attachment to this press release.

Second Quarter 2008 Operating Summary:

· Revenue grew 26 percent compared with the same period last year, to $397 million in the second quarter of 2008

· $397 million is record quarterly revenue for McAfee

· This is the tenth consecutive quarter of double-digit, year-over-year revenue growth

· Non-GAAP net income of $0.52 per share on a diluted basis is an all-time quarterly record for McAfee

Corporate Business:

· Revenue grew 32 percent compared with the same period last year, to $240 million in the second quarter of 2008

· $240 million is record quarterly revenue for McAfee’s corporate Business

· Growth during the quarter was driven by McAfee(R) Total Protection Endpoint for Mid-Market and Enterprise, Data Protection and McAfee’s  Network Security Platform, formerly known as Intrushield

· In the second quarter of 2008, McAfee closed 346 deals over $100,000, including 45 deals over $500,000 and 21 deals over $1 million. 21 deals over $1 million is a record for the company

Consumer Business:

· Revenue grew 18 percent compared with the same period last year, to $157 million in the second quarter of 2008

· The consumer business has grown double-digits year-over-year for 13 of the last 14 quarters

· In the second quarter of 2008, McAfee signed or extended 14 agreements        and launched 68 new or enhanced online partnerships

North America:

· Revenue grew 25 percent to $204 million in the second quarter of 2008,   compared with $163 million in the second quarter of 2007

· North American revenue accounted for 51 percent of total revenue for       the second quarter of 2008 compared with 52 percent of total revenue for the second quarter of 2007

International:

· Revenue grew 27 percent to $193 million in the second quarter of 2008,       compared with $152 million in the second quarter of 2007

· McAfee had double-digit growth across all geographies in the second     quarter of 2008

· Compared with the second quarter of 2007, revenue from Europe, the       Middle East and Africa grew by 28 percent, Asia Pacific grew by 31 percent, Latin America grew by 44 percent and Japan grew by 13 percent

· International revenue accounted for 49 percent of total revenue for the       second quarter of 2008 compared with 48 percent of total revenue for       the second quarter of 2007

Partnerships:

Corporate:

· McAfee announced the McAfee Content Security Blade Server, based on       Hewlett-Packard’s (HP) market leading hardware.  The blade server is       included with McAfee Total Protection for Network Security,       strengthening McAfee’s leadership position in network security.  McAfee       also announced its membership in the HP BladeSystem Solution Builder       Program.  Together McAfee and HP will enable customers who manage       high-volume network traffic to run their businesses more securely.

· Gemalto and McAfee announced a new integrated solution that enables PC     and laptop users secure and convenient access to fully encrypted disks       through strong, secure, hardware-based, two factor authentication

· McAfee announced participation in the VMWare Alliance Affiliate Initiative where channel partners are incented to sell McAfee security solutions with their virtualization engagements

Consumer:

· McAfee announced a worldwide agreement with HP to provide a 60-day       trial of pre-installed McAfee(R) Total Protection Software on HP    commercial desktop computers and notebooks.  The service, available       immediately, is targeted at small business customers

· McAfee announced a new McAfee announced a new exclusive partnership      with Toshiba to provide a 30-day free trial of McAfee(R) Internet Security Suite with SiteAdvisor(R) on Toshiba laptop computers destined for the consumer and small and medium-size business channels in Europe, the Middle East and Africa

· McAfee and Yahoo! announced a partnership to deliver a safer Web search       experience through Yahoo! Search.  The new SearchScan feature by Yahoo!       Search provides always-on alerts to users for “risky” sites with security concerns such as spyware, adware and other malicious software that can infect and damage a user’s PC

· McAfee announced two new services that combine the industry-leading       technologies of McAfee SiteAdvisor and recently acquired ScanAlert.       McAfee Secure Search Service, delivering one of the safest online       search experiences for consumers, and McAfee SECURE(TM) for Web Sites, the most comprehensive security scanning and trust mark in the industry to date, will create a more secure Internet experience for millions of       consumers

Balance Sheet and Cash Flow Summary:

At June 30, 2008, the company reported cash and marketable securities of $1.131 billion, compared with $1.293 billion at the end of the first quarter of 2008. The change reflected the company’s repurchase of approximately 7.1 million shares of its common stock for $256 million under the company’s stock repurchase program. This outflow was partially offset by $80 million of operating cash flow and $33 million of proceeds from the exercise of stock options.

During the second quarter of 2008, the company generated approximately $80 million in cash flow from operations, compared with $85 million in the same quarter last year. This change includes a $22 million increased investment year-over-year in new partnerships we entered into in the first half of 2008. Days sales outstanding were 46 days, unchanged from the second quarter of 2007.

Deferred revenue was $1.086 billion at the end of the second quarter of 2008, a 20 percent increase over the June 30, 2007 balance and a record for McAfee. Approximately 80 percent of revenue during the second quarter of 2008 came from prior period deferred revenue.

Reconnex Acquisition:

McAfee today announced a definitive agreement to acquire privately owned Reconnex for $46 million in cash. Reconnex is a leading data loss prevention company with unique technology that learns and adapts to automate the ongoing protection of data. Reconnex’s technology helps an organization protect all the information assets on its network without requiring upfront knowledge of what needs to be protected, regardless of how that information is stored, secured or communicated.

Reconnex’s products align with McAfee’s vision to provide a complete data protection and compliance solution to its customers, meeting the significant demand for adaptive data protection. With more than 60 million nodes managed by McAfee ePolicy Orchestrator(R) (ePO(TM)) today, McAfee can bring automated, centrally managed and adaptive protection to its existing customer base and further help users enhance the value of their current ePO investments.

The acquisition is expected to close in the third quarter of 2008. McAfee expects that following the closing, Reconnex’s technologies will be included in McAfee’s Data Protection product business unit. For additional information, please reference the acquisition landing page athttps://www.mcafee.com/enddataanxiety..

Financial Outlook:

McAfee expects net revenue in the third quarter of 2008 of $390 million to $400 million.

The company expects third quarter 2008 GAAP net income of $0.27 to $0.32 per share and non-GAAP net income of $0.46 to $0.50 per share on a diluted basis.

McAfee expects net revenue for the full-year 2008 of $1.535 billion to $1.585 billion.

The company expects full-year 2008 GAAP net income of $1.12 to $1.22 per share and non-GAAP net income of $1.90 to $2.00 per share on a diluted basis.

This 2008 guidance reflects an assumed 29 percent GAAP tax rate and a 27 percent non-GAAP tax rate for the full-year 2008. In addition, guidance does not reflect the future impact of the company’s stock repurchase program. Guidance also reflects our current expectations regarding the acquisition of Reconnex which assumes GAAP earnings per share dilution of approximately $0.05 and non-GAAP earnings per share dilution of approximately $0.03 for 2008. See the reconciliation of projected GAAP net income per share to projected non-GAAP net income per share attached to this press release.

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 50872557.

· Attendees should dial in at least 15 minutes prior to the conference call

· A replay of the call will be available until August 14, by calling (800) 642-1687 (U.S. toll-free) or (706) 645-9291 (international)

· A Web cast of the call may also be found on the Internet through McAfee’s Investor Relations Web site at https://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 gross profit, operating income and net income, which we refer to as “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 excludes 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 gross profit excludes amortization of purchased technology and patents, non-cash stock-based compensation charges and stock-based compensation charges related to tender offer. Non-GAAP net income and non-GAAP operating income exclude amortization of purchased technology, patents and intangibles, non-cash stock-based compensation charges and stock-based compensation charges related to tender offer, acquisition related costs, loss on sale/disposal of assets and technology, restructuring (benefits) charges, SEC and compliance costs, legal settlement for a patent-related matter, impairment of marketable securities, provision for income taxes and certain other items. Management used a 27 percent non-GAAP effective tax rate to calculate non-GAAP net income in 2008 and 2007. Management believes that the 27 percent effective tax rate in each respective period is 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 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, 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 excludes the items described above from its consideration of target performance and valuation.

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 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 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 gross profit, operating income and 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 relyingon non-GAAP net income are:

· Amortization of purchased technology, patents 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, in-process research and development charges 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 27 percent rate assumed in our non-GAAP financial measures for 2008 and 2007.

· 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 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, which include those regarding the preliminary results for the quarter ended June 30, 2008, guidance onexpected operating results for the third quarter of 2008 and full year 2008, expectations regarding the pending acquisition of Reconnex, including those regarding its future plans for Reconnex’s business, the expected closing date of the acquisition, expectations as to growth opportunities from the acquisition and expected plans for the integration of Reconnex’s products, McAfee’s positioning for continuing industry leadership and solid performance in the second half of 2008, business strategy, business momentum, market position, relationships and opportunities, McAfee’s expectations regarding growth opportunities, the benefits of strategic relationships or partnerships, the benefits of McAfee’s security solutions and the industry shift to security suites. Actual results could vary, perhaps materially, and the expected results may not occur. In particular, further risks may arise from governmental inquiries into our past stock option granting practices, including but not limited to, potential fines and penalties, and disruptions to our ongoing business and significant legal, litigation, accounting, tax and other expenses. 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 or combat effectively the security threats of the future, build upon its technology leadership, leverage its relationships and opportunities to the degree expected, or capture market share, notwithstanding related commitment or related investment. The company may not benefit from its acquisitions, strategic alliances or partnerships 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 newly developed operating systems, the company may experience delays in product development or the release of previously announced products, the company may experience delayed or lost bookings 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 are not 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. 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 reporton Form 10-Q for the period ended March 31, 2008. McAfee does not undertake to update any forward looking statements.