Edgar Filing: McAfee, Inc.

e8vkza

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 8-K/ A

Current Report

Pursuant to Section 13 or 15(d) of

The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): July 16, 2004

McAfee, Inc.

(Exact name of registrant as specified in its charter)

Commission file number: 0-20558






Delaware (State or other jurisdiction of incorporation or organization)		77-0316593 (I.R.S. Employer Identification Number)





3965 Freedom Circle Santa Clara, California (Address of principal executive offices)		95054 (Zip Code)

Registrant’s telephone number, including area code:

(408) 988-3832

TABLE OF CONTENTS






Item 2. Acquisition or Disposition of Assets			2




Item 7. Financial Statements and Exhibits			3




SIGNATURES			9




EXHIBIT INDEX			10


Item 2.	*Acquisition or Disposition of Assets*

On July 16, 2004, McAfee, Inc. (formerly Networks Associates, Inc.) (“the Company”) completed the sale of its Sniffer Technologies (“Sniffer”) product line to Network General Corporation, an entity controlled by Silver Lake Partners and Texas Pacific Group. The transaction was effected by means of an asset purchase agreement. After giving effect to the initial closing date working capital adjustments, the total consideration being received by the Company from the Buyer is approximately $217 million in cash.

The final transaction consideration received from the Buyer is subject to adjustment based on actual modified working capital balances on the closing date.

As part of the transaction, the Company retained pre-closing Sniffer accounts receivable.

This report amends and restates Item 7 of the Form 8-K filed by the Company with the Securities and Exchange Commission on July 16, 2004.


Item 7.	*Financial Statements and Exhibits*

(a) Financial Statements of business acquired:


	Not applicable

(b) Pro Forma Financial Information:

The unaudited pro forma condensed consolidated financial information with respect to the disposition of the Company’s Sniffer product line required by Item 7 of Form 8-K is included on pages 3 through 8 of this report and is incorporated herein by reference. This unaudited pro forma information (i) reflects pro forma adjustments primarily to eliminate revenue, cost of revenues and other costs and expenses directly related to the Sniffer product line, (ii) eliminates the assets that were sold and liabilities that were assumed by the buyer, and (iii) does not purport to represent either what the Company’s financial position or results of operations would have been had the sale occurred on the dates indicated or what Sniffer’s financial results would have been if it were a stand-alone organization for the periods presented.


*2	.1	Asset Purchase Agreement (the “APA”) made and entered into as of April 22, 2004, by and among, (i) Network General Corporation (formerly named Starburst Technology Holdings, Inc.), on the one hand, and (ii) McAfee, Inc. (formerly named Networks Associates, Inc.), Network Associates Technology, Inc., Network Associates International BV, Network Associates (India) Private Limited, McAfee Japan Co., Ltd (formerly named Network Associates Japan Co., Ltd.), on the other hand
*2	.2	Amendment No. 1 to the APA dated as of July 15, 2004.
*99	.1	Press Release of McAfee, Inc. dated July 16, 2004.


*	Incorporated by reference to Form 8-K filed by the Company with the Securities and Exchange Commission on July 16, 2004.


	*Pro Forma Financial Information*

In April 2004, McAfee, Inc. (formerly Networks Associates, Inc.) (“the Company”) entered into an agreement to sell its Sniffer Technologies (“Sniffer”) product line to Network General Corporation (“the Buyer”). The transaction consideration paid to the Company consisted of approximately $217 million in cash. The sale closed on July 16, 2004.

The unaudited pro forma condensed consolidated financial statements reported below consist of unaudited pro forma condensed consolidated statements of operations for the three months ended March 31, 2004 and for the year ended December 31, 2003 and an unaudited pro forma condensed consolidated balance sheet as of March 31, 2004. The unaudited pro forma financial statements should be read in conjunction with the Company’s historical consolidated financial statements and the related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003, and Quarterly Report on Form 10-Q for the quarter ended March 31, 2004 (and the planned amendment thereto).

The following unaudited pro forma condensed consolidated financial statements have been prepared giving effect to the sale of the Company’s Sniffer product line, as if it had occurred as of March 31, 2004 for the unaudited pro forma condensed consolidated balance sheet, and as of January 1, 2003 for the unaudited pro forma condensed consolidated statements of operations. The unaudited pro forma condensed consolidated statements of operations do not include any estimated gain on the sale of Sniffer, nor do they include any amounts related to the Transaction Services Agreement between the Company and Buyer. The Company is providing certain transactional services for the Buyer beginning July 16, 2004, for a period of up to nine months and is being reimbursed for costs plus a profit margin.

The Company believes that the pro forma adjustments used in the unaudited pro forma condensed consolidated financial statements provide a reasonable basis on which to present such statements. The unaudited pro forma condensed consolidated financial statements included in this Form 8-K/A have been derived from the Company’s consolidated financial statements and do not purport to represent what the Company’s financial position or results of operations actually would have been had the sale occurred on the dates indicated.

On July 27, 2004, the Company filed an 8-K with the SEC indicating that it would restate operating results for the quarter ended March 31, 2004 to increase revenue by $2.5 million, reduce expenses by $0.2 million, increase net income by $2.0 million and increase diluted earnings per share by $0.01. In conjunction with this restatement, the Company is preparing and will file a Form 10-Q/A for the quarter including the restated condensed consolidated financial statements. The financial information for the quarter ended March 31, 2004 (marked as restated), and the corresponding pro forma information giving effect to the Sniffer disposition, reflects the currently anticipated impact of the restatement.

McAFEE, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

March 31, 2004


			McAfee			Pro Forma			McAfee Pro
			Historical			Adjustments			Forma

			(As Restated)

			(In thousands)




ASSETS




Current assets:




	Cash and cash equivalents		$	430,329		$	218,486	(A)	$	648,815




	Short-term marketable securities			217,432			—			217,432




	Accounts receivable, net			109,559			—			109,559




	Prepaid expenses, income taxes and other current assets			108,260			(13,350	)(B)		94,910




	Deferred taxes			176,333			(24,130	)(C)		152,203

		Total current assets		1,041,913			181,006			1,222,919




Long-term marketable securities				293,449			—			293,449




Restricted cash				20,647			—			20,647




Property and equipment, net				110,294			(5,039	)(D)		105,255




Deferred taxes				169,980			(42,471	)(C)		127,509




Intangible assets, net				98,974			—			98,974




Goodwill				441,488			(50,876	)(E)		390,612




Other assets				6,314			—			6,314

		Total assets	$	2,183,059		$	82,620		$	2,265,679





LIABILITIES




Current liabilities:




	Accounts payable		$	25,848		$	(524	)(F)	$	25,324




	Accrued liabilities			123,568			(3,385	)(F)		141,747
							21,564	(C)




	Deferred revenue			383,175			(36,875	)(G)		346,300




	Convertible debt			345,275			—			345,275

		Total current liabilities		877,866			(19,220	)		858,646




Deferred revenue, less current portion				102,077			(11,019	)(G)		91,058




Other long term liabilities				232,082			—			232,082

		Total liabilities		1,212,025			(30,239	)		1,181,786




STOCKHOLDERS’ EQUITY




Preferred stock				—			—			—




Common stock				1,648			—			1,648




Additional paid-in capital				1,111,287			—			1,111,287




Deferred stock-based compensation				(537	)		—			(537	)




Accumulated other comprehensive income				35,252			—			35,252




Accumulated deficit				(171,909	)		112,859	(H)		(59,050	)




Treasury stock				(4,707	)		—			(4,707	)

		Total stockholders’ equity		971,034			112,859			1,083,893

		Total liabilities and stockholders’ equity	$	2,183,059		$	82,620		$	2,265,679

See accompanying notes to unaudited pro forma condensed consolidated financial statements.

McAFEE, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

For the Three Months Ended March 31, 2004



			McAfee			Pro Forma				McAfee
			Historical			Adjustments				Pro Forma



			(In thousands, except per share data)
			(As Restated)




Net revenue:




	Product		$	83,731		$	(24,582	)	(I)	$	59,149




	Services and support			135,347			(17,671	)	(I)		117,676

		Total net revenue		219,078			(42,253	)			176,825

Cost of net revenue:




	Product			22,952			(8,020	)	(I)		14,932




	Services and support			10,847			(1,636	)	(I)		9,211




	Amortization of purchased technology			3,393			—				3,393

		Total cost of net revenue		37,192			(9,656	)			27,536

Operating costs:




	Research and development			45,379			(6,402	)	(J)		38,977




	Marketing and sales			92,958			(5,195	)	(K)		87,763




	General and administrative			28,066			(614	)	(L)		27,452




	Gain on sale of assets and technology			(46,505	)		—				(46,505	)




	Litigation settlement			(19,101	)		—				(19,101	)




	Amortization of intangibles			3,573			—				3,573




	Restructuring charge			2,190			—				2,190

		Total operating costs		106,560			(12,211	)			94,349

		Income from operations		75,326			(20,386	)			54,940




Interest and other income				4,351			—				4,351




Interest and other expenses				(741	)		—				(741	)




Gain on sale of marketable securities				488			—				488

	Income before provision for income taxes and cumulative effect of change in accounting principle			79,424			(20,386	)			59,038




Provision for income taxes				21,454			(7,135	)	(M)		14,319

	Income before cumulative effect of change in accounting principle		$	57,970		$	(13,251	)		$	44,719

Basic income per share:




	Income before cumulative effect of change in accounting principle		$	0.35						$	0.27

	Shares used in per share calculation — basic			163,423							163,423

Diluted income per share:




	Income before cumulative effect of change in accounting principle		$	0.33						$	0.26

	Shares used in per share calculation — diluted			186,564							186,564

See accompanying notes to unaudited pro forma condensed consolidated financial statements.

McAFEE, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

For the Year Ended December 31, 2003



			McAfee			Pro Forma				McAfee
			Historical			Adjustments				Pro Forma



			(In thousands, except per share data)




Net revenue:




	Product		$	513,610		$	(149,467	)	(I)	$	364,143




	Services and support			422,726			(60,709	)	(I)		362,017

		Total net revenue		936,336			(210,176	)			726,160

Cost of net revenue:




	Product			86,646			(36,180	)	(I)		50,466




	Services and support			51,611			(6,329	)	(I)		45,282




	Amortization of purchased technology			11,369			—				11,369

		Total cost of net revenue		149,626			(42,509	)			107,117

Operating costs:




	Research and development			184,606			(30,456	)	(J)		154,150




	Marketing and sales			363,306			(20,100	)	(K)		343,206




	General and administrative			128,704			(672	)	(L)		128,032




	Amortization of intangibles			15,637			—				15,637




	Restructuring charge			22,204			—				22,204




	In process research and development			6,600			—				6,600

		Total operating costs		721,057			(51,228	)			669,829

		Income (loss) from operations		65,653			(116,439	)			(50,786	)




Interest and other income				15,454			—				15,454




Interest and other expenses				(7,543	)		—				(7,543	)




Loss on disposal of assets				(788	)		—				(788	)




Loss on redemption of zero coupon convertible debentures				(2,727	)		—				(2,727	)




Gain on sale of marketable securities				3,076			—				3,076

	Income (loss) before provision for (benefit from) income taxes and cumulative effect of change in accounting principle			73,125			(116,439	)			(43,314	)




Provision for (benefit from) income taxes				13,220			(40,754	)	(M)		(27,534	)

	Income (loss) before cumulative effect of change in accounting principle		$	59,905		$	(75,685	)		$	(15,780	)

Basic income (loss) per share:




	Income (loss) before cumulative effect of change in accounting principle		$	0.37						$	(0.10	)

	Shares used in per share calculation — basic			160,338							160,338

Diluted income per share:




	Income before cumulative effect of change in accounting principle		$	0.36

	Shares used in per share calculation — diluted			164,489

See accompanying notes to unaudited pro forma condensed consolidated financial statements.

McAFEE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED PRO FORMA

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Unaudited Pro Forma Condensed Consolidated Balance Sheet

(A) The unaudited pro forma condensed consolidated balance sheet reflects the receipt of net cash proceeds of approximately $218 million from the sale of Sniffer, based upon the working capital calculation had the sale occurred on March 31, 2004. At the actual closing on July 16, 2004, the Company received approximately $217 million in cash due to changes in balances included in the working capital calculation.

(B) The pro forma adjustment to prepaid expenses reflects the elimination of assets sold.

(C) The pro forma adjustment to deferred income taxes reflects the reversal of deferred taxes related to Sniffer and the addition to accrued liabilities relates to the estimated income taxes payable on the gain on sale of Sniffer at a statutory income tax rate of 35%.

(D) The pro forma adjustment to property and equipment reflects the elimination of assets sold.

(E) The pro forma adjustment to goodwill reflects allocation of goodwill associated with Sniffer.

(F) The pro forma adjustment to accounts payable and accrued liabilities reflects the elimination of liabilities assumed by the Buyer.

(G) The pro forma adjustments to deferred revenue reflects the deferred revenue associated with Sniffer assumed by the Buyer.

(H) The adjustment reflects the net realized gain of approximately $113 million as of March 31, 2004, including estimated income taxes at a 35% statutory income tax rate.

Unaudited Pro Forma Condensed Consolidated Statements of Operations

(I) The operating results of Sniffer have been removed from the unaudited pro forma condensed consolidated statements of operations. The pro forma adjustment to net revenue reflects direct revenues in fiscal 2003 and the first quarter of 2004 generated by Sniffer. The corresponding cost of net product revenue has also been removed, as well as removal of salaries related to the Company’s former employees that have joined the Buyer.

(J) The pro forma adjustment to research and development expenses removes all expenses directly incurred by Sniffer during fiscal 2003 and the first quarter of 2004.

(K) The pro forma adjustments to marketing and sales expenses include the removal of marketing expenses directly incurred by Sniffer, and the salaries of the Company’s former employees that have joined the Buyer. The adjustments to marketing and sales expenses exclude commission expenses paid to sales personnel because the expenses can not be isolated and objectively measured.

(L) The pro forma adjustments to general and administrative expenses reflect the salaries of the Company’s former employees that have joined the Buyer and costs incurred during 2004 related to the sale of Sniffer. Other general and administrative costs are shared across the Company, and therefore, no allocations were made.

(M) The pro forma adjustments to income taxes were made at a statutory income tax rate of 35%.

These unaudited pro forma condensed consolidated financial statements have been derived from the Company’s consolidated financial statements and do not purport to represent what the Company’s financial position or results of operations would have been had the sale occurred on the dates indicated, nor do these unaudited condensed consolidated financial statements intend to purport what Sniffer’s financial results would have been if it were a stand-alone organization for the periods presented.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


	MCAFEE, INC.


	By:	/s/ STEPHEN C. RICHARDS



	Stephen C. Richards
	Chief Operating Officer and
	Chief Financial Officer

Dated: July 30, 2004

EXHIBIT INDEX


Exhibit
Number			Description

	*2	.1	Asset Purchase Agreement (the “APA”) made and entered into as of April 22, 2004, by and among, (i) Network General Corporation (formerly named Starburst Technology Holdings Inc.), on the one hand; and (ii) McAfee, Inc. (formerly named Networks Associates, Inc.), Network Associates Technology, Inc. Network Associates International BV, Network Associates (India) Private Limited, McAfee Japan Co., Ltd. (formerly named Network Associates Japan Co., Ltd.), on the other hand.
	*2	.2	Amendment No. 1 to the APA dated as of July 15, 2004.
	*99	.1	Press Release of McAfee, Inc. dated July 16, 2004.


*	Incorporated by reference to Form 8-K filed by the Company with the Securities and Exchange Commission on July 16, 2004.

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents