##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
      Form 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended
    December 31, 2007oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the Transition Period
    from          to   Commission File Number:
    001-31216
  McAfee, Inc.
 (Exact name of registrant as
    specified in its charter)
  Delaware

77-0316593(State or other jurisdiction
    of
    incorporation or organization)

(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
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredCommon stock, par value $0.01 per share
    and related Preferred Share Purchase Rights

New York Stock Exchange   Securities registered pursuant to Section 12(g) of the
    Act:
 None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
  Large accelerated
    filer þ

Accelerated filer
    o

Non-accelerated
    filer o
    (Do not check if a smaller reporting company)

Smaller reporting
    company o   Rule 12b-2 o þ
    DOCUMENTS
    INCORPORATED BY REFERENCE




---



##### 





MCAFEE,
    INC. AND SUBSIDIARIESFORM 10-K
    For the fiscal year ended December 31, 2007
  TABLE OF CONTENTS
  
  PageSpecial Note Regarding Forward-Looking
    Statements


3PART IItem 1.

Business


4Item 1A.

Risk Factors


12Item 1B.

Unresolved Staff Comments


27Item 2.

Properties


27Item 3.

Legal Proceedings


28Item 4.

Submission of Matters to a Vote of Security
    Holders


31PART IIItem 5.

Market for the Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


31Item 6.

Selected Financial Data


33Item 7.

Managements Discussion and Analysis of
    Financial Condition and Results of Operations


34Item 7A.

Quantitative and Qualitative Disclosures about
    Market Risk


65Item 8.

Financial Statements and Supplementary Data


65Item 9.

Changes In and Disagreements With Accountants on
    Accounting and Financial Disclosure


66Item 9A.

Controls and Procedures


66Item 9B.

Other Information


71PART IIIItem 10.

Directors and Executive Officers of the
    Registrant and Corporate Governance


71Item 11.

Executive Compensation


71Item 12.

Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


71Item 13.

Certain Relationships and Related Transactions,
    and Director Independence


71Item 14.

Principal Accountant Fees and Services


71PART IVItem 15.

Exhibits and Financial Statement Schedules


72Signatures


126Share Purchase AgreementAmendment of Stop OptionsSubsidiaries of the RegistrantConsent of Independent Registered Public Accounting FirmCertification of CEO and CFO Pursuant to Section 302Certification of CEO and CFO Pursuant to Section 906   2




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##### Table of Contents



SPECIAL
    NOTE REGARDING FORWARD-LOOKING STATEMENTS  Form 10-K Form 10-K Risk
    Factors Business Managements Discussion and Analysis of Financial
    Condition and Results of Operations Form 10-K.
    
    predicted growth trends in the security risk management market;
    our strategic objectives;
    our expected future revenue mix among categories such as, but
    not limited to, types of products, categories of customers,
    geographic regions, and distribution methods;
    our expectation that we will continue to acquire or invest in
    complementary businesses, products and technologies;
    our intention to integrate ScanAlert technology with our
    SiteAdvisor products;
    the expected benefits of our strategic alliance programs;
    our expectations regarding both product and pricing competition;
    expectations about future sales to our top ten distributors and
    our sales efforts through the channel and other partners;
    the anticipated future trends of specific categories of expenses;
    our expected benefits from business acquisitions;
    stock-based compensation expense;
    the expected future impact of FIN 48;
    our expected future level of DSOs;
    our expected settlement of pending federal and state stockholder
    derivative lawsuits;
    our expected use of cash to buy back our common stock in the
    open market and for acquisitions; and
    our expected ability to meet our obligations through available
    cash and internally generated funds, our expectation of
    generating positive working capital through operations, and our
    belief as to working capital being sufficient to meet our cash
    requirements in future periods.    TRADEMARKS
    AND TRADE NAMES
  and/or
 3




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##### Table of Contents



PART I  Item 1.
    Business  OVERVIEW
    e-commerce
  OUR
    APPROACH AND OFFERINGS
      
    To extend our leadership position in corporate and consumer
    endpoint security,
    To interlock our endpoint solutions and secure the network
    perimeter, and
    To pursue new solution opportunities that build upon our
    multi-platform strategy of personal computers, internet and
    mobile security.  Threat
    Protection Offerings
    
    Endpoint protection
    Data protection
    Network protection  Endpoint Protection.
  Data Protection.
 4




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Network Protection.
          Security
    Compliance Management Offerings
  data-at-rest, data-in-use data-in-motion.
  Unified
    Management Offerings
    Mobile
    Security Offerings
   5




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SiteAdvisor
      Expert
    Services and Technical Support
        on-site
    Research
    and Development, Investments and Acquisitions
       6




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##### Table of Contents



high-performance
      OUR
    CUSTOMERS AND MARKETS
    Business
    to Business Solutions
    Consumer
    Solutions
    BUSINESS
    MODELS
       7




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self-updating, www.mcafee.com
      MCAFEE
    SALES AND MARKETING
  Sales
    in North America
    Sales
    Outside of North America
  and/or
  Resellers
    and Distributors
     8




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Strategic
    Channel Partners
    Strategic
    Alliances
  and/or
  Marketing
    Activities
    www.mcafee.com
   9




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##### Table of Contents



COMPETITION
  and/or Risk Factors
      System Protection Market.
  Network Protection Market.
  Email and Web Security Market.
  Other Competitors.
    OUR
    PROPRIETARY TECHNOLOGY
   10




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##### Table of Contents



Risk Factors
  SEASONALITY
    OUR
    EMPLOYEES
    COMPANY
    INFORMATION
  (408) 988-3832. www.mcafee.com.
  ADDITIONAL
    INFORMATION
  1-800-SEC-0330. www.sec.gov Form 10-K, Form 10-Q Form 8-K, Form 10-K
 11




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##### Table of Contents



Item 1A.
    Risk
    Factors  Investing in our common stock involves a high degree of risk.
    Some but not all of the risks we face are described below.
    Additional risks not presently known to us or that we have not
    disclosed below may also impair our business operations. Any of
    the following risks could materially adversely affect our
    business, operating results and financial condition and reduce
    the value of an investment in our common stock.
  We face
    intense competition and we expect competitive pressures to
    increase in the future. This competition could have a negative
    impact on our business and financial results.
    Advantages
    of larger competitors
  Business  Competition, and/or
  Business  Competition,
  Consumer
    business competition
    Low-priced
    or free competitive products
  
   12




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and/or
  We face
    product development risks due to rapid changes in our industry.
    Failure to keep pace with these changes could harm our business
    and financial results.
    Keeping
    pace with industry changes
      Impact
    of product development delays or competitive
    announcements
    If our
    products do not work properly, we could experience negative
    publicity, damage to our reputation, legal liability, declining
    sales and increased expenses.
  Failure
    to protect against security breaches
     13




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False
    alarms
    and/or
  Customer
    misuse of products
    Our
    international operations involve risks that could divert the
    time and attention of management, increase our expenses and
    otherwise adversely impact our business and financial
    results.
    Revenue
    risks
   14




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Legal
    and compliance risks
        Currency
    exchange and interest rate risks
  Liquidity and Capital Resources  Currency
    Fluctuation Risks
  General
    operating risks
    We face a
    number of risks related to our product sales through
    distributors and other third parties.
  Significant
    percentage of sales through distributors
   15




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##### Table of Contents



Limited
    control over timing of product delivery
    Competitive
    aspects of distributor relationships
      Loss
    of distributors
        Credit
    risk
   16




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We face
    risks associated with past and future acquisitions.
      Integration
      Internal
    controls, policies and procedures
  and/or Sarbanes-Oxley
  Use of
    cash and securities
  and/or
  Key
    employees from acquired companies may be difficult to retain and
    assimilate
   17




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and/or
  Accounting
    charges
    Critical
    personnel may be difficult to attract, assimilate and
    retain.
    and/or
    Competition
    for personnel; need for competitive pay packages
    Risks
    relating to new hires and senior management
    changes
       18




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##### Table of Contents



Our
    financial results can fluctuate significantly, making it
    difficult for us to accurately estimate operating
    results.
  Impact
    of fluctuations
        Timing
    of product orders
    Reliability
    and timeliness of expense data
    Issues
    relating to third party distribution, manufacturing and
    fulfillment relationships
    Product
    mix
   19




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##### Table of Contents



Timing
    of new products and customers
    Additional
    cash and non-cash sources of fluctuations
    Conditions
    and changes in the national and global economic and political
    environments may adversely affect our business and financial
    results.
      We have
    experienced, and may continue to experience, material weaknesses
    and significant deficiencies in our internal control and
    financial reporting environment, which impacts the accuracy,
    completeness and timeliness of our external financial
    reporting.
  Form 10-K Controls and Procedures
 20




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We face
    numerous risks relating to the enforceability of our
    intellectual property rights and our use of third party
    intellectual property, many of which could result in the loss of
    our intellectual property rights as well as other material
    adverse impacts on our business and financial results and
    condition.
  Limited
    protection of our intellectual property rights against potential
    infringers
    Frequency,
    expense and risks of intellectual property litigation in the
    network and system security market
  Legal Proceedings
      Potential
    risks of using of open source software
   21




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##### Table of Contents



and/or
      Our
    strategic alliances and our relationships with manufacturing
    partners exposes us to a range of business risks and
    uncertainties that could have a material adverse impact on our
    business and financial results.
  Strategic
    alliances
  Uncertainty of realizing anticipated
    benefits. and/or
  Challenges relating to integrated
    products.
    Third-party
    manufacturing relationships
  Less control of the manufacturing process and
    outcome.
 22




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Inadequate capacity.
  Hardware obsolescence.
  Our tax
    strategy may expose us to risk.
      Increased
    customer demands on our technical support services may adversely
    affect our relationships with our customers and negatively
    impact our financial results.
     23




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We face
    risks related to customer outsourcing to system
    integrators.
    If we
    fail to effectively upgrade or modify our information technology
    system, we may not be able to accurately report our financial
    results or prevent fraud.
    Computer
    hackers may damage our products, services and
    systems.
    Business
    interruptions may impede our operations and the operations of
    our customers.
     24




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##### Table of Contents



We face
    the risk of a decrease in our cash balances and losses in our
    investment portfolio.
        Our
    historical stock option granting practices have resulted in, and
    could continue to result in, continued or new litigation,
    regulatory proceedings, government enforcement actions and
    remedial actions, all of which have had, and will continue to
    have, a negative impact on our business and financial
    results.
  Form 10-K
       25




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##### Table of Contents



and/or
    Pending
    or future litigation could have a material adverse impact on our
    results of operation, financial condition and
    liquidity.
    We face
    risks related to our 2006 settlement agreement with the
    Securities and Exchange Commission.
    Our stock
    price has been volatile and is likely to remain
    volatile.
   26




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##### Table of Contents



Our
    charter documents and Delaware law and our rights plan may
    impede or discourage a takeover,
    which could lower our stock price.
  Our
    charter documents and Delaware law
      Our
    rights plan
    Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties   27




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##### Table of Contents



Item 3.
    Legal
    Proceedings  Settled
    Cases
    Formal Order of Private Investigation
  Open
    Cases
    Government
    Inquiries Relating to Historical Stock Option
    Practices
  Form 10-K
   28




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##### Table of Contents



Securities
    Cases
  In re McAfee, Inc.
    Derivative Litigation,
       29




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##### Table of Contents



In re McAfee.com Corp. Initial Public
    Offering Securities Litigation, In re Initial Public Offering
    Securities Litigation,
    Other
    No. 107CV-093592
   30




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##### Table of Contents



Item 4.
    Submission
    of Matters to a Vote of Security Holders   PART II  Item 5.
    Market
    for the Registrants Common Equity, Related Stockholder
    Matters and Issuer Purchases of Equity Securities  Price
    Range of Common Stock
    mark-up,
  High


LowYear Ended December 31, 2007First Quarter

$
31.80


$
27.74Second Quarter


37.86



28.89Third Quarter


38.24



31.47Fourth Quarter


41.66



34.69Year Ended December 31, 2006First Quarter

$
29.24


$
21.75Second Quarter


27.52



22.00Third Quarter


25.15



19.52Fourth Quarter


30.50



24.01     Dividend
    Policy
   31




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##### Table of Contents



Stock
    Performance
  The following Performance Graph and related information shall
    not be deemed soliciting material or to be
    filed with the Securities and Exchange Commission,
    nor shall such information be incorporated by reference into any
    future filing under the Securities Act of 1933 or Securities
    Exchange Act of 1934, each as amended, except to the extent that
    we specifically incorporate it by reference into such filing.
    Comparison
    of Five-Year Cumulative Total Returns
  
  Dec-02


Dec-03


Dec-04


Dec-05


Dec-06


Dec-07McAfee, Inc.



100.0




93.5




179.8




168.6




176.4




233.1NYSE Market Index



100.0




129.6




146.3




158.4




185.6




195.5S&P Information Technology



100.0




147.2




151.0




152.5




165.3




192.3NASDAQ Market Index



100.0




150.4




163.0




166.6




183.7




201.9NASDAQ Computer and Data Processing Stocks (US &
    Foreign)



100.0




128.2




144.1




154.9




174.7




210.8    32




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##### Table of Contents



Holders
    of Common Stock
    Common
    Stock Repurchases
    Item 6.
    Selected
    Financial Data  Managements Discussion and Analysis of Financial
    Conditions and Results of Operations.
  Years Ended December 31,2007


2006


2005(1)


2004(2)


2003(In thousands, except for per share amounts)Statement of Operations DataTotal net revenue

$
1,308,220


$
1,145,158


$
981,628


$
907,573


$
937,509Income from operations


159,813



139,028



141,407



310,252



54,149Income before provision for income taxes, minority interest and
    cumulative effect of change in accounting principle


229,204



183,781



166,678



302,814



62,475Income before cumulative effect of change in accounting principle


166,980



137,471



118,217



220,017



57,073Cumulative effect of change in accounting principle, net of taxes


















10,337Net income


166,980



137,471



118,217



220,017



67,410Income per share, before cumulative effect of change in
    accounting principle, basic

$
1.04


$
0.85


$
0.72


$
1.37


$
0.36Income per share, before cumulative effect of change in
    accounting principle, diluted

$
1.02


$
0.84


$
0.70


$
1.28


$
0.35Cumulative effect of change in accounting principle, basic

$



$



$



$



$
0.06Cumulative effect of change in accounting principle, diluted

$



$



$



$



$
0.06Net income per share, basic

$
1.04


$
0.85


$
0.72


$
1.37


$
0.42Net income per share, diluted

$
1.02


$
0.84


$
0.70


$
1.28


$
0.41Shares used in per share calculation  basic


159,819



160,945



165,042



160,510



160,276Shares used in per share calculation  diluted


164,126



163,052



169,249



177,385



164,652   33




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##### Table of Contents



As of December 31,2007


2006


2005(1)


2004(2)


2003(In thousands)Balance Sheet DataCash and cash equivalents

$
394,158


$
389,627


$
728,592


$
291,155


$
333,651Working capital


230,145



146,253



688,015



260,183



419,101Total assets


3,414,103



2,800,270



2,636,234



2,256,135



2,121,701Deferred revenue


1,044,513



897,525



751,806



601,485



454,770Long-term debt and other long-term liabilities


88,241



149,924



147,128



205,107



556,940Total equity


1,905,325



1,427,249



1,434,641



1,206,242



903,962     (1)
    
    In 2005, we reserved $50.0 million in connection with the
    settlement with the SEC and we deposited $50.0 million in
    an escrow account with the SEC as the designated beneficiary.(2)
    
    In 2004, we sold our Sniffer and Magic product lines for
    aggregate net cash proceeds of $260.9 million and
    recognized pre-tax gains on the sale of assets and technology
    aggregating $243.5 million. We also received
    $25.0 million from our insurance carriers for insurance
    reimbursements related to the class action lawsuit settled in
    2003.  Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Forward-Looking
    Statements and Factors That May Affect Future Results
  Special Note Regarding
    Forward-Looking Statements.
  Overview
    and Executive Summary
      Acquisitions
   34




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##### Table of Contents



Revenue
    and Net Income Trends
    Net
    Revenue by Geography
    Net
    Revenue by Product Groups and Customer Category
      Deferred
    Revenue
    Critical
    Accounting Policies and Estimates
   35




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##### Table of Contents




    revenue recognition;
    sales incentives and sales returns;
    deferred costs of revenue;
    allowance for doubtful accounts;
    stock-based compensation expense;
    estimation of restructuring accrual and litigation;
    accounting for income taxes; and
    valuation of goodwill, intangibles and long-lived assets.  Revenue
    Recognition
      97-2, Software Revenue Recognition (SOP 97-2), Revenue
    Recognition
    
    persuasive evidence of an arrangement exists,
    the product or service has been delivered,
    the fee is fixed or determinable, and
    collection of the resulting receivable is reasonably assured. 36




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##### Table of Contents



and/or
  Sales
    Incentives and Sales Returns
      Deferred
    Costs of Revenue
    Allowance
    for Doubtful Accounts
   37




---



##### Table of Contents



Stock-based
    Compensation Expense
          Years Ended December 31,2007


2006


2005Stock option grants:Risk free interest rate


4.5
%


4.8
%


3.9
%Weighted average expected lives (years)


6.0



5.6



4.0Volatility


33.7
%


37.4
%


54.4
%Dividend yield










ESPP:Risk free interest rate






4.6
%


3.1
%Weighted average expected lives (years)






0.5



1.0Volatility






38.0
%


40.0
%Dividend yield










      38




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##### Table of Contents



Estimation
    of Restructuring Accrual and Litigation
  Restructuring Accrual. Accounting for Exit
    Costs Associated With Exit or Disposal Activities
    Litigation.
  Accounting
    for Income Taxes
   39




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##### Table of Contents



Valuation
    of Goodwill, Intangibles, and Long-lived Assets
  Goodwill and Other Intangible Assets
      Accounting for
    the Impairment or Disposal of Long-Lived Assets.
   40




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##### Table of Contents




    significant under performance relative to expected historical or
    projected future operating results;
    significant changes in the manner of our use of the acquired
    assets or the strategy for our overall business;
    significant negative industry or economic trends;
    significant declines in our stock price for a sustained
    period; and
    our market capitalization relative to net book value.    Results
    of Operations
  Years
    Ended December 31, 2007, 2006 and 2005
  Net
    Revenue
    2007 vs. 2006





2006 vs. 20052007


2006


$


%


2005


$


%(Dollars in thousands)Net revenue:Services and support

$
674,296


$
633,658


$
40,638



6
%

$
544,477


$
89,181



16
%Subscription


552,131



428,296



123,835



29



318,206



110,090



35Product


81,793



83,204



(1,411
)


(2
)


118,945



(35,741
)


(30
)Total net revenue

$
1,308,220


$
1,145,158


$
163,062



14
%

$
981,628


$
163,530



17
%Percentage of total net revenue:Services and support


52
%


55
%










56
%Subscription


42



38











32Product


6



7











12Total net revenue


100
%


100
%










100
%        41




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##### Table of Contents



Net
    Revenue by Geography
    2007 vs. 2006





2006 vs. 20052007


2006


$


%


2005


$


%(Dollars in thousands)Net revenue:North America

$
678,227


$
633,222


$
45,005



7
%

$
563,651


$
69,571



12
%EMEA


426,966



354,592



72,374



20



282,034



72,558



26Japan


102,272



87,121



15,151



17



75,973



11,148



15Asia-Pacific, excluding Japan


60,913



43,018



17,895



42



38,480



4,538



12Latin America


39,842



27,205



12,637



46



21,490



5,715



27Total net revenue

$
1,308,220


$
1,145,158


$
163,062



14
%

$
981,628


$
163,530



17
%Percentage of total net revenue:North America


52
%


55
%










57
%EMEA


33



31











29Japan


8



8











8Asia-Pacific, excluding Japan


4



4











4Latin America


3



2











2Total net revenue


100
%


100
%










100
%          42




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##### Table of Contents



Service
    and Support Revenue
    2007 vs. 2006





2006 vs. 20052007


2006


$


%


2005


$


%(Dollars in thousands)Net service and support revenue:Support and maintenance

$
644,464


$
610,061


$
34,403



6
%

$
520,351


$
89,710



17
%Consulting and training


29,832



23,597



6,235



26



24,126



(529
)


(2
)Total service and support revenue

$
674,296


$
633,658


$
40,638



6


$
544,477


$
89,181



16Percentage of service and support revenue:Support and maintenance


96
%


96
%










96
%Consulting and training


4



4











4Total service and support revenue


100
%


100
%










100
%        43




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##### Table of Contents



Subscription
    Revenue
    2007 vs. 2006





2006 vs. 20052007


2006


$


%


2005


$


%(Dollars in thousands)Total subscription revenue

$
552,131


$
428,296


$
123,835



29
%

$
318,206


$
110,090



35
%       Product
    Revenue
    2007 vs. 2006





2006 vs. 20052007


2006


$


%


2005


$


%(Dollars in thousands)Net product revenue:Licenses

$
37,389


$
52,077


$
(14,688
)


(28
)%

$
67,462


$
(15,385
)


(23
)%Hardware


33,431



31,367



2,064



7



27,129



4,238



16Retail and other


10,973



(240
)


11,213



*



24,354



(24,594
)


(101
)Total product revenue

$
81,793


$
83,204


$
(1,411
)


(2
)%

$
118,945


$
(35,741
)


(30
)%Percentage of product revenue:Licenses


46
%


63
%










57
%Hardware


41



38











23Retail and other


13



(1
)










20Total product revenue


100
%


100
%










100
%     *
    
    Calculation not meaningful   44




---



##### Table of Contents



Cost
    of Net Revenue
    2007 vs. 2006





2006 vs. 20052007


2006


$


%


2005


$


%(Dollars in thousands)Cost of net revenue:Service and support

$
49,285


$
51,904


$
(2,619
)


(5
)%

$
24,179


$
27,725



115
%Subscription


165,297



110,267



55,030



50



63,478



46,789



74Product


55,872



60,957



(5,085
)


(8
)


64,614



(3,657
)


(6
)Amortization of purchased technology


35,290



23,712



11,578



49



17,767



5,945



33Total cost of net revenue

$
305,744


$
246,840


$
58,904



24


$
170,038


$
76,802



45Components of gross margin:Service and support

$
625,011


$
581,754










$
520,298Subscription


386,834



318,029











254,728Product


25,921



22,247











54,331Amortization of purchased technology


(35,290
)


(23,712
)










(17,767
)Total gross margin

$
1,002,476


$
898,318










$
811,590Total gross margin percentage


77
%


78
%










83
%   Cost of
    Service and Support Revenue
     45




---



##### Table of Contents



Cost of
    Subscription Revenue
        Cost of
    Product Revenue
        Amortization
    of Purchased Technology
     46




---



##### Table of Contents



Stock-based
    Compensation Expense
    Years Ended December 31,2007


2006Amortization of fair value of options

$
19,313


$
30,660Extension of post-termination exercise period


14,014



4,326Former executive acceleration






1,419Cash settlement of options


2,885



3,066Restricted stock awards and units


22,805



16,426Employee Stock Purchase Plan






1,864Total stock-based compensation expense

$
59,017


$
57,761   Amortization of fair value of options.
  Extension of post-termination exercise
    period.
  EITF 00-19, Accounting for Derivative Financial Instruments Indexed
    to, and Potentially Settled in, a Companys Own Stock (EITF 00-19).
 47




---



##### Table of Contents



EITF 00-19.
  Former executive acceleration.
  Cash settlement of options. 90-day
  Restricted stock awards and units.
  Employee Stock Purchase Plan.
 48




---



##### Table of Contents



Years Ended December 31,2007


2006Cost of net revenue  service and support

$
1,448


$
1,968Cost of net revenue  subscription


915



699Cost of net revenue  product


767



750Stock-based compensation expense included in cost of net revenue


3,130



3,417Research and development


14,023



15,042Marketing and sales


21,756



24,289General and administrative


20,108



15,013Stock-based compensation expense included in operating costs


55,887



54,344Total stock-based compensation expense


59,017



57,761Deferred tax benefit


(16,913
)


(15,672
)Total stock-based compensation, net of tax

$
42,104



42,089     Year EndedDecember 31,2005Grant date intrinsic value

$
3,873Restricted stock awards


1,078Exchange of McAfee.com options


290Repriced options


(770
)Total stock-based compensation expense


4,471Deferred tax benefit


(1,301
)Total stock-based compensation expense, after-tax

$
3,170   Grant date intrinsic value.
    Restricted stock awards.
  Exchange of McAfee.com options.
 49




---



##### Table of Contents



Repriced options.
    Year EndedDecember 31,2005Cost of net revenue  service and support

$
14Cost of net revenue  subscription


36Cost of net revenue  product


(5
)Stock-based compensation expense included in cost of net revenue


45Research and development


524Marketing and sales


1,482General and administrative


2,420Stock-based compensation expense included in operating costs


4,426Total stock-based compensation expense

$
4,471         Internal
    Revenue Code Section 409A
    Section 16(a)
    Officers and Directors
   50




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##### Table of Contents



Operating
    Costs
  Research
    and development
    2007 vs. 2006





2006 vs. 20052007


2006


$


%


2005


$


%(Dollars in thousands)Research and development(1)

$
217,934


$
193,447


$
24,487



13
%

$
176,409


$
17,038



10
%Percentage of net revenue


17
%


17
%










18
%     (1)
    
    Includes stock-based compensation expense of $14,023, $15,042
    and $524 in 2007, 2006 and 2005, respectively.         51




---



##### Table of Contents



Marketing
    and sales
    2007 vs. 2006





2006 vs. 20052007


2006


$


%


2005


$


%(Dollars in thousands)Marketing and sales(1)

$
388,213


$
366,454


$
21,759



6
%

$
300,089


$
66,365



22
%Percentage of net revenue


30
%


32
%










31
%     (1)
    
    Includes stock-based compensation expense of $21,756, $24,289
    and $1,482 in 2007, 2006 and 2005, respectively.        General
    and administrative
    2007 vs. 2006





2006 vs. 20052007


2006


$


%


2005


$


%(Dollars in thousands)General and administrative(1)

$
181,171


$
169,694


$
11,477



7
%

$
123,487


$
46,207



37
%Percentage of net revenue


14
%


15
%










13
%     (1)
    
    Includes stock-based compensation expense of $20,108, $15,013
    and $2,420 in 2007, 2006 and 2005, respectively.   52




---



##### Table of Contents



EITF 00-19
      Amortization
    of intangibles
    2007 vs. 2006





2006 vs. 20052007


2006


$


%


2005


$


%(Dollars in thousands)Amortization of intangibles

$
13,583


$
10,682


$
2,901



27
%

$
12,834


$
(2,152
)


(17
)%       SEC and
    compliance costs
    2007 vs. 2006





2006 vs. 20052007


2006


$


%


2005


$


%(Dollars in thousands)SEC and compliance costs

$
32,952


$
17,824


$
15,128



85
%

$



$
17,824




*%     *
    
    Calculation not meaningful   53




---



##### Table of Contents



Restructuring
    charges (benefits)
    2007 vs. 2006





2006 vs. 20052007


2006


$


%


2005


$


%(Dollars in thousands)Restructuring charges (benefits)

$
8,769


$
470


$
8,299




*

$
3,782


$
(3,312
)


(88
)%     *
    
    Calculation not meaningful        In-process
    research and development expense
       54




---



##### Table of Contents



Loss
    (gain) on sale of assets and technology
    SEC
    settlement charge
    Reimbursement
    from transition services agreement
    Interest
    and Other Income
    2007 vs. 2006





2006 vs. 20052007


2006


$


%


2005


$


%(Dollars in thousands)Interest and other income

$
68,287


$
44,397


$
23,890



54
%

$
26,703


$
17,694



66
%           Gain
    (loss) on investments, net
   55




---



##### Table of Contents



Provision
    for income taxes
    2007 vs. 2006





2006 vs. 20052007


2006


$


%


2005


$


%(Dollars in thousands)Provision for income taxes

$
62,224


$
46,310


$
15,914



34
%

$
48,461


$
(2,151
)


(4
)%Effective tax rate


27
%


25
%










29
%       and/or
    Acquisitions
  SafeBoot
    Holding B.V.
    Cash paid as of December 31, 2007

$
294,887Escrow deposit


43,750Direct acquisition and other costs to be paid


6,007Fair value of options assumed


3,611Total purchase price before imputed interest


348,255Imputed interest


(1,002
)Total purchase price

$
347,253  56




---



##### Table of Contents



Citadel
    Security Software
    Onigma
    Preventsys
    SiteAdvisor
    Wireless
    Security Corporation
    Liquidity
    and Capital Resources
  Years Ended December 31,2007


2006


2005Net cash provided by operating activities

$
393,415


$
290,489


$
419,457Net cash (used in) provided by investing activities

$
(436,770
)

$
(452,339
)

$
4,595Net cash provided by (used in) financing activities

$
10,689


$
(197,711
)

$
39,841  57




---



##### Table of Contents



Overview
      Operating
    Activities
         58




---



##### Table of Contents



and/or and/or
    Investing
    Activities
    Years Ended December 31,2007


2006


2005Purchase of marketable securities

$
(927,257
)

$
(1,315,407
)

$
(793,581
)Proceeds from sale of marketable securities


648,351



631,849



669,260Proceeds from maturities of marketable securities


213,897



371,070



226,879Decrease (increase) in restricted cash


379



49,989



(50,322
)Purchase of patents


(9,300
)






Purchase of property and equipment and leasehold improvements


(33,568
)


(43,751
)


(28,941
)Acquisitions, net of cash acquired


(333,377
)


(146,089
)


(20,200
)Proceeds from sale of assets and technology


4,105







1,500Net cash (used in) provided by investing activities

$
(436,770
)

$
(452,339
)

$
4,595  59




---



##### Table of Contents



Investments
    Restricted
    Cash
      Property
    and Equipment
  back-up
        Acquisitions
     60




---



##### Table of Contents



Proceeds
    from Sale of Assets and Technology
      Financing
    Activities
    Years Ended December 31,2007


2006


2005Proceeds from issuance of common stock under stock option plan
    and stock purchase plans

$
9,793


$
32,008


$
108,236Excess tax benefits from stock-based compensation


1,092



4,960



Repurchase of common stock


(196
)


(234,679
)


(68,395
)Net cash provided by (used in) financing activities

$
10,689


$
(197,711
)

$
39,841   Stock
    Option and Stock Purchase Plans
     61




---



##### Table of Contents



Excess
    Tax Benefits from Stock-Based Compensation
    Repurchases
    of Common Stock
      Contractual
    Obligations
    Payments Due by PeriodLess Than


1-3


3-5


More ThanContractual Obligations

Total


1 Year


Years


Years


5 YearsOperating leases(1)

$
87,580


$
19,664


$
30,439


$
25,172


$
12,305Other commitments(2)


11,734



5,954



5,780







Purchase obligations(3)


1,957



1,957











Total

$
101,271


$
27,575


$
36,219


$
25,172


$
12,305     (1)
    
    Operating leases are for office space and office equipment. The
    operating lease commitments above reflect contractual and
    reasonably assured rent escalations under the lease
    arrangements. The majority of our lease contractual obligations
    relate to the following five leases: $40.7 million for the
    Santa Clara, California facility lease, $16.3 million
    for the Slough, United Kingdom facility lease, $4.2 million
    for the Cork, Ireland facility lease and $2.8 million for
    the Bangalore, India facility lease.(2)
    
    Other commitments are minimum commitments on telecom contracts,
    contractual commitments for naming rights and advertising
    services and software licensing agreements and royalty
    commitments associated with the shipment and licensing of
    certain products.(3)
    
    We generally issue purchase orders to our contract manufacturers
    with delivery dates from four to six weeks from the purchase
    order date. In addition, we regularly provide such contract
    manufacturers with rolling
    six-month
    forecasts of product requirements for planning and long-lead
    time parts procurement purposes only. We are committed to accept
    delivery of materials pursuant to our purchase orders subject to
    various contract provisions which allow us to delay receipt of
    such order or allow us to cancel orders beyond certain agreed
    lead times. Such cancellations may or may not include
    cancellation costs payable by us. If we are unable to adequately
    manage our contract manufacturers and adjust such commitments
    for changes in demand, we may incur additional inventory
    expenses related to excess and obsolete inventory. 62




---



##### Table of Contents



Accounting for Income Taxes
    Off-Balance
    Sheet Arrangements
  off-balance
  Credit
    Facility
    Financial
    Risk Management
    Foreign
    Currency Risk
     63




---



##### Table of Contents



December 31, 2007Notional U.S. DollarEquivalent


Fair ValueEuro

$
34,305


$
74British Pound Sterling


17,758



(106
)Brazilian Real


3,524



35$
55,587


$
3     Interest
    Rate Risk
  Investments
        Valuation of Securities Given





Valuation of Securities Givenan Interest Rate Decrease of


No


an Interest Rate Increase ofX Basis Points


Change in


X Basis PointsIssuer

150 BPS


100 BPS


50 BPS


Interest Rate


50 BPS


100 BPS


150 BPSU.S. Government notes and bonds

$
312.6


$
311.4


$
310.1


$
308.9


$
307.7


$
306.5


$
305.3Corporate notes and bonds


317.5



316.8



316.1



315.3



314.6



313.9



313.1Asset-backed securities


242.7



241.7



240.8



239.8



238.8



237.8



236.9Mortgage-backed securities


150.7



150.2



149.6



149.1



148.5



148.0



147.4Cash and cash equivalents


7.3



7.2



7.2



7.2



7.2



7.1



7.1Total

$
1,030.8


$
1,027.3


$
1,023.8


$
1,020.3


$
1,016.8


$
1,013.3


$
1,009.8  64




---



##### Table of Contents



Valuation of Securities Given





Valuation of Securities Givenan Interest Rate Decrease of


No


an Interest Rate Increase ofX Basis Points


Change in


X Basis PointsIssuer

150 BPS


100 BPS


50 BPS


Interest Rate


50 BPS


100 BPS


150 BPSU.S. Government notes and bonds

$
319.7


$
318.4


$
317.2


$
316.0


$
314.8


$
313.6


$
312.4Corporate notes and bonds


325.0



324.3



323.6



322.8



322.1



321.3



320.6Asset-backed securities


248.5



247.6



246.6



245.6



244.6



243.7



242.7Mortgage-backed securities


154.5



154.0



153.4



152.9



152.4



151.8



151.2Cash and cash equivalents


7.5



7.4



7.4



7.4



7.3



7.3



7.3Total

$
1,055.2


$
1,051.7


$
1,048.2


$
1,044.7


$
1,041.2


$
1,037.7


$
1,034.2   Newly
    Adopted and Recently Issued Accounting Pronouncements
    Item 7A.
    Quantitative
    and Qualitative Disclosure About Market Risk  Managements Discussion and Analysis of
    Financial Condition and Results of Operations
  Item 8.
    Financial
    Statements and Supplementary Data  Quarterly
    Operating Results (Unaudited)
  Three Months EndedDecember 31,


September 30,


June 30,


March 31,


December 31,


September 30,


June 30,


March 31,2007


2007


2007


2007


2006


2006


2006


2006(In thousands, except per share data)Statement of Operations and Other Data:Net revenue

$
356,526


$
321,986


$
314,830


$
314,878


$
305,241


$
287,063


$
277,606


$
275,248Gross margin


270,084



244,121



243,446



244,825



236,204



222,910



218,102



221,102Income from operations


33,002



46,640



38,751



41,420



33,595



36,790



15,690



52,953Income before provision for income taxes


49,282



66,461



57,617



55,844



45,695



50,866



22,904



64,316Net income

$
12,185


$
63,401


$
48,044


$
43,350


$
32,876


$
34,090


$
26,198


$
44,307Basic net income per share(1)

$
0.08


$
0.40


$
0.30


$
0.27


$
0.21


$
0.21


$
0.16


$
0.27Diluted income per share(1)

$
0.07


$
0.39


$
0.29


$
0.27


$
0.20


$
0.21


$
0.16


$
0.27     (1)
    
    Net income per share is computed independently for each of the
    quarters presented. Therefore, the sum of the quarterly net
    income per share may not equal the annual net income per share
    due to rounding differences.     65




---



##### Table of Contents



Item 9.
    Changes
    In and Disagreements With Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Evaluation
    of Disclosure Controls and Procedures
    Managements
    Report on Internal Control over Financial Reporting
  Rules 13a-15(f) Internal Control 
    Integrated Framework
  Business  Overview, Managements Discussion and Analysis of Financial
    Condition and Results of Operations
    Accounting
    for Income Taxes
   66




---



##### Table of Contents



Changes
    in Internal Control over Financial Reporting
    Remediation
    of Material Weakness in Stock Administration
    Process
  Background
    of Restatement
      Remedial
    Efforts
  Form 10-K,
  
    We implemented monitoring and tracking procedures for
    stock-based compensation expense resulting from the stock option
    investigation within a secure controlled directory.
    We implemented processes to ensure that all stock-based expenses
    are properly calculated, independently approved and reconciled
    from the database to our stock administration accounting system. 67




---



##### Table of Contents




    We formalized procedures and processes to ensure that
    stock-based compensation expenses are recorded via journal
    entries that are independently approved by corporate accounting
    management and evidenced by complete supporting documentation.  Accounting
    for Income Taxes
    
    We are enhancing the training and education of our tax
    accounting personnel.
    We are automating key elements of the calculation of the
    provision for income taxes and the account reconciliation
    processes by implementing a new tax accounting system.
    We are improving our interim and annual review processes for
    various calculations including the tax provision computation
    process.    Inherent
    Limitation on the Effectiveness of Internal Controls
   68




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
     Internal Control  Integrated Framework
          
    The Companys controls over accounting for income taxes did
    not operate effectively as of December 31, 2007. In
    particular, errors were detected in the tax calculations for the
    quarterly and annual financial statements resulting from:
    (1) historical analyses not being prepared in sufficient
    detail; (2) current period tax calculations not being
    accurately prepared, and (3) reviews of tax calculations
    not being performed with sufficient precision. Due to the number
    and amount of the errors identified resulting from these
    internal control deficiencies and the absence of mitigating
    controls, there is a reasonable possibility that a material 69




---



##### Table of Contents



misstatement of the interim and annual financial statements
    would not have been prevented or detected on a timely basis by
    the Companys controls.    Internal Control  Integrated Framework
    
    70




---



##### Table of Contents



Item 9B.
    Other
    Information   PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance    Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    Item 13.
    Certain
    Relationships and Related Transactions    Item 14.
    Principal
    Accountant Fees and Services   71




---



##### Table of Contents



PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules  Consolidated Financial Statements
  PageNumberReport of Independent Registered Public
    Accounting Firm


73Consolidated Balance Sheets: December 31,
    2007 and 2006


74Consolidated Statements of Income and
    Comprehensive Income: Years ended December 31, 2007, 2006
    and 2005


75Consolidated Statements of Stockholders
    Equity: Years ended December 31, 2007, 2006 and 2005


76Consolidated Statements of Cash Flows: Years
    ended December 31, 2007, 2006 and 2005


79Notes to Consolidated Financial Statements


80   Consolidated Financial Statement
    Schedule
  Form 10-K
      Exhibits
 72




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                
    73




---



##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  CONSOLIDATED
    BALANCE SHEETS
  December 31,2007


2006(In thousands,except share data)ASSETSCurrent assets:Cash and cash equivalents

$
394,158


$
389,627Short-term marketable securities


338,770



215,722Accounts receivable, net of allowance for doubtful accounts of
    $4,076 and $2,015, respectively


232,056



170,855Prepaid expenses and prepaid taxes


162,574



132,203Deferred income taxes


256,188



236,310Other current assets


24,000



31,915Total current assets


1,407,746



1,176,632Long-term marketable securities


585,874



634,820Property and equipment, net


94,670



91,999Deferred income taxes


321,342



228,103Intangible assets, net


220,126



113,574Goodwill


750,089



530,477Other assets


34,256



24,665Total assets

$
3,414,103


$
2,800,270LIABILITIESCurrent liabilities:Accounts payable

$
45,858


$
35,652Accrued income taxes


79,553



118,589Accrued compensation


99,652



62,913Other accrued liabilities


150,961



108,418Deferred revenue


801,577



704,807Total current liabilities


1,177,601



1,030,379Deferred revenue, less current portion


242,936



192,718Accrued taxes and other long-term liabilities


88,241



149,924Total liabilities


1,508,778



1,373,021Commitments and contingencies (Notes 10, 11 and 19)STOCKHOLDERS EQUITYPreferred stock, $0.01 par value:Authorized: 5,000,000 shares; Issued and outstanding: none
    in 2007 and 2006






Common stock, $0.01 par value:Authorized: 300,000,000 shares; Issued:
    173,148,853 shares at December 31, 2007 and
    172,512,046 shares at December 31, 2006Outstanding: 160,545,422 shares at December 31, 2007
    and 159,915,439 shares at December 31, 2006


1,732



1,726Treasury stock, at cost: 12,603,431 shares at
    December 31, 2007 and 12,596,607 shares at
    December 31, 2006


(303,270
)


(303,074
)Additional paid-in capital


1,810,290



1,527,843Accumulated other comprehensive income


32,498



31,472Retained earnings


364,075



169,282Total stockholders equity


1,905,325



1,427,249Total liabilities and stockholders equity

$
3,414,103


$
2,800,270    74




---



##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
  Years Ended December 31,2007


2006


2005(In thousands, except per share data)Net revenue:Service and support

$
674,296


$
633,658


$
544,477Subscription


552,131



428,296



318,206Product


81,793



83,204



118,945Total net revenue


1,308,220



1,145,158



981,628Cost of net revenue:Service and support


49,285



51,904



24,179Subscription


165,297



110,267



63,478Product


55,872



60,957



64,614Amortization of purchased technology


35,290



23,712



17,767Total cost of net revenue


305,744



246,840



170,038Operating costs:Research and development


217,934



193,447



176,409Marketing and sales


388,213



366,454



300,089General and administrative


181,171



169,694



123,487Amortization of intangibles


13,583



10,682



12,834SEC and compliance costs


32,952



17,824



Restructuring charges


8,769



470



3,782Loss (gain) on sale of assets and technology


41



259



(56
)In-process research and development






460



4,000SEC settlement charge










50,000Reimbursement from transition services agreement










(362
)Total operating costs


842,663



759,290



670,183Income from operations


159,813



139,028



141,407Interest and other income


68,287



44,397



26,703Gain (loss) on investments, net


1,104



356



(1,432
)Income before provision for income taxes


229,204



183,781



166,678Provision for income taxes


62,224



46,310



48,461Net income

$
166,980


$
137,471


$
118,217Other comprehensive income:Unrealized gains (losses) on marketable securities, net of
    reclassification adjustment for gains (losses) recognized on
    marketable securities during the period and income tax

$
1,257


$
1,344


$
(638
)Foreign currency translation (loss) gain


(231
)


(3,795
)


3,811Comprehensive income

$
168,006


$
135,020


$
121,390Net income per share  basic

$
1.04


$
0.85


$
0.72Net income per share  diluted

$
1.02


$
0.84


$
0.70Shares used in per share calculation  basic


159,819



160,945



165,042Shares used in per share calculation  diluted


164,126



163,052



169,249    75




---



##### Table of Contents





MCAFEE,
    INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY
  Accumulated


RetainedAdditional


Deferred


Other


Earnings


TotalCommon Stock


Treasury Stock


Paid-In


Stock-Based


Comprehensive


(Accumulated


StockholdersShares


Amount


Shares


Amount


Capital


Compensation


Income


Deficit)


Equity(In thousands)Balances, January 1, 2005


162,266


$
1,623






$



$
1,268,706


$
(8,431
)

$
30,750


$
(86,406
)

$
1,206,242Issuance of common stock upon exercise of stock options


7,212



72











96,647















96,719Issuance of common stock from Employee Stock Purchase Plan


790



8











11,465















11,473Issuance of restricted stock


185



2



























2Repurchase of common stock


(2,765
)






2,765



(68,395
)


















(68,395
)Deferred stock-based compensation


















5,035



(5,035
)










Amortization of deferred stock-based compensation and other
    stock-based compensation expense


















(849
)


5,320











4,471Cash payable in excess of exercise price related to exchange of
    McAfee.com options


















(1,704
)














(1,704
)Contribution of proceeds from sale of common stock held in trust


















42















42Tax benefits from exercise of non-qualified stock options


















25,563















25,563Release of tax contingency related to acquisition accounted for
    as a pooling of interests


















38,838















38,838Foreign currency translation


























3,811







3,811Net increase in unrealized losses on investment


























(638
)






(638
)Net income






























118,217



118,217Balances, December 31, 2005,


167,688



1,705



2,765



(68,395
)


1,443,743



(8,146
)


33,923



31,811



1,434,641


76




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##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS
    EQUITY  (Continued)
  Accumulated


RetainedAdditional


Deferred


Other


Earnings


TotalCommon Stock


Treasury Stock


Paid-In


Stock-Based


Comprehensive


(Accumulated


StockholdersShares


Amount


Shares


Amount


Capital


Compensation


Income


Deficit)


Equity(In thousands)Issuance of common stock upon exercise of stock options


1,634



16











25,354















25,370Issuance of common stock from Employee Stock Purchase Plan


395



4











6,795















6,799Interest on Employee Stock Purchase Plans due to restrictions on
    share issuance


















(164
)














(164
)Issuance of restricted stock


30



1



























1Repurchase of common stock


(9,812
)






9,812



(234,679
)


















(234,679
)Forfeiture of restricted stock awards


(20
)






20























Reclassification of deferred compensation into additional
    paid-in capital due to adoption of FAS 123(R)


















(8,146
)


8,146











Stock-based compensation


















50,369















50,369Stock options related to option extension


















4,326















4,326Cash payable in excess of exercise price related to exchange of
    McAfee.com options


















(392
)














(392
)Tax benefits from exercise of non-qualified stock options


















5,958















5,958Foreign currency translation


























(3,795
)






(3,795
)Net increase in unrealized gains on investment


























1,344







1,344Net income






























137,471



137,471Balances, December 31, 2006


159,915



1,726



12,597



(303,074
)


1,527,843







31,472



169,282



1,427,249  77




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##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS
    EQUITY  (Continued)
  Accumulated


RetainedAdditional


Deferred


Other


Earnings


TotalCommon Stock


Treasury Stock


Paid-In


Stock-Based


Comprehensive


(Accumulated


StockholdersShares


Amount


Shares


Amount


Capital


Compensation


Income


Deficit)


Equity(In thousands)Cumulative adjustment for the implementation of FIN 48


















101,225











27,813



129,038Adjusted balances, January 1, 2007


159,915



1,726



12,597



(303,074
)


1,629,068







31,472



197,095



1,556,287Issuance of common stock upon exercise of stock options


636



6











12,811















12,817Repurchase of common stock


(6
)






6



(196
)


















(196
)Stock-based compensation


















42,118















42,118Stock compensation related to option exchange


















14,014















14,014Cash payable in excess of exercise price related to exchange of
    McAfee.com options


















(154
)














(154
)Reduction of prior tax benefit from exercise of stock options


















(820
)














(820
)Recognition of tax benefit related to acquisition accounted for
    as a pooling of interests


















123,379















123,379Fair value of options assumed in acquisition


















3,611















3,611Modification of stock options  reclassification from
    equity to liability awards


















(18,272
)














(18,272
)Exercise of stock options  reclassification from
    liability to equity awards


















4,535















4,535Foreign currency translation


























(231
)






(231
)Net increase in unrealized gains on investment


























1,257







1,257Net income






























166,980



166,980Balances, December 31, 2007


160,545


$
1,732



12,603


$
(303,270
)

$
1,810,290


$



$
32,498


$
364,075


$
1,905,325     78




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##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Years Ended December 31,2007


2006


2005(In thousands)Cash flows from operating activities:Net income

$
166,980


$
137,471


$
118,217Adjustments to reconcile net income to net cash provided by
    operating activities:Depreciation and amortization


84,427



70,271



66,996Tax benefit from exercise of nonqualified stock options










27,019Deferred income taxes


151



(34,975
)


(6,543
)Imputed interest on acquisition


1,002







Non-cash restructuring charge


6,035



559



686Acquired in-process research and development






460



4,000Interest on restricted cash released from restriction or
    (interest earned)






489



(489
)Provision for (recovery of) doubtful accounts, net


878



(5
)


1,574Increase in fair value of options accounted for as liabilities


8,745







Non-cash stock-based compensation expense


56,132



54,695



4,471Excess tax benefit from stock-based compensation


(1,092
)


(4,960
)


(Discount) premium amortization of marketable securities


(5,893
)


(7,176
)


42(Gain) loss on sale of investments


(1,104
)


(356
)


1,432Loss (gain) on sale of assets and technology


41



259



(56
)Changes in assets and liabilities, net of acquisitions:Accounts receivable


(33,295
)


(2,097
)


(23,204
)Prepaid expenses, prepaid taxes and other assets


(22,798
)


(55,414
)


(9,471
)Accounts payable


6,769



(531
)


3,536Accrued taxes and other liabilities


35,556



21,655



43,230Deferred revenue


90,881



110,144



188,017Net cash provided by operating activities


393,415



290,489



419,457Cash flows from investing activities:Purchase of marketable securities


(927,257
)


(1,315,407
)


(793,581
)Proceeds from sales of marketable securities


648,351



631,849



669,260Proceeds from maturities of marketable securities


213,897



371,070



226,879Decrease (increase) in restricted cash(1)


379



49,989



(50,322
)Purchase of patents


(9,300
)






Purchase of property and equipment and leasehold improvements


(33,568
)


(43,751
)


(28,941
)Acquisitions, net of cash acquired


(333,377
)


(146,089
)


(20,200
)Proceeds from sale of assets and technology


4,105







1,500Net cash (used in) provided by investing activities


(436,770
)


(452,339
)


4,595Cash flows from financing activities:Proceeds from issuance of common stock under stock option and
    stock purchase plans


9,793



32,008



108,236Excess tax benefit from stock-based compensation


1,092



4,960



Repurchase of common stock


(196
)


(234,679
)


(68,395
)Net cash provided by (used in) financing activities


10,689



(197,711
)


39,841Effect of exchange rate fluctuations on cash


37,197



20,596



(26,456
)Net increase (decrease) in cash and cash equivalents


4,531



(338,965
)


437,437Cash and cash equivalents at beginning of period


389,627



728,592



291,155Cash and cash equivalents at end of period

$
394,158


$
389,627


$
728,592Non cash investing and financing activities:Unrealized gain (loss) on marketable investments, net

$
1,258


$
1,344


$
(638
)Fair value of assets acquired in business combinations,
    excluding cash acquired

$
384,287


$
166,099


$
20,949Liabilities assumed in business combinations

$
46,794


$
20,012


$
749Accrual for purchase of property, equipment and leasehold
    improvements

$
4,133


$
2,694


$
1,283Realization of deferred tax assets of acquired company

$



$



$
38,838Modification of stock options  reclassification from
    equity to liability awards

$
18,271


$



$
Exercise of stock options  reclassification from
    liability to equity awards

$
4,535


$



$
Issuance of common stock under stock option plans

$
3,024


$



$
Supplemental disclosure of cash flow information:Cash paid for income taxes

$
27,320


$
54,919


$
38,023Cash received from income tax refunds

$
11,964


$
7,032


$
14,416     (1)
    
    The $50.0 million placed in escrow for the settlement with
    the SEC (see Note 19) is reflected as cash used in
    investing activities in 2005. The SEC approved the settlement in
    January 2006. In 2006, the release of the escrow is reflected as
    cash provided by investing activities of $50.0 million and
    the transfer to the SEC is reflected as cash used in operating
    activities of $50.0 million included within accrued taxes
    and other liabilities.   79




---



##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  1.
    Organization
    and Business    2.
    Summary
    of Significant Accounting Policies  Basis
    of Presentation
    Use of
    Estimates
    Certain
    Risks and Concentrations
       80




---



##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Foreign
    Currency Translation
      Derivatives
  Accounting for Derivative Instruments and Hedging
    Activities,
  Cash
    and Cash Equivalents
   81




---



##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Marketable
    Securities
      Inventory
    Deferred
    Costs of Revenue
    Property
    and Equipment
    
    building  interior  seven years;
    exterior  twenty years;
    office furniture and equipment  three to five years;
    computer hardware, networking hardware and software 
    three to five years; and
    leasehold improvements  the shorter of the lease
    term, including assumed lease renewal periods that are
    reasonably assured, or the estimated useful life of the asset.   82




---



##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Internal
    Use Software
  98-1, Accounting for the Costs of Computer Software Developed
    or Obtained for Internal Use.
    Goodwill
    and Other Intangible Assets
  Goodwill and
    Other Intangible Assets
  Finite-Lived
    Intangibles, Long-Lived Assets and Assets Held for
    Sale
    Accounting for
    the Impairment or Disposal of Long-Lived Assets.
   83




---



##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Fair
    Value of Financial Instruments
    Revenue
    Recognition
      97-2, Software Revenue Recognition (SOP 97-2), Revenue
    Recognition
    
    persuasive evidence of an arrangement exists,
    the product or service has been delivered,
    the fee is fixed or determinable, and
    collection of the resulting receivable is reasonably assured.      and/or
 84




---



##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Research
    and Development
    Advertising
    Costs
    Stock-based
    Compensation Expense
         85




---



##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Transition Election
    Related to Accounting for the Tax Effects of Share-Based Payment
    Awards,
  SEC
    and Compliance Costs
    Accounting
    for Income Taxes
   86




---



##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Computation
    of Net Income Per Share
    Earnings per Share,
  Warranty
    Other
    Comprehensive Income (Loss)
   87




---



##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Before





Net ofIncome Tax


Income Tax


Income Tax2007Unrealized gain on marketable securities, net

$
3,198


$
(1,279
)

$
1,919Reclassification adjustment for net gain on marketable
    securities recognized during the period


(1,104
)


442



(662
)Foreign currency translation loss


(231
)






(231
)Total other comprehensive loss

$
1,863


$
(837
)

$
1,0262006Unrealized gain on marketable securities, net

$
2,596


$
(1,038
)

$
1,558Reclassification adjustment for net gain on marketable
    securities recognized during the period


(356
)


142



(214
)Foreign currency translation loss


(3,795
)






(3,795
)Total other comprehensive loss

$
(1,555
)

$
(896
)

$
(2,451
)2005Unrealized loss on marketable securities, net

$
(2,496
)

$
998


$
(1,498
)Reclassification adjustment for net loss on marketable
    securities recognized during the period


1,432



(572
)


860Foreign currency translation gain


3,811







3,811Total other comprehensive income

$
2,747


$
426


$
3,173     December 31,2007


2006Unrealized loss on available-for-sale securities

$
579


$
(678
)Cumulative translation adjustment


31,919



32,150Total

$
32,498


$
31,472   Recent
    Accounting Pronouncements
  Noncontrolling
    Interests
  Noncontrolling Interests in Consolidated Financial
    Statements an amendment of Accounting
    Research Bulletin No. 51
  Business
    Combinations
  Business Combinations
 88




---



##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Fair
    Value Option
  The Fair Value Option for Financial Assets and
    Financial Liabilities  including an amendment of FASB
    Statement No. 1
  Fair
    Value Measurements
  Fair Value Measurements 157-1 157-2
  3.
    Business
    Combinations  2007
    Acquisition
    Cash paid as of December 31, 2007

$
294,887Escrow deposit


43,750Direct acquisition and other costs to be paid


6,007Fair value of options assumed


3,611Total purchase price before imputed interest


348,255Imputed interest


(1,002
)Total purchase price

$
347,253      89




---



##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Technology

$
102,340Other intangibles


41,800Goodwill


215,787Cash


9,760Other assets


24,360Total assets acquired


394,047Accrued liabilities


25,717Deferred revenue


9,394Deferred tax liabilities


11,683Total liabilities assumed


46,794Net assets acquired


347,253     Year Ended December 31,2007


2006Pro forma net revenue

$
1,346,470


$
1,175,535Pro forma net income

$
137,339


$
111,023Pro forma basic net income per share

$
0.86


$
0.69Pro forma diluted net income per share

$
0.84


$
0.68Shares used in per share calculation  basic


159,819



160,945Shares used in per share calculation  diluted


164,126



163,052     2006
    and 2005 Acquisitions
   90




---



##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Total


20052006


AcquisitionSiteAdvisor


Preventsys


Onigma


Citadel


Acquisitions


WSCAcquisition date


April 2006



June 2006



October 2006



December 2006







June 2005Technology

$
15,450


$
3,540


$
23,139


$
15,900


$
58,029


$
1,500Other intangibles


420



677



1,889



6,500



9,486



300Goodwill


50,397











42,055



92,452



13,247Cash


29



23



125







177



131Other assets


485



661



281



1,103



2,530



34Deferred tax assets


587



2,820



530







3,937



1,870Total assets acquired


67,368



7,721



25,964



65,558



166,611



17,082Accrued liabilities


37



1,384



372



426



2,219



40Deferred revenue






203







3,937



4,140



Deferred tax liabilities


6,269



1,750



6,429







14,448



711Total liabilities assumed


6,306



3,337



6,801



4,363



20,807



751Net assets acquired


61,062



4,384



19,163



61,195



145,804



16,331In-process research and development expensed






460











460



4,000Total acquisition cost

$
61,062


$
4,844


$
19,163


$
61,195


$
146,264


$
20,331    91




---



##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Total


20052006


AcquisitionSiteAdvisor


Preventsys


Onigma


Citadel


Acquisitions


WSCTotal payments expected under plan

$
9,080


$
825


$
743


$
599


$
11,247


$
1,223Total expensed as of December 31, 2007


8,816



825



743



561



10,945



1,223Total paid as of December 31, 2007


8,739



825



278



449



10,291



1,223       Year Ended December 31,2006


2005Pro forma net revenue

$
1,157,986


$
993,485Pro forma net income

$
119,371


$
88,300Pro forma basic net income per share,

$
0.74


$
0.54Pro forma diluted net income per share

$
0.73


$
0.52Shares used in per share calculation  basic


160,945



165,042Shares used in per share calculation  diluted


163,052



169,249       4.
    Sale of
    Businesses  McAfee
    Labs
   92




---



##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    5.
    Marketable
    Securities and Cash and Cash Equivalents    December 31, 2007Purchase/


Gross


GrossAmortized


Unrealized


Unrealized


AggregateCost


Gains


Losses


Fair ValueU.S. Government debt securities

$
387,665


$
3,182


$
(80
)

$
390,767Corporate debt securities


495,994



817



(2,954
)


493,857Time deposits


40,020











40,020$
923,679


$
3,999


$
(3,034
)

$
924,644   December 31, 2006Purchase/


Gross


GrossAmortized


Unrealized


Unrealized


AggregateCost


Gains


Losses


Fair ValueU.S. Government debt securities

$
179,466


$
28


$
(675
)

$
178,819Corporate debt securities


642,975



391



(874
)


642,492Time deposits


29,231











29,231$
851,672


$
419


$
(1,549
)

$
850,542       December 31,2007


2006Cash and money market funds, at cost which approximates fair
    value

$
358,579


$
369,617Corporate debt securities, primarily commercial paper


35,579



20,010Total cash and cash equivalents

$
394,158


$
389,627     Years Ended December 31,2007


2006


2005Realized gains

$
1,486


$
596


$
697Realized losses


(382
)


(240
)


(2,129
)Net realized gain (loss)

$
1,104


$
356


$
(1,432
)  93




---



##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Less Than 12 Months


12 Months or Greater


TotalGross





Gross





GrossUnrealized





Unrealized





UnrealizedFair Value


Losses


Fair Value


Losses


Fair Value


LossesU.S. Government debt securities

$
17,960


$
(44
)

$



$



$
17,960


$
(44
)Corporate debt securities


91,591



(386
)


21,674



(8
)


113,265



(394
)Mortgage-backed securities


55,635



(2,129
)


14,281



(330
)


69,916



(2,459
)Asset-backed securities


36,417



(96
)


16,555



(19
)


52,972



(115
)$
201,603


$
(2,655
)

$
52,510


$
(357
)

$
254,113


$
(3,012
)         6.
    Derivatives  Forward
    Exchange Contracts
   94




---



##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31, 2007Notional U.S. DollarEquivalent


Fair ValueEuro

$
34,305


$
74British Pound Sterling


17,758



(106
)Brazilian Real


3,524



35$
55,587


$
3   7.
    Consolidated
    Balance Sheet Detail (in thousands):  December 31,2007


2006(In thousands)Property and equipment:Building

$
21,390


$
19,839Furniture and fixtures


23,782



19,689Computers, equipment and software


222,506



181,175Leasehold improvements


33,690



29,380Construction in progress


3,033



13,797304,401



263,880Accumulated depreciation


(216,648
)


(178,798
)87,753



85,082Land


6,917



6,917Total property and equipment, net

$
94,670


$
91,999     December 31,2007


2006(In thousands)Other accrued liabilities:Accrued legal and accounting fees

$
30,968


$
18,134Accrued marketing


36,264



23,317Other accrued expenses


83,729



66,967$
150,961


$
108,418   December 31,2007


2006(In thousands)Accrued taxes and other long-term liabilities:Accrued income taxes, long-term

$
69,246


$
120,836Other


18,995



29,088$
88,241


$
149,924  95




---



##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    8.
    Restructuring      
    reduced our workforce; and
    continued our efforts to consolidate and dispose of excess
    facilities.    
    reduced our workforce;
    consolidated and disposed of excess facilities;
    moved our European headquarters to Ireland and vacated a leased
    facility in Amsterdam;
    consolidated operations formerly housed in three leased
    facilities in Dallas, Texas into our regional headquarters
    facility in Plano, Texas
    relocated employees from Santa Clara, California
    headquarters site to our Plano facility as part of the
    consolidation activities and
    sold our Sniffer and Magic product lines in 2004.    2006
    Restructuring
    LeaseTermination


Severance andCosts


Other Benefits


TotalBalance, January 1, 2006

$



$



$
Restructuring accrual






2,404



2,404Cash payments






(14
)


(14
)Balance, December 31, 2006






2,390



2,390Restructuring accrual


330



2,634



2,964Cash payments


(233
)


(4,542
)


(4,775
)Adjustment to liability


(24
)


(196
)


(220
)Effects of foreign currency exchange


4



7



11Balance, December 31, 2007

$
77


$
293


$
370    96




---



##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        2005
    Restructuring
    Lease


SeveranceTermination


and Other


OtherCosts


Benefits


Costs


TotalBalance, January 1, 2005

$



$



$



$
Restructuring accrual


1,800



216



4



2,020Cash payments


(1,205
)


(216
)


(4
)


(1,425
)Effects of foreign currency exchange


(14
)










(14
)Accretion


23











23Balance, December 31, 2005


604











604Cash payments


(577
)










(577
)Adjustment to liability


4











4Effects of foreign currency exchange


(19
)










(19
)Accretion


12











12Balance, December 31, 2006


24











24Cash payments


(24
)










(24
)Balance, December 31, 2007

$



$



$



$
    97




---



##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  2004
    and 2003 Restructurings
    LeaseTermination


Severance and


OtherCosts


Other Benefits


Costs


TotalBalance, January 1, 2005

$
21,678


$
3,482


$
417


$
25,577Restructuring accrual


1,454



1,382



20



2,856Cash payments


(4,026
)


(4,864
)


(297
)


(9,187
)Adjustment to liability


(1,816
)






(140
)


(1,956
)Effects of foreign currency exchange


(46
)










(46
)Accretion


839











839Balance, December 31, 2005


18,083











18,083Cash payments


(4,071
)










(4,071
)Adjustment to liability


(2,506
)










(2,506
)Effects of foreign currency exchange


97











97Accretion


645











645Balance, December 31, 2006


12,248











12,248Cash payments


(2,235
)










(2,235
)Adjustment to liability


5,552











5,552Effects of foreign currency exchange


99











99Accretion


431











431Balance, December 31, 2007

$
16,095


$



$



$
16,095     9.
    Goodwill
    and Other Intangible Assets   98




---



##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Effects of











Effects ofForeign











ForeignJanuary 1,


Goodwill





Currency


December 31,


Goodwill





Currency


December 31,2006


Acquired


Adjustments


Exchange


2006


Acquired


Adjustments


Exchange


2007North America

$
353,032


$
59,229


$
216


$
(24
)

$
412,453


$
95,877


$
1,840


$
1,321


$
511,491EMEA


49,929



25,098



33



385



75,445



86,537



584



(392
)


162,174Japan


17,500



1,266



5







18,771



6,921



95







25,787Asia-Pacific (excluding Japan)


5,943



6,014



3







11,960



22,201



56







34,217Latin America


11,084



920



3



(159
)


11,848



4,251



57



264



16,420Total

$
437,488


$
92,527


$
260


$
202


$
530,477


$
215,787


$
2,632


$
1,193


$
750,089       December 31, 2007


December 31, 2006Accumulated








AccumulatedAmortization








AmortizationWeighted




(Including Effects








(Including EffectsAverage

Gross


of Foreign


Net


Gross


of Foreign


NetUseful

Carrying


Currency


Carrying


Carrying


Currency


CarryingLife

Amount


Exchange)


Amount


Amount


Exchange)


AmountOther Intangible assets:Purchased technologies

5.6 years

$
282,293


$
(129,082
)

$
153,211


$
203,790


$
(119,202
)

$
84,588Trademarks and patents

5.1 years


42,922



(33,956
)


8,966



29,444



(28,830
)


614Customer base and other intangibles

5.8 years


117,731



(59,782
)


57,949



72,161



(43,789
)


28,372$
442,946


$
(222,820
)

$
220,126


$
305,395


$
(191,821
)

$
113,574     99




---



##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  December 31,2007


2006(In thousands)Gross intangible assets, beginning of year

$
305,395


$
233,913Add: Purchased technologies (amortized over one to seven years)


102,825



58,206Add: Trademarks and patents (amortized over one to seven years)


9,905



500Add: Customer base and other intangibles (amortized over one to
    seven years)


41,195



9,198Add: Change in value due to foreign exchange


2,457



3,578461,777



305,395Dispositions


(18,831
)


Gross intangible assets, end of year

$
442,946


$
305,395       Fiscal Years:2008

$
69,8012009


57,7102010


48,8362011


30,8792012


8,295Thereafter


4,605$
220,126   10.
    Commitments  Leases
    Lease Expiration

Renewal OptionCorporate Headquarters, Santa Clara, California

March 2013

10 year renewalSlough, England

September 2017

None    100




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##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    SubleasePayments


Income2008

$
19,664


$
(2,563
)2009


16,326



(1,058
)2010


14,113



(978
)2011


13,317



(510
)2012


11,855



(525
)Thereafter


12,305



(135
)Total

$
87,580


$
(5,769
)       Purchase


OtherObligations


Commitments2008

$
1,957


$
5,9542009






3,6772010






2,103Total

$
1,957


$
11,734   11.
    Warranty
    Accrual and Guarantees    December 31,2007


2006


2005Warranty balance, beginning of year

$
662


$
1,083


$
1,818Additional accruals


1,546



1,937



3,514Costs incurred during the period


(1,719
)


(2,358
)


(4,249
)Warranty balance, end of year

$
489


$
662


$
1,083     
    Under the terms of our software license agreements with our
    customers, we agree that in the event the software sold
    infringes upon any patent, copyright, trademark, or any other
    proprietary right of a third party, we will indemnify our
    customer licensees against any loss, expense, or liability from
    any damages that may be awarded against our customer. We include
    this infringement indemnification in our software license
    agreements and selected managed service arrangements. In the
    event the customer cannot use the software 101




---



##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  or service due to infringement and we can not obtain the right
    to use, replace or modify the license or service in a
    commercially feasible manner so that it no longer infringes then
    we may terminate the license and provide the customer a pro-rata
    refund of the fees paid by the customer for the infringing
    license or service. We have recorded no liability associated
    with this indemnification, as we are not aware of any pending or
    threatened infringement actions that are probable losses. We
    believe the estimated fair value of these intellectual property
    indemnification clauses is minimal.  
    Under the terms of certain vendor agreements, in particular,
    vendors used as part of our managed services, we have agreed
    that in the event the service provided to the customer by the
    vendor on behalf of us infringes upon any patent, copyright,
    trademark, or any other proprietary right of a third party, we
    will indemnify our vendor, against any loss, expense, or
    liability from any damages that may be awarded against our
    vendor. No maximum liability is stipulated in these vendor
    agreements. We have recorded no liability associated with this
    indemnification, as we are not aware of any pending or
    threatened infringement actions or claims that are probable
    losses. We believe the estimated fair value of these
    indemnification clauses is minimal.
    As permitted under Delaware law, we have agreements whereby we
    indemnify our officers and directors for certain events or
    occurrences while the officer or director is, or was, serving at
    our request in such capacity. The maximum potential amount of
    future payments we could be required to make under these
    indemnification agreements is not limited; however, we have
    director and officer insurance coverage that reduces our
    exposure and may enable us to recover a portion or all of any
    future amounts paid. We believe the estimated fair value of
    these indemnification agreements in excess of applicable
    insurance coverage is minimal.
    Under the terms of our agreement to sell Magic in January 2004,
    we agreed to indemnify the purchaser for any breach of
    representations or warranties in the agreement as well as for
    any liabilities related to the assets prior to sale that were
    not included in the purchaser assumed liabilities (undiscovered
    liabilities). Subject to limited exceptions, the maximum
    potential loss related to the indemnification is
    $10.0 million. To date, we have paid no amounts under the
    representations and warranties indemnification. We have not
    recorded any accruals related to these agreements.
    Under the terms of our agreement to sell Sniffer in July 2004,
    we agreed to indemnify the purchaser for any breach of
    representations or warranties in the agreement as well as for
    any liabilities related to the assets prior to sale that were
    not included in the purchaser assumed liabilities (undiscovered
    liabilities). Subject to limited exceptions, the maximum
    potential loss related to the indemnification is
    $200.0 million. To date, we have paid no amounts under the
    representations and warranties indemnification. We have not
    recorded any accruals related to these agreements.    12.
    Line of
    Credit  Line
    of Credit
   102




---



##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  13.
    Employee
    Benefit Plan    14.
    Stockholders
    Equity  Common
    Stock
    Preferred
    Stock
    Preferred
    Shares Rights Agreement
    15.
    Employee
    Stock Benefit Plans  Employee
    Stock Purchase Plan
   103




---



##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Company
    Stock Incentive Plans
       104




---



##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Plan
    Activity
    December 31, 2006


December 31, 2005Weighted





WeightedAverage





AverageNumber of


Exercise


Number of


ExerciseOptions


Price


Options


PriceOutstanding at beginning of period


16,065


$
19.77



19,320


$
15.85Options granted


2,082



24.38



5,822



24.66Options exercised


(1,634
)


15.53



(7,165
)


13.52Options canceled


(2,613
)


20.78



(1,912
)


18.45Outstanding at end of period


13,900


$
20.77



16,065


$
19.77Options exercisable


8,168


$
19.15



6,278


$
17.77     Year Ended December 31, 2007WeightedWeighted


AverageAverage


Remaining


AggregateNumber of


Exercise


Contractual


IntrinsicOptions


Price


Life


Value(1)Outstanding at beginning of period


13,900


$
20.77Options granted


3,215



35.07Options exercised


(637
)


19.88Options assumed in conjunction with acquisition


502



18.30Options canceled


(2,812
)


21.71Outstanding at end of period


14,168


$
23.68Options vested and expected to vest


11,882


$
22.93



6.1


$
174,777Options exercisable


8,207


$
19.63



5.0


$
146,928     (1)
    
    Intrinsic value is calculated as the difference between the
    market value of our common stock on December 31, 2007 and
    the exercise price of the option. The aggregate intrinsic value
    of options outstanding and exercisable excludes options with an
    exercise price above $37.50, the closing price of our common
    stock on December 31, 2007, as reported by the New York
    Stock Exchange.     105




---



##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31, 2007


December 31, 2006


December 31, 2005Weighted





Weighted





Weighted





Weighted





WeightedRestricted


Average


Restricted


Average


Restricted


Average


Restricted


Average


Restricted


AverageStock


Grant Date


Stock


Grant Date


Stock


Grant Date


Stock


Grant Date


Stock


Grant DateUnits


Fair Value


Awards


Fair Value


Units


Fair Value


Awards


Fair Value


Awards


Fair ValueUnvested at beginning of period


2,820


$
23.69



133


$
28.32






$




185


$
29.79



47


$
27.18Grants


182



30.65











3,664



23.79



30



23.76



185



29.79Vested










(51
)


29.64











(62
)


29.79



(47
)


27.18Cancelled


(464
)


23.63











(844
)


24.13



(20
)


30.59







Unvested at end of period


2,538


$
24.20



82


$
27.48



2,820


$
23.69



133


$
28.32



185


$
29.79       Valuation
    and Expense Information under SFAS 123(R)
    Year Ended December 31, 2006Using


Adjustments forAPB 25


SFAS 123(R)


As ReportedStock-based compensation expense included in cost of net revenue
    and operating costs

$
28,327


$
29,434


$
57,761Income from operations


168,462



(29,434
)


139,028Income before provision for income taxes


213,215



(29,434
)


183,781Net income


156,456



(18,985
)


137,471Net income per share  basic

$
0.97


$
(0.12
)

$
0.85Net income per share  diluted

$
0.96


$
(0.12
)

$
0.84Cash flows from operating activities


295,449



(4,960
)


290,489Cash flows used in financing activities


(202,671
)


4,960



(197,711
)  106




---



##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended


Year EndedDecember 31,


December 31,2007


2006Amortization of fair value of options

$
19,313


$
30,660Extension of post-termination exercise period


14,014



4,326Former executive acceleration






1,419Cash settlement of options


2,885



3,066Restricted stock awards and units


22,805



16,426Employee Stock Purchase Plan






1,864Total stock-based compensation expense

$
59,017


$
57,761   Amortization of fair value of options.
  Extension of post-termination exercise
    period.
  EITF 00-19, Accounting for Derivative Financial Instruments Indexed
    to, and Potentially Settled in, a Companys Own Stock (EITF 00-19).
   107




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##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  EITF 00-19.
  Former executive acceleration.
  Cash settlement of options. 90-day
  Restricted stock awards and units.
  Employee Stock Purchase Plan.
 108




---



##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Years Ended December 31,2007


2006Cost of net revenue  service and support

$
1,448


$
1,968Cost of net revenue  subscription


915



699Cost of net revenue  product


767



750Stock-based compensation expense included in cost of net revenue


3,130



3,417Research and development


14,023



15,042Marketing and sales


21,756



24,289General and administrative


20,108



15,013Stock-based compensation expense included in operating costs


55,887



54,344Total stock-based compensation expense


59,017



57,761Deferred tax benefit


(16,913
)


(15,672
)Total stock-based compensation expense, net of tax

$
42,104


$
42,089       Modifications
    in 2006 to Certain Stock Options Granted to Former Executive
    Officers and Current Directors
       109




---



##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Assumptions
    used under SFAS 123(R) and SFAS 123
    Years Ended December 31,2007


2006


2005Stock option grants:Risk free interest rate


4.5
%


4.8
%


3.9
%Weighted average expected lives (years)


6.0



5.6



4.0Volatility


33.7
%


37.4
%


54.4
%Dividend yield










ESPP:Risk free interest rate






4.6
%


3.1
%Weighted average expected lives (years)






0.5



1.0Volatility






38.0
%


40.0
%Dividend yield










     Years Ended December 31,2007


2006


2005Weighted-average grant date fair value of options granted

$
14.55


$
10.47


$
11.24Weighted-average fair value of employee stock purchase rights

$



$
6.11


$
8.41     Pro
    Forma Information under SFAS 123 for Periods Prior to
    January 1, 2006
   110




---



##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year EndedDecember 31,2005Net income

$
118,217Add:Stock-based compensation expense included in reported net
    income, net of tax


3,170Deduct:Total stock-based compensation expense determined under fair
    value based method for all awards, net of tax


(36,803
)Pro forma net income

$
84,584Net income per share:As reportedBasic

$
0.72Diluted

$
0.70Pro formaBasic

$
0.51Diluted

$
0.50   Stock-Based
    Compensation Recognized Prior to January 1,
    2006
    Year EndedDecember 31,2005Grant date intrinsic value

$
3,873Restricted stock awards


1,078Exchange of McAfee.com options


290Repriced options


(770
)Total stock-based compensation expense


4,471Deferred tax benefit


(1,301
)Total stock-based compensation expense, after-tax

$
3,170   Grant date intrinsic value.
   111




---



##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Restricted stock awards.
    Exchange of McAfee.com options.
    Repriced options.
     112




---



##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year EndedDecember 31,2005Cost of net revenue  services and support

$
14Cost of net revenue  subscription


36Cost of net revenue  product


(5
)Stock-based compensation expense included in cost of net revenue


45Research and development


524Marketing and sales


1,482General and administrative


2,420Stock-based compensation expense included in operating costs


4,426Total stock-based compensation expense

$
4,471   Internal
    Revenue Code Section 409A
      16.
    Provision
    for Income Taxes    December 31,2007


2006


2005Domestic

$
19,490


$
47,493


$
105,008Foreign


209,714



136,288



61,670$
229,204


$
183,781


$
166,678  113




---



##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Years Ended December 31,2007


2006


2005Federal:Current

$
17,770


$
28,948


$
55,342Deferred


4,777



(17,489
)


(8,446
)Total Federal


22,547



11,459



46,896State:Current


4,151



4,877



14,291Deferred


(2,311
)


(169
)


(253
)Total State


1,840



4,708



14,038Foreign:Current


33,741



42,255



4,098Deferred


4,096



(12,112
)


(16,571
)Total Foreign


37,837



30,143



(12,473
)Provision for income taxes

$
62,224


$
46,310


$
48,461     Years Ended December 31,2007


2006Deferred Tax Assets:Deferred revenue

$
236,455


$
221,571Accrued liabilities and allowances


65,017



71,785Depreciation and amortization


196,712



115,114Tax credits


110,087



107,846Deferred stock-based compensation


38,259



19,372Net operating loss carryover


34,195



39,735680,725



575,423Valuation allowance


(65,044
)


(70,088
)Total deferred tax assets


615,681



505,335Deferred Tax Liabilities:Intangibles not amortizable for tax purposes


27,254



28,510Prepaids


10,897



12,412Total deferred tax liability


38,151



40,922Net deferred tax asset

$
577,530


$
464,413Current portion

$
256,188


$
236,310Noncurrent portion


321,342



228,103$
577,530


$
464,413  114




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##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      FSP 109-2. and/or non-U.S. subsidiaries. non-U.S. subsidiaries
   115




---



##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Years Ended December 31,2007


2006


2005Federal income tax provision at statutory rate

$
80,250


$
64,201


$
58,335State tax expense (net of Federal benefit)


1,150



3,808



5,303Non deductible acquisition and other costs






161



1,407Foreign earnings taxed at rates different than the Federal rate


(45,734
)


(23,294
)


(22,257
)Federal and state tax expense related to SEC settlement










19,638Permanent and other differences


2,976



1,593



(2,017
)Tax credits and other benefits


(17,698
)


(5,767
)


(1,148
)Repatriation of foreign earnings under the American Jobs
    Creation Act of 2004










1,531Actual/deemed repatriations of earnings from foreign subsidiaries


15,523



3,399



4,528Non deductible stock compensation


4,499



4,339



(6,598
)Provision (benefit) for accruals for tax exposures and valuation
    allowances


21,258



(2,130
)


(10,261
)$
62,224


$
46,310


$
48,461   Accounting for Income Taxes
   116




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##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Gross unrecognized tax benefits at January 1, 2007(1)

$
47,468Gross increases related to tax positions in prior period(1)


21,077Gross decreases related to tax positions in prior period(1)


(1,141
)Gross increases related to tax positions in current period(1)


5,189Lapse of statute of limitations


(903
)Gross unrecognized tax benefits at December 31, 2007(1)

$
71,690     (1)
    
    State and local positions are presented before federal tax
    benefit.       117




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##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  17.
    Net
    Income Per Share    Years Ended December 31,2007


2006


2005Numerator  Basic net income

$
166,980


$
137,471


$
118,217Numerator  Diluted net income

$
166,980


$
137,471


$
118,217Denominator  BasicBasic weighted-average common shares outstanding


159,819



160,945



165,042Denominator  DilutedBasic weighted-average common shares outstanding


159,819



160,945



165,042Effect of dilutive securities:Common stock options, restricted stock units and shares subject
    to repurchase(1)


4,307



2,107



4,207Diluted weighted-average shares


164,126



163,052



169,249Net income per share  Basic

$
1.04


$
0.85


$
0.72Net income per share  Diluted

$
1.02


$
0.84


$
0.70     (1)
    
    At December 31, 2007, 2006 and 2005, 3.2 million,
    7.2 million and 2.2 million options to purchase common
    stock, respectively, were excluded from the calculation since
    the effect was anti-dilutive.  18.
    Business
    Segment and Major Customer Information     118




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##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Years Ended December 31,2007


2006


2005Net revenue by region:North America

$
678,227


$
633,222


$
563,651EMEA


426,966



354,592



282,034Japan


102,272



87,121



75,973Asia-Pacific, excluding Japan


60,913



43,018



38,480Latin America


39,842



27,205



21,490Net revenue

$
1,308,220


$
1,145,158


$
981,628Income from operations by region:North America

$
231,136


$
231,611


$
206,350EMEA


241,714



183,599



122,047Japan


65,057



51,081



41,306Asia-Pacific, excluding Japan


8,313



2,067



6,729Latin America


23,289



16,550



10,539Corporate


(409,696
)


(345,880
)


(245,564
)Income from operations

$
159,813


$
139,028


$
141,407Depreciation expense by region:North America

$
7,884


$
12,269


$
12,209EMEA


2,127



1,842



1,419Japan


60



381



370Asia-Pacific, excluding Japan


1,995



2,352



1,478Latin America


13



175



109Corporate


23,475



18,858



20,810Depreciation expense

$
35,554


$
35,877


$
36,395    119




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##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Years Ended December 31,2007


2006


2005General and administrative and other operating costs

$
184,232


$
164,738


$
105,976Corporate marketing


67,517



61,817



41,720Stock-based compensation


59,017



57,761



4,471Amortization of purchased technology and other intangibles


48,873



34,394



30,601SEC settlement charge










50,000SEC and compliance costs


32,952



17,824



Acquisition and retention bonuses


8,295



8,157



4,436Restructuring charges


8,769



470



3,782In-process research and development






460



4,000Loss (gain) on sale of assets and technology


41



259



(56
)Divestiture costs










996Reimbursement from transition services agreement










(362
)Corporate expenses

$
409,696


$
345,880


$
245,564     December 31,2007


2006North America

$
2,333,535


$
2,016,617EMEA


769,305



578,193Japan


170,545



100,649Asia-Pacific, excluding Japan


57,227



33,109Latin America


22,360



15,754Corporate


61,131



55,948Total assets

$
3,414,103


$
2,800,270     December 31,2007


2006India

$
10,130


$
9,790Japan


2,884



3,334United Kingdom


4,718



4,575Ireland


1,508



1,720Other foreign countries


6,269



5,270Total foreign countries


25,509



24,689United States


69,161



67,310Total

$
94,670


$
91,999  120




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##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Years Ended December 31,2007


2006


2005United Kingdom

$
120,814


$
101,824


$
75,281Germany


47,018



53,145



48,397Japan


102,272



87,121



75,973Canada


40,552



26,401



34,099Other foreign countries


359,891



269,846



218,326Total foreign countries


670,547



538,337



452,076United States


637,673



606,821



529,552Total

$
1,308,220


$
1,145,158


$
981,628     19.
    Litigation  Settled
    Cases
    Formal Order of Private Investigation
  Open
    Cases
   121




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##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Government
    Inquiries Relating to Historical Stock Option
    Practices
  Form 10-K
        Securities
    Cases
  In re McAfee, Inc.
    Derivative Litigation,
 122




---



##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        In re McAfee.com Corp. Initial Public
    Offering Securities Litigation, In re Initial Public Offering
    Securities Litigation,
   123




---



##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Other
    No. 107CV-093592
      20.
    Related
    Party Transactions    21.
    Subsequent
    Events  e-commerce e-commerce
 124




---



##### Table of Contents



MCAFEE,
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     125




---



##### Table of Contents



SIGNATURES      By:
    /s/  David
    G. DeWalt   Chief Executive Officer and President
    Signature

Title

Date/s/  David
    G. DeWalt(David
    G. DeWalt)

Chief Executive Officer and President (Principal Executive
    Officer)

February 26, 2008/s/  Eric
    F. Brown(Eric
    F. Brown)

Chief Financial Officer and
    Chief Operating Officer
    (Principal Accounting Officer)

February 26, 2008/s/  Charles
    J. Robel(Charles
    J. Robel)

Chairman of the Board

February 26, 2008/s/  Carl
    Bass(Carl
    Bass)

Director

February 26, 2008/s/  Robert
    B. Bucknam(Robert
    B. Bucknam)

Director

February 26, 2008/s/  Thomas
    Darcy(Thomas
    Darcy)

Director

February 26, 2008/s/  Leslie
    G. Denend(Leslie
    G. Denend)

Director

February 26, 2008/s/  Denis
    J. OLeary(Denis
    J. OLeary)

Director

February 26, 2008/s/  Robert
    W. Pangia(Robert
    W. Pangia)

Director

February 26, 2008/s/  Liane
    Wilson(Liane
    Wilson)

Director

February 26, 2008  126




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##### Table of Contents



EXHIBIT INDEX
  Incorporated by ReferenceExhibit






File

Exhibit



Filed withNumber


Description

Form

Number

Number

Filing Date

this 10-K3.1


Second Restated Certificate of Incorporation of the Registrant,
    as amended on December 1, 1997

S-4

333-48593

3.1

March 25, 19983.2


Certificate of Ownership and Merger between Registrant and
    McAfee, Inc.

10-Q

001-31216

3.2

November 8, 20043.3


Second Amended and Restated Bylaws of the Registrant.

10-Q

001-31216

3.3

November 8, 20043.4


Certificate of Designation of Series A Preferred Stock of
    the Registrant

10-Q

000-20558

3.3

November 14, 19963.5


Certificate of Designation of Rights, Preferences and Privileges
    of Series B Participating Preferred Stock of the Registrant

8-A

000-20558

5.0

October 22, 19984.3


Indenture dated as of August 17, 2001 between the
    Registrant and State Street Bank and Trust Company of
    California, N.A.

S-3

333-73112

4.3

November 9, 200110.1


Lease Assignment dated November 17, 1997 for facility at
    3965 Freedom Circle, Santa Clara, California by and between
    Informix Corporation and the Registrant

S-3

333-46049

10.13

February 11, 199810.2


Consent to Assignment Agreement dated December 19, 1997 by
    and among Birk S. McCandless, LLC, Guaranty Federal Bank,
    F.S.B., Informix Corporation and the Registrant

S-3

333-46049

10.14

February 11, 199810.3


Subordination, Nondisturbance and Attornment Agreement dated
    December 18, 1997, between Guaranty Federal Bank, F.S.B.,
    the Registrant and Birk S. McCandless, LLC

S-3

333-46049

10.15

February 11, 199810.4


Form of lease executed November 22, 1996 by and between
    Birk S. McCandless, LLC and Informix Corporation for facility at
    3965 Freedom Circle, Santa Clara, California

S-3

333-46049

10.16

February 11, 1998 127




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##### Table of Contents



Incorporated by ReferenceExhibit






File

Exhibit



Filed withNumber


Description

Form

Number

Number

Filing Date

this 10-K10.5*


2002 Employee Stock Purchase Plan, as amended

S-8

333-126929

4.1

July 27, 200510.6*


1997 Stock Incentive Plan, as amended

S-8

333-126928

4.1

July 27, 200510.7*


Amended and Restated 1993 Stock Option Plan for Outside Directors

10-K

001-31216

10.7

October 31, 200310.8*


2000 Nonstatutory Stock Option Plan

10-K

000-20558

10.20

April 2, 200110.9*


Employment agreement dated February 23, 2007 by and between
    David DeWalt and the Registrant

8-K

001-31216

10.1

March 8, 200710.11


First Amendment to Lease dated March 20, 1998 between Birk
    S. McCandless, LLC and the Registrant

10-Q

000-20558

10.28

November 13, 200110.12


Confirmation, Amendment and Notice of Security Agreement dated
    March 20, 1998 among Informix Corporation, Birk S.
    McCandless, LLC and the Registrant

10-Q

000-20558

10.29

November 13, 200110.13


Second Amendment to Lease dated September 1, 1998 among
    Informix Corporation, Birk S. McCandless, LLC and the Registrant

10-Q

000-20558

10.30

November 13, 200110.14


Subordination, Non-disturbance and Attornment Agreement dated
    June 21, 2000, among Column Financial, Inc., Informix
    Corporation, Birk S. McCandless, LLC, and the Registrant

10-Q

000-20558

10.31

November 13, 200110.15
*

Release of Claims dated February 6, 2007 by and between
    George Samenuk and the Registrant

8-K

001-31216

10.1

February 7, 200710.16


Form of Indemnification Agreement between the Registrant and its
    Executive Officers

10-K

001-31216

10.34

March 9, 200410.17
*

Summary of Pay for Performance Plan

10-K

001-31216

10.33

October 31, 200310.18
*

Network Associates, Inc. Tax Deferred Savings Plan

S-8

333-110257

4.1

November 5, 200310.19


Umbrella Credit Facility of Registrant dated April 15, 2004

10-Q

001-31216

10.36

May 10, 2004 128




---



##### Table of Contents



Incorporated by ReferenceExhibit






File

Exhibit



Filed withNumber


Description

Form

Number

Number

Filing Date

this 10-K10.20


Fifth Amendment to Network Associates, Inc. Tax Deferred Savings
    Plan

10-Q

001-31216

10.37

May 10, 200410.21


Sixth Amendment to Network Associates, Inc. Tax Deferred Savings
    Plan

10-Q

001-31216

10.43

August 9, 200410.22*


Employment Agreement between Registrant and Eric F. Brown dated
    December 10, 2004

8-K

001-31216

10.1

December 14, 200410.23*


2005 Independent Director Cash Compensation Plan

10-K/A

001-31216

10.46

May 24, 200510.24*


Letter agreement, dated February 23, 2007, between
    Registrant and David DeWalt

8-K

001-31216

10.1

March 8, 200710.25*


First Amendment to Employment Agreement between Registrant and
    Eric F. Brown dated May 26, 2005

8-K

001-31216

10.3

May 26, 200510.26*


Letter Agreement Amendment to Employment Agreement between the
    Registrant and Eric F. Brown dated January 31, 2006

10-K

001-31216

10.36

March 1, 200610.27*


Employment Agreement between William Kerrigan and the
    Registrant, dated October 1, 2004, as amended by First
    Amendment to Employment Agreement dated May 24, 2005

10-K

001-31216

10.37

March 1, 200610.28*


Text of Amendment to Certain Stock Option Agreements

8-K

001-31216

10.1

January 9, 200710.29*


Text of Amendment to Certain Stock Option Agreements of George
    Samenuk

8-K

001-31216

10.2

January 9, 200710.30*


Release of Claims dated February 6, 2007 between George
    Samenuk and the Registrant

8-K

001-31216

10.1

February 7, 200710.31*


Employment agreement dated February 23, 2007 between David
    DeWalt and the Registrant

8-K

001-31216

10.37

March 8, 200710.32


Share Purchase Agreement among the Registrant, McAfee European
    Holdings Limited and SafeBoot Holding B.V., among other parties,
    dated October 8, 2007










X10.33*


Amendment of Stock Options between William Kerrigan and the
    Registrant, executed November 19, 2007










X21.1


Subsidiaries of the Registrant










X 129




---



##### Table of Contents



Incorporated by ReferenceExhibit






File

Exhibit



Filed withNumber


Description

Form

Number

Number

Filing Date

this 10-K23.1


Consent of Independent Registered Public Accounting Firm










X31.1


Certification of Chief Executive Officer and Chief Financial
    Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002










X32.1


Certification of Chief Executive Officer and Chief Financial
    Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002










X     *
    
    Management contracts or compensatory plans or arrangements
    covering executive officers or directors of McAfee, Inc. 130




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##### Table of Contents



SCHEDULE II
  MCAFEE,
    INC.
  VALUATION
    AND QUALIFYING ACCOUNTS
  Provision forDoubtfulAccounts,Additions Charged


Write-Offs ofBalance at


to Expense,


Previously


Balance atBeginning of


Deferred Revenue or


Provided


End ofPeriod


Net Revenue(1)


Accounts


Period(In thousands)Year Ended December 31, 2007Allowance for Doubtful Accounts

$
2,015


$
2,248


$
(187
)

$
4,076Year Ended December 31, 2006Allowance for Doubtful Accounts

$
2,389


$
884


$
(1,258
)

$
2,015Year Ended December 31, 2005Allowance for Doubtful Accounts

$
2,275


$
923


$
(809
)

$
2,389     (1)
    
    Allowance for Doubtful Accounts, Net.  The
    allowance for doubtful accounts, net consists of our estimates
    with respect to the uncollectibility of our receivables. Our
    management must make estimates of the uncollectibility of our
    accounts receivables. Management specifically analyzes accounts
    receivable and analyzes historical bad debts, customer
    concentrations, customer credit-worthiness, current economic
    trends and changes in our customer payment terms when
    determining the allowance for doubtful accounts. In 2007,
    additions include $0.4 million assumed in connection with our
    SafeBoot acquisition.  Provision forSales Returnsand OtherBalance at


Incentives


Actual


Balance atBeginning of


Charged to Net


Returns and


End ofPeriod


Revenue(2)


Incentives


Period(In thousands)Year Ended December 31, 2007Sales Returns and Other Incentives

$
39,774


$
189,679


$
(180,965
)

$
48,488Year Ended December 31, 2006Sales Returns and Other Incentives

$
31,939


$
139,054


$
(131,219
)

$
39,774Year Ended December 31, 2005Sales Returns and Other Incentives

$
29,321


$
145,525


$
(142,907
)

$
31,939     (2)
    
    Allowance for Sales Returns and Other
    Incentives.  The allowance for sales returns and
    incentives consists of our estimates of potential future product
    returns related to product revenue, and specific provisions for
    distributor, reseller, and retailer sales incentives that are
    reductions in the revenue to be realized. We analyze and monitor
    current and historical return rates, current economic trends and
    changes in customer demand and acceptance of our products when
    evaluating the adequacy of the sales returns and other
    allowances. These estimates affect our net revenue line item on
    our statement of income and affect our net accounts receivable
    and other accrued liabilities line items on our consolidated
    balance sheet. These estimates affect all of our operating
    geographies. At December 31, 2007, 21.4 million is
    netted with accounts receivable and $27.1 million is in
    other accrued liabilities on our consolidated balance sheet. 131