Pursuant to Rule 425
under the Securities Act of 1933 and
deemed filed pursuant to Rule 14d-2(b) under
the Securities Exchange Act of 1934
Filing Person: Networks Associates, Inc.
Subject Company: McAfee.com Corporation
Subject Company's Commission File No.: 00-28247
The following is a transcript from a conference call held on March 26, 2002.
NETWORK ASSOC.
MODERATOR: KELLY BLOUGH
MARCH 26, 2002/7:30 A.M. CST
PAGE 1
NETWORK ASSOC.
MARCH 26, 2002
7:30 A.M. CST
Coordinator Hello and welcome to the Network Associates conference call.
Today's conference is being recorded at the request of the
company. If anyone has any objections, you may disconnect at
this time. I would now like to introduce today's conference
host, the vice president of investor relations, Ms. Kelly
Blough. Ma'am, you may begin.
K. Blough Good morning and thank you, everyone, for joining us today.
With me is George Samenuk, our Chairman and CEO; Steve
Richards, our Chief Operating Officer and Chief Financial
Officer, and Kent Roberts, our Executive Vice President and
General Counsel.
I'd like to begin by reading the required Safe Harbor
statement. This conference call may contain forward-looking
statements. Forward-looking statements include, but are not
limited to discussions related to our business and growth
prospects in the US and internationally, the outlook for our
business for 2002 and beyond, the impact of the events
announced
NETWORK ASSOC.
MODERATOR: KELLY BLOUGH
MARCH 26, 2002/7:30 A.M. CST
PAGE 2
today, and the proposed exchange offer. These statements are
based on current management expectations and actual results
may vary, perhaps materially, from those contained in the
forward-looking statements. Investors are encouraged to read
Network Associates prospectus and tender offer statement
describing the proposed exchange offer when they become
available. More information on risks and uncertainties related
to the company and its business can be found in these
documents and in the company's regular quarterly and annual
filings with the SEC.
I will now turn the call over to George Samenuk.
G. Samenuk Good morning, everyone. Thanks for joining us today. Earlier
today, we announced that Network Associates is the subject of
an SEC inquiry. I wanted to talk to you all personally this
morning, to give you as much information as we can on this
matter and to answer your questions. As our press release
noted, the SEC informed us on Friday that, they have started a
formal order of private investigation, focusing on the 2000
fiscal year. As you know, this management team came to Network
Associates in January of 2001, so the inquiry focuses on
events that predate our arrival.
NETWORK ASSOC.
MODERATOR: KELLY BLOUGH
MARCH 26, 2002/7:30 A.M. CST
PAGE 3
That said, we have reviewed the company's accounting for
fiscal 2000 with our outside auditors, PricewaterhouseCoopers,
and we continue to believe that the accounting was proper. We
intend to fully cooperate with the SEC staff, in order to
bring this inquiry to a conclusion as quickly as possible.
On December 26, 2000, Network Associates announced three major
events: the resignation of its top three officers; changes in
its channel sales policy, and a significant quarterly
shortfall. Following that announcement, the company received
informal inquiries from the SEC staff, which we viewed as
routine and to which we responded fully.
The company was informed on Friday afternoon of the formal
order and our lawyers contacted me immediately. Friday's
information was extremely limited. However, we were able to
get more clarification on the scope of the order yesterday
morning on Monday. We believe that the investigation centers
primarily on our 2000 fiscal year results and the events
described in our December 26, 2000 press release.
As you know, I have gone to great lengths since joining this
company on January 3, 2001, to build credibility with our
stockholders. In that spirit,
NETWORK ASSOC.
MODERATOR: KELLY BLOUGH
MARCH 26, 2002/7:30 A.M. CST
PAGE 4
we decided to make this information public, as quickly as we
could and to answer any questions you might have, so that we
can get back to work executing on the strategy that this
management team has been engaged in over the last 15 months.
Let me be clear. We do not expect this to have any effect on
our day to day operations, our current business or our future
growth opportunities. Network Associates' business remains
solid. We have very strong customer relationships, innovative
product, 3,625 talented and dedicated people on the field,
nearly $1 billion in cash and growing opportunities in the
United States and overseas. I am very optimistic about the
future of this company and I'm enthusiastic about our growth
prospects for 2002 and beyond.
Before I conclude and take your questions, I want to also add
that in light of these events, we are postponing the
commencement of our exchange offer to McAfee.com shareholders.
We still believe that the transaction makes good business
sense for all the reasons that we gave you last week.
With that, I'd like to open the call to question. Before I do,
however, let me remind you that we will not be answering
questions related to this
NETWORK ASSOC.
MODERATOR: KELLY BLOUGH
MARCH 26, 2002/7:30 A.M. CST
PAGE 5
quarter's financial results. We'll be announcing these results
as previously planned, on Thursday, April 11th. Now, I'll turn
it back over to Kelly Blough.
K. Blough Operator, you may poll for questions now.
Coordinator Our first question comes from Sterling Audi with JP Morgan.
You may ask your question.
S. Audi Three questions: one, is there anything that you guys have
been privy to in terms of what may have triggered the
investigation, was it perhaps, the tender offer in itself?
G. Samenuk Kent Roberts, our Executive Vice President and Legal Counsel
can answer that.
K. Roberts Yes, we don't have any information on what triggered them
going formal. We've been talking to them as indicated, but we
have no information, as to why they went formal at this stage.
Going formal at this stage simply means that in connection
with the use of their oversight ability to investigate public
companies, they want to have more formal mechanisms
NETWORK ASSOC.
MODERATOR: KELLY BLOUGH
MARCH 26, 2002/7:30 A.M. CST
PAGE 6
for gathering information. That's what's been added here. As
to why they went there, we don't have that information.
S. Audi The second question is based on your earlier conversations or
your best guess, is there any time frame to resolution?
K. Roberts The SEC is actually not on any time frame with respect to this
type of proceeding. It can go on. They don't even have to tell
you what they're doing necessarily. They don't ... who they're
talking to and it doesn't necessarily resolve one way or the
other on any kind of time frame. Nor do we have control over
their time frame, but we do intend to work with them very
cooperatively to get the information they're looking for.
S. Audi Then the last question, George, I know it may be a little bit
preliminary, but in terms of once this comes to resolution in
terms of the exchange offer on McAfee, would you then just go
back and review, based on where the two stocks are at that
point?
G. Samenuk Yes, we'd have to go back and review our offer. Let me state
that PricewaterhouseCoopers has extensively gone through our
books in 2000. Steve Richards has gone through our performance
and results in 2000 in
NETWORK ASSOC.
MODERATOR: KELLY BLOUGH
MARCH 26, 2002/7:30 A.M. CST
PAGE 7
excruciating detail, so we are confident in cooperating with
the SEC that we'll have a successful resolution with them.
S. Audi Thanks.
Coordinator Our next question comes from Olivia Golden with Bear Stearns.
You may ask your question.
O. Golden Just one quick question, did the SEC give you any indication
in the time period in 2000 that they were looking at? Is it
something, where they're more focused before the fourth
quarter when Network Associates changed the accounting policy?
Do you have any sense of where they're honing in on their
investigation?
G. Samenuk Certainly on December 26, 2000 when the three events happened,
the three top officers resigned, the change in the sell
through process and the miss in the fourth quarter, that's a
trigger event. We believe they're looking at December 26th and
then all of 2000, to look at if everything was properly
accounted for.
O. Golden Thanks.
NETWORK ASSOC.
MODERATOR: KELLY BLOUGH
MARCH 26, 2002/7:30 A.M. CST
PAGE 8
Coordinator Our next question comes from Nancy Casey with Vall Halla. You
may ask your question.
N. Casey Just a point of clarification, typically a formal order of
investigation doesn't indicate a time period. Is it really
specific to this time period or just your understanding that
that's going to be their main focus?
K. Roberts We believe from reviewing the formal order and from things we
know about that, they are focused on the results in 2000.
N. Casey The formal letter of investigation typically allows them to
look at anything any time, right?
K. Roberts They can. Within their general oversight powers, they can
continue to look at all periods. That is correct, but we do
believe the focus of this particular investigation is 2000.
N. Casey Thank you.
Coordinator Our next question comes from Todd Ricker with Credit Suisse
First Boston.
NETWORK ASSOC.
MODERATOR: KELLY BLOUGH
MARCH 26, 2002/7:30 A.M. CST
PAGE 9
T. Ricker Is there any indication in terms of what they're looking at
within the results, any insight whatsoever?
K. Roberts They actually are not that specific. It's just looking at the
results of the period and the events described in our December
26th press release relating to the three executives, the sell
in to sell out change, and the shortfall in that quarter.
T. Ricker You seem to be very confident they're focused on that period.
From the information you provided, has it all been centered
around that? What gives you the insight?
K. Roberts Review of the order and conversations that we've had.
T. Ricker Thanks.
Coordinator Our next question comes from David Leverman with Fedeman. You
may ask your question.
D. Leverman I just had one quick question. I was wondering if this
investigation also includes McAfee.com's business.
NETWORK ASSOC.
MODERATOR: KELLY BLOUGH
MARCH 26, 2002/7:30 A.M. CST
PAGE 10
G. Samenuk To the best of our knowledge, it does not include McAfee.com's
business. That has never been mentioned.
D. Leverman Do you share accounting policies between the two, meaning when
Network Associates has made an accounting change, has Maxi had
to adopt that?
G. Samenuk Maxi.com is a separately traded public company. They have
their own accounting, own legal staff, and think of them as a
separately traded different entity from Network Associates.
D. Leverman Thank you.
G. Samenuk Thank you, David.
Coordinator We'll take the next question from Chris Russ with Wachovia
Securities. You may ask your question.
C. Russ Network Associates in 1999 stumbled badly because of channel
stuffing and then also in the fourth quarter of 2000. You
eradicated all of those past practices, by changing the
revenue recognition to a sell through model
NETWORK ASSOC.
MODERATOR: KELLY BLOUGH
MARCH 26, 2002/7:30 A.M. CST
PAGE 11
from a selling model. Why now is the SEC exploring this issue?
This is an old issue and why now, are they approaching the
company about this issue?
G. Samenuk We can't answer why now. The SEC is now approaching this
issue. The SEC as everyone knows, has been extremely busy over
the past couple of quarters. We cannot speculate why they
determine now is the best time to look at 2000, but again, let
me state. We have in conjunction with our auditors,
PricewaterhouseCoopers, Steve Richards, our CFO and CEO, the
finance team have gone through the 2000 books in exhausting
detail. We feel they are proper. We are in full cooperation
with the SEC.
C. Russ If they determine that the previous management team under Bill
Larson had engaged in some channel stuffing or there had been
something improper about the revenue recognition, what kind of
penalty, if any, could be imposed on the company? What's your
best guess there?
G. Samenuk Certainly we can't speculate on any allegation of any
wrongdoing because we believe the books are proper. Therefore,
we can't speculate on any penalty associated with this
investigation. This is a formal, private order of
investigation as Kent Roberts said, that allows them to
continue to look
NETWORK ASSOC.
MODERATOR: KELLY BLOUGH
MARCH 26, 2002/7:30 A.M. CST
PAGE 12
at 2000. Whether something comes of that or not, we'll
cooperate fully with the SEC in coming to a resolution that is
very, very clear to everyone.
C. Russ Finally, can you just remind us, where there any shareholder
lawsuits that were brought in the December quarter of 2000 and
what's the resolution on those lawsuits? Have those been
settled, or are those still outstanding?
K. Roberts There are pending shareholder lawsuits at this point filed in
the northern district of California. They are still pending.
C. Russ They're still pending?
K. Roberts Yes.
Coordinator Our next question comes from Jonathan Feany with Credit Suisse
First Boston.
J. Feany George, from your conversations with lawyers in general, I
know you can't comment specifically about any potential
wrongdoing, but do you have any sense what the outcome
typically is in these situations, what the potential range of
outcomes are?
NETWORK ASSOC.
MODERATOR: KELLY BLOUGH
MARCH 26, 2002/7:30 A.M. CST
PAGE 13
G. Samenuk We have not looked at any outcomes. We are not being charged
with anything today. We're just being looked at for a trigger
of events that happened on December 26, 2000, as we've stated.
It was a pretty murky day that they looked at those three
events and said, this is something that merits further
investigation. We've been in full cooperation and the SEC is
looking into it. To predict or speculate on outcomes today
would be irresponsible for me as the CEO or any of our
executive management team. Again, we cannot make any comment
on that at all.
J. Feany Thank you, George.
Coordinator We'll take the next question from Charlie Swift with Aricott
Group. You may ask your question.
C. Swift I'm just curious why the announcement, if you had found out on
Friday, was not made yesterday.
G. Samenuk Yes, I was notified after the market closed on Friday and we
received very little information on Friday concerning this SEC
action. We called the SEC on Monday and received additional
information. After receiving
NETWORK ASSOC.
MODERATOR: KELLY BLOUGH
MARCH 26, 2002/7:30 A.M. CST
PAGE 14
additional information, we decided to make it public as soon
as we could, which was this morning.
C. Swift Thanks.
K. Blough Operator, I think, George, we'll turn it back over to you to
conclude.
G. Samenuk Thanks, Kelly. Thank you for taking the time on today's call.
We're going to resolve these issues. I wasn't here in 2000. I
started January 3, 2001. Since then, we have rebuilt
confidence in our investors, confidence in our customers, and
confidence in our 3,650 people around the world. We have great
products, almost $1 billion in cash, and a very bright future.
Again, we will fully cooperate with the SEC to resolve these
issues and continue the upward trend that Network Associates
has had in the last 15 months. Thank you very much, everybody.
Coordinator We'd like to thank everyone for joining today's conference
call and please have a wonderful day.
Additional Information
In connection with the exchange offer, Network Associates, Inc. has filed
an exchange offer prospectus and a registration statement on Form S-4 with the
Securities and Exchange Commission. INVESTORS AND STOCKHOLDERS ARE ADVISED TO
READ THESE AND ALL RELATED DOCUMENTS, WHEN AVAILABLE, BECAUSE THEY CONTAIN
IMPORTANT INFORMATION RELATING TO THE EXCHANGE OFFER. Investors and stockholders
may obtain a free copy of the exchange offer prospectus, the registration
statement and related documents from the Securities and Exchange Commission's
web site at http://www.sec.gov. Free copies of these documents may also be
obtained from Network Associates by directing a request to the information
agent, D.F. King & Co., Inc., 77 Water Street, New York, NY 10005,
1-888-414-5566.