0000950170-21-001200 | 10-Q | XBRL Viewer

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Document and Entity Information - shares	6 Months Ended
Document and Entity Information - shares	Jun. 26, 2021	Aug. 03, 2021
Entity Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 26, 2021
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	Q2
Entity Registrant Name	McAfee Corp.
Entity Central Index Key	0001783317
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Current Fiscal Year End Date	--12-25
Entity Filer Category	Non-accelerated Filer
Entity Shell Company	false
Entity Small Business	false
Entity Emerging Growth Company	false
Title of 12(b) Security	Class A Common Stock, $0.001 par value
Trading Symbol	MCFE
Security Exchange Name	NASDAQ
Entity File Number	001-39651
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	84-2467341
Entity Address, Address Line One	6220 America Center Drive
Entity Address, City or Town	San Jose
Entity Address, State or Province	CA
Entity Address, Postal Zip Code	95002
City Area Code	866
Local Phone Number	622-3911
Document Quarterly Report	true
Document Transition Report	false
Class A Common Stock
Entity Information [Line Items]
Entity Common Stock, Shares Outstanding		168,968,217
Class B Common Stock
Entity Information [Line Items]
Entity Common Stock, Shares Outstanding		265,376,691

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Millions	Jun. 26, 2021	Dec. 26, 2020
Current assets:
Cash and cash equivalents	$ 420	$ 231
Accounts receivable, net	95	102
Deferred costs	163	137
Other current assets	44	42
Current assets of discontinued operations	317	402
Total current assets	1,039	914
Property and equipment, net	103	115
Goodwill	1,018	1,018
Identified intangible assets, net	631	729
Deferred tax assets	25	24
Other long-term assets	93	68
Long-term assets of discontinued operations	2,528	2,560
Total assets	5,437	5,428
Current liabilities:
Accounts payable and other current liabilities	257	227
Accrued compensation and benefits	117	179
Accrued marketing	94	118
Income taxes payable	18	14
Long-term debt, current portion	44	44
Lease liabilities, current portion	9	10
Deferred revenue	926	823
Current liabilities of discontinued operations	925	970
Total current liabilities	2,390	2,385
Long-term debt, net	3,904	3,943
Deferred tax liabilities	7	5
Other long-term liabilities	138	153
Deferred revenue, less current portion	93	80
Long-term liabilities of discontinued operations	609	662
Total liabilities	7,141	7,228
Commitments and contingencies (Note 19)
Redeemable noncontrolling interests	7,687	4,840
Stockholders’ equity/members’ deficit:
Additional paid-in capital	(9,306)	(6,477)
Accumulated deficit	(52)	(118)
Accumulated other comprehensive income (loss)	(33)	(45)
Total deficit	(9,391)	(6,640)
Total liabilities, redeemable noncontrolling interests and deficit	5,437	5,428
Class A Common Stock
Stockholders’ equity/members’ deficit:
Common stock	0	0
Class B Common Stock
Stockholders’ equity/members’ deficit:
Common stock	$ 0	$ 0

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Jun. 26, 2021	Dec. 26, 2020
Class A Common Stock
Common Stock, par value	$ 0.001	$ 0.001
Common Stock, shares authorized	1,500,000,000	1,500,000,000
Common Stock, shares issued	166,004,840	161,267,412
Common Stock, shares outstanding	166,004,840	161,267,412
Class B Common Stock
Common Stock, par value	$ 0.001	$ 0.001
Common Stock, shares authorized	300,000,000	300,000,000
Common Stock, shares issued	265,376,691	267,065,127
Common Stock, shares outstanding	265,376,691	267,065,127

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Millions, $ in Millions	3 Months Ended		6 Months Ended
	Jun. 26, 2021	Jun. 27, 2020	Jun. 26, 2021	Jun. 27, 2020
Income Statement [Abstract]
Net revenue	$ 467	$ 383	$ 909	$ 737
Cost of sales	116	110	232	209
Gross profit	351	273	677	528
Operating expenses:
Sales and marketing	89	80	174	140
Research and development	48	37	92	75
General and administrative	45	42	93	100
Amortization of intangibles	13	36	49	72
Restructuring charges (Note 9)	0	0	8	1
Total operating expenses	195	195	416	388
Operating income	156	78	261	140
Interest expense and other, net	58	74	118	149
Foreign exchange gain (loss), net	(20)	(17)	15	6
Income (loss) from continuing operations before income taxes	78	(13)	158	(15)
Provision for income tax expense (benefit)	10	5	7	(5)
Income (loss) from continuing operations	68	(18)	151	(10)
Income from discontinued operations, net of taxes	40	40	51	41
Net income	108	$ 22	202	$ 31
Less: Net income attributable to redeemable noncontrolling interests	72		136
Net income attributable to McAfee Corp.	36		66
Net income attributable to McAfee Corp.:
Income from continuing operations attributable to McAfee Corp.	23		50
Income from discontinued operations attributable to McAfee Corp.	13		16
Net income attributable to McAfee Corp.	$ 36		$ 66
Earnings per share attributable to McAfee Corp., basic:
Continuing operations	$ 0.14		$ 0.31
Discontinued operations	0.08		0.10
Earnings per share, basic	0.22		0.40
Earnings per share attributable to McAfee Corp., diluted:
Continuing operations	0.14		0.30
Discontinued operations	0.07		0.09
Earnings per share, diluted	$ 0.21		$ 0.39
Weighted-average shares outstanding, basic	165.0		163.7
Weighted-average shares outstanding, diluted	182.8		179.5

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 26, 2021	Jun. 27, 2020	Jun. 26, 2021	Jun. 27, 2020
Statement Of Other Comprehensive Income [Abstract]
Net income	$ 108	$ 22	$ 202	$ 31
Interest rate cash flow hedges:
Gain (loss) on interest rate cash flow hedges, net of tax	0	(17)	9	(96)
Reclassification adjustments for income on interest rate cash flow hedges	12	11	24	15
Pension and postretirement benefits income, net of tax	0	0	1	0
Total comprehensive income (loss)	120	$ 16	236	$ (50)
Less: Comprehensive income attributable to redeemable noncontrolling interests	80		158
Total comprehensive income attributable to McAfee Corp.	$ 40		$ 78

- Definition

Amount after tax of increase (decrease) in equity from transactions and other events and circumstances from net income and other comprehensive income. Excludes changes in equity resulting from investments by owners and distributions to owners.

+ References + Details

- Definition

The consolidated profit or loss for the period, net of income taxes, including the portion attributable to the noncontrolling interest.

+ References

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+ Details

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Millions	6 Months Ended
	Jun. 26, 2021	Jun. 27, 2020
Cash flows from operating activities:
Net income	$ 202	$ 31
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	153	252
Equity-based compensation	78	19
Deferred taxes	0	5
Foreign exchange (gain) loss, net	(15)	(6)
Other operating activities	29	27
Change in assets and liabilities:
Accounts receivable, net	100	126
Deferred costs	(32)	(22)
Other assets	(45)	(14)
Other current liabilities	6	(29)
Deferred revenue	10	(27)
Other liabilities	(38)	(86)
Net cash provided by operating activities	448	288
Cash flows from investing activities:
Acquisitions, net of cash acquired	0	(5)
Additions to property and equipment	(14)	(25)
Other investing activities	(4)	(3)
Net cash used in investing activities	(18)	(33)
Cash flows from financing activities:
Proceeds from the issuance of Member units	0	1
Payment for the long-term debt	(22)	(21)
Distributions to members of FTW	(148)	(130)
Payment of dividends	(33)	0
Payment of tax withholding for shares and units withheld	(38)	(2)
Payment of IPO related expenses	(3)	0
Other financing activities	5	(10)
Net cash used in financing activities	(239)	(162)
Effect of exchange rate fluctuations on cash and cash equivalents	(2)	(3)
Change in cash and cash equivalents	189	90
Cash and cash equivalents, beginning of period	231	167
Cash and cash equivalents, end of period	420	257
Supplemental disclosures of noncash investing and financing activities and cash flow information:
Acquisition of property and equipment included in current liabilities	(6)	(5)
Distributions to members of FTW included in liabilities	(31)	(1)
Dividends payable included in liabilities	(19)	0
Other	0	3
Cash paid during the period for:
Interest, net of cash flow hedges	(101)	(141)
Income taxes, net of refunds	$ (29)	$ (22)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT) AND REDEEMABLE NONCONTROLLING INTERESTS - USD ($) $ in Millions	Total	Redeemable Noncontrolling Interests	Foundation Technology Worldwide L L C Prior To Reorganization Transactions Accumulated Other Comprehensive Income (Loss)	Foundation Technology Worldwide L L C Prior To Reorganization Transactions Members' Equity (Deficit)	Foundation Technology Worldwide L L C Prior To Reorganization Transactions Accumulated Deficit	McAfee Corp. Stockholders' Equity	McAfee Corp. Stockholders' Equity Accumulated Other Comprehensive Income (Loss)	McAfee Corp. Stockholders' Equity Accumulated Deficit	McAfee Corp. Stockholders' Equity Common Stock Class A Common Stock	McAfee Corp. Stockholders' Equity Common Stock Class B Common Stock	McAfee Corp. Stockholders' Equity Additional Paid-in Capital	McAfee Corp. Stockholders' Equity Total Parent Entity Deficit
Balance at Dec. 28, 2019			$ (62)	$ (647)	$ (1,385)	$ (2,094)	$ 0	$ 0	$ 0	$ 0	$ 0	$ 0
Balance, Shares at Dec. 28, 2019									0	0
Temporary equity, Balance at Dec. 28, 2019		$ 0
Distributions to Members	$ (131)			(131)
Other comprehensive loss, net of tax	(81)		(81)
Stock compensation expense, net of withholding to cover taxes	17			17
Unit issuances	1			1
Unit repurchases (Note 6)	(10)			(10)
Reclassification of redeemable units (Note 6)	(17)			(17)
Net income	31				31
Other	2			2
Balance at Jun. 27, 2020			(143)	(785)	(1,354)	(2,282)	0	0	$ 0	$ 0	0	0
Balance, Shares at Jun. 27, 2020									0	0
Temporary equity, Balance at Jun. 27, 2020		0
Balance at Mar. 28, 2020			(137)	(707)	(1,376)	(2,220)	0	0	$ 0	$ 0	0	0
Balance, Shares at Mar. 28, 2020									0	0
Temporary equity, Balance at Mar. 28, 2020		0
Distributions to Members	(81)			(81)
Other comprehensive loss, net of tax	(6)		(6)
Stock compensation expense, net of withholding to cover taxes	2			2
Unit issuances	1			1
Net income	22				22
Balance at Jun. 27, 2020			(143)	(785)	(1,354)	(2,282)	0	0	$ 0	$ 0	0	0
Balance, Shares at Jun. 27, 2020									0	0
Temporary equity, Balance at Jun. 27, 2020		0
Balance at Dec. 26, 2020	(6,640)		0	0	0	(1,800)	(45)	(118)	$ 0	$ 0	(6,477)	(6,640)
Balance, Shares at Dec. 26, 2020									161,267,412	267,065,127
Temporary equity, Balance at Dec. 26, 2020	4,840	4,840
Distributions to RNCI	(152)	(152)
Dividend declared	(38)										(38)	(38)
Other comprehensive loss, net of tax	34	22					12					12
Stock compensation expense, net of withholding to cover taxes	45										45	45
Stock compensation expense, net of withholding to cover taxes, Shares									2,237,271
Stock issuances	5										5	5
Stock issuances, Shares									222,153
RNCI units conversion into Class A shares									2,278,004	(1,688,436)
Net income	202	136						66				66
Impact of change in ownership in RNCI		42									(42)	(42)
Fair value adjustment for RNCI		2,799									(2,799)	(2,799)
Balance at Jun. 26, 2021	(9,391)		0	0	0	(1,704)	(33)	(52)	$ 0	$ 0	(9,306)	(9,391)
Balance, Shares at Jun. 26, 2021									166,004,840	265,376,691
Temporary equity, Balance at Jun. 26, 2021	7,687	7,687
Balance at Mar. 27, 2021			0	0	0	(1,783)	(37)	(88)			(7,835)	(7,960)
Balance, Shares at Mar. 27, 2021									162,372,554	267,065,127
Temporary equity, Balance at Mar. 27, 2021		6,177
Distributions to RNCI		(65)				(65)
Dividend declared						(19)					(19)	(19)
Other comprehensive loss, net of tax		8				12	4					4
Stock compensation expense, net of withholding to cover taxes						38					38	38
Stock compensation expense, net of withholding to cover taxes, Shares									1,132,129
Stock issuances						5					5	5
Stock issuances, Shares									222,153
RNCI units conversion into Class A shares									2,278,004	(1,688,436)
Net income	108	72				108		36				36
Impact of change in ownership in RNCI		38									(38)	(38)
Fair value adjustment for RNCI		1,457									(1,457)	(1,457)
Balance at Jun. 26, 2021	(9,391)		$ 0	$ 0	$ 0	$ (1,704)	$ (33)	$ (52)	$ 0	$ 0	$ (9,306)	$ (9,391)
Balance, Shares at Jun. 26, 2021									166,004,840	265,376,691
Temporary equity, Balance at Jun. 26, 2021	$ 7,687	$ 7,687

Basis of Presentation

6 Months Ended

Jun. 26, 2021

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Basis of Presentation

NOTE 1: BASIS OF PRESENTATION

Background

McAfee is a leading-edge cybersecurity company that provides advanced security solutions to consumers. Security technologies from McAfee use a unique, predictive capability that is powered by McAfee Global Threat Intelligence, which enables home users to stay one step ahead of the next wave of fileless attacks, viruses, malware, and other online threats.

McAfee Corp. (the “Corporation”) was formed as a Delaware corporation on July 19, 2019 for the purpose of facilitating an initial public offering (“IPO”) and related transactions in order to carry on the business of Foundation Technology Worldwide LLC (“FTW”) and its subsidiaries (the Corporation, FTW and its subsidiaries are collectively the “Company,” “we,” “us” or “our”). On October 21, 2020, the Corporation became the sole managing member and holder of 100% of the voting power of FTW due to the reorganization transactions described below. With respect to the Corporation and FTW, each entity owns only the respective entities below it in the corporate structure and each entity has no other material operations, assets, or liabilities.

In October 2020, the Corporation completed an IPO pursuant to which the Corporation and selling stockholders sold an aggregate of 37 million shares of Class A common stock par value $0.001 per share (“Class A common stock”) at a public offering price of $20.00 per share. The Corporation issued 31 million shares and received $586 million in proceeds, net of underwriting discounts and commissions, of which $553 million was used to purchase newly-issued limited liability company units (“LLC Units”) and $33 million was used to purchase LLC Units from existing holders (“Continuing LLC Owners”) of interests in FTW, at a purchase price per unit equal to the public offering price per share of Class A common stock, less underwriting discounts and commissions.

We refer to the holders of management incentive units of FTW (“MIUs”) as well as members of management who hold LLC Units following the closing of the offering or are to receive Class A common stock in satisfaction of existing incentive awards as “Management Owners.” We refer to those of our pre-IPO investors and certain of their affiliates who received shares of Class A common stock in connection with the Reorganization Transactions (as defined below) and who do not hold LLC Units as “Continuing Corporate Owners,” and together with the Continuing LLC Owners, as “Continuing Owners.”

The Reorganization Transactions

Reorganization

In connection with the closing of the IPO, the following Reorganization Transactions were consummated:



a new limited liability company operating agreement (“New LLC Agreement”) was adopted for FTW making the Corporation the sole managing member of FTW;



the Corporation’s certificate of incorporation was amended and restated to, among other things, (i) provide for Class A common stock and Class B common stock and (ii) issue shares of Class B common stock to the Continuing Owners and Management Owners, on a one-to-one basis with the number of LLC Units they own (except that Management Owners will not receive shares of Class B common stock in connection with their exchange of Management Incentive Units (“MIUs”)), the exchange of which will be settled in cash or shares of Class A common stock, at the option of the Company, for nominal consideration;



the Corporation (i) issued 126.3 million shares of its Class A common stock to certain of the Continuing Owners in exchange for their contribution of LLC units or the equity of certain other entities, which pursuant to the Reorganization Transactions, became its direct or indirect subsidiaries and (ii) settled 5.7 million restricted stock units (“RSUs”) with shares of its Class A common stock, net of tax withholding, held by certain employees, which were satisfied in connection with the Reorganization Transactions; and



the Corporation entered into (i) a tax receivable agreement (“TRA”) with certain of our Continuing Owners and certain Management Owners (collectively “TRA Beneficiaries”) and (ii) a stockholders agreement and a registration rights agreement with investment funds affiliated with or advised by TPG Global, LLC (“TPG”) and Thoma Bravo, L.P. (“Thoma Bravo”), respectively, and Intel Americas, Inc. (“Intel”).

Divestiture of Enterprise Business

On March 6, 2021, we entered into a definitive agreement (the “Purchase Agreement”) with a consortium led by Symphony Technology Group (“STG”) under which STG agreed to purchase certain of our Enterprise assets together with certain of our Enterprise liabilities (“Enterprise Business”), representing substantially all of our Enterprise segment, for an all-cash purchase price of $4.0 billion. The divestiture transaction closed on July 27, 2021. The divestiture of our Enterprise Business represents a strategic shift in our operations that allows us to focus on our Consumer business. As a result of the divestiture, the results of our Enterprise Business were reclassified as discontinued operations in our condensed consolidated statements of operations and excluded from both continuing operations and segment results for all periods presented. Starting in the first quarter of fiscal 2021, we began to operate in one reportable segment as the Enterprise Business comprised substantially all of our Enterprise segment. Results of discontinued operations includes all revenues and expenses directly derived from our Enterprise Business, with the exception of general corporate overhead costs that were previously allocated to our Enterprise segment but have not been allocated to discontinued operations. The Enterprise Business, as specified in the Purchase Agreement, was reclassified as discontinued operations in our condensed consolidated balance sheets, subject to changes set forth in the Purchase Agreement, which included amendments to the agreement in July, 2021. See Note 3 for additional information about the divestiture of our Enterprise Business.

Principles of Consolidation

Subsequent to the Reorganization Transactions and IPO, the Corporation is a holding company, and its sole material asset held directly or through wholly-owned subsidiaries is its equity interest in FTW. The Corporation, as the sole managing member of FTW, exclusively operates and controls the business and affairs of FTW. The Corporation consolidates the financial results of FTW and reports a redeemable noncontrolling interest (“RNCI”) related to the LLC Units held by the Continuing LLC Owners and vested MIUs held by Management Owners (Note 14 and 16).

As the Continuing LLC Owners control both the Corporation and FTW, before and after the Reorganization Transactions, the Reorganization Transactions were accounted for as a reorganization of entities under common control. As a result, the financial statements for periods prior to the IPO and the Reorganization Transactions are the financial statements of FTW as the predecessor to the Corporation for accounting and reporting purposes.

Financial information includes the accounts of the Company and was prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). All intercompany balances and transactions within the Company have been eliminated in consolidation. These condensed consolidated financial statements, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, that are necessary for a fair statement of our financial information. The condensed consolidated balance sheet as of December 26, 2020, has been derived from the audited financial statements as of that date, but it does not include all of the information and footnotes required by GAAP for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying Notes thereto included in our Annual Report on Form 10-K for the year ended December 26, 2020, which were recast to reflect discontinued operations and filed with our Current Report on Form 8-K on August 2, 2021. The results of operations for the three and six months ended June 26, 2021 are not necessarily indicative of the results expected for the entire fiscal year. We have reclassified certain prior period amounts to conform to our current period presentation.

We consolidate entities in which we have a controlling financial interest, the usual condition of which is ownership of a majority voting interest. We also consider for consolidation certain interests where the controlling financial interest may be achieved through arrangements that do not involve voting interests. Such an entity, known as a variable interest entity (“VIE”), is required to be consolidated by its primary beneficiary. The primary beneficiary of a VIE is considered to possess the power to direct the activities of the VIE that most significantly impact its economic performance and has the obligation to absorb losses or the rights to receive benefits from the VIE that are significant to it (Note 16).

Our functional currency for all of our subsidiaries is the U.S. dollar (“USD”).

Use of Estimates

The preparation of the condensed consolidated financial statements required us to make certain estimates and judgments that affect the amounts reported. Actual results may differ materially from our estimates. The accounting estimates that required our most significant and subjective judgments include:



projections of future cash flows related to revenue share and related agreements with our personal computer original equipment manufacturer partners;



amounts classified as discontinued operations;



the valuation and recoverability of identified intangible assets and goodwill;



recognition and measurement of current and deferred income taxes as well as our uncertain tax positions;



fair value of our equity awards;



fair value of long-term debt and related swaps;



amount of liability related to the tax receivable agreement;



determining the nature and timing of satisfaction of performance obligations, assessing any associated material rights and determining the standalone selling price (“SSP”) of performance obligations; and



determining our technology constrained customer life.

The effect of the novel coronavirus (“COVID-19”) pandemic on our business, operations, and financial results is dependent upon future developments, including the duration of the pandemic and the related length of its impact on the global economy and vaccines, which are unknown at this time. As a result, some of our estimates and assumptions required increased judgment and carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, several of our estimates and assumptions may change materially in future periods due to the impact of the COVID-19 pandemic.

Fiscal Calendar

We maintain a 52- or 53-week fiscal year that ends on the last Saturday in December. The year ending December 25, 2021 is a 52-week year starting on December 27, 2020. These condensed consolidated financial statements are presented as of June 26, 2021 and December 26, 2020, and for the three and six months ended June 26, 2021 and the three and six months ended June 27, 2020. The three and six months ended June 26, 2021 consisted of 13 and 26 weeks, respectively, and the three and six months ended June 27, 2020 consisted of 13 and 26 weeks, respectively.

Significant Accounting Policies

There have been no material changes to our significant accounting policies as of and for the six months ended June 26, 2021, except for those related to discontinued operations and those noted in Note 2, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the year ended December 26, 2020, which were recast to reflect discontinued operations and filed with our Current Report on Form 8-K on August 2, 2021.

Discontinued Operations

We review the presentation of planned business dispositions in the condensed consolidated financial statements based on the available information and events that have occurred. The review consists of evaluating whether the business meets the definition of a component for which the operations and cash flows are clearly distinguishable from the other components of the business, and if so, whether it is anticipated that after the disposal the cash flows of the component would be eliminated from continuing operations and whether the disposition represents a strategic shift that has a major effect on operations and financial results. In addition, we evaluate whether the business has met the criteria as a business held for sale. In order for a planned disposition to be classified as a business held for sale, the established criteria must be met as of the reporting date, including an active program to market the business and the expected disposition of the business within one year.

Planned business dispositions are presented as discontinued operations when all the criteria described above are met. For those divestitures that qualify as discontinued operations, all comparative periods presented are reclassified in the condensed consolidated balance sheets. Additionally, the results of operations of a discontinued operation are reclassified to income from discontinued operations, net of tax, for all periods presented in the condensed consolidated statements of operations. Results of discontinued operations include all revenues and expenses directly derived from such businesses; general corporate overhead is not allocated to discontinued operations.

Recent Accounting Standards	6 Months Ended
Recent Accounting Standards	Jun. 26, 2021
New Accounting Pronouncements And Changes In Accounting Principles [Abstract]
Recent Accounting Standards	NOTE 2: RECENT ACCOUNTING STANDARDS Recently Adopted Accounting Standards In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes by removing certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation and calculating income taxes in interim periods. ASU 2019-12 also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. We adopted ASU 2019-12 on December 27, 2020 and it had no material impact on our consolidated financial statements and related disclosures. Recent Accounting Standards Not Yet Adopted In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”), which simplifies current guidance for convertible financial instruments. ASU 2020-06 also amends derivatives guidance for certain contracts in an entity’s own equity. Finally, ASU 2020-06 amends earnings per share guidance related to convertible instruments. ASU 2020-06 is effective for us in the first quarter of fiscal year 2022. We do not expect adoption of ASU 2020-06 to have a material effect on our consolidated financial statements.

- Definition

The entire disclosure for change in accounting principle. Includes, but is not limited to, nature, reason, and method of adopting amendment to accounting standards or other change in accounting principle.

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+ Details

Discontinued Operations and Transition Costs

6 Months Ended

Jun. 26, 2021

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operations and Transition Charges

NOTE 3: DISCONTINUED OPERATIONS AND TRANSITION COSTS

On March 6, 2021, we entered into a definitive agreement with a consortium led by STG, pursuant to which STG agreed to purchase our Enterprise Business for an all-cash purchase price of $4.0 billion, which closed on July 27, 2021. In connection with the divestiture of the Enterprise Business, we entered into a transition service agreement under which we will provide assistance to STG including, but not limited to, business support services and information technology services as well as a commercial services agreement under which we will provide certain product services and licensed technology.

The following table presents the aggregate amounts of the classes of assets and liabilities sold under the definitive agreement with STG:


(in millions)	June 26, 2021		December 26, 2020
Assets:
Accounts receivable, net	$	194	$	290
Deferred costs		102		96
Other current assets		21		16
Total current assets of discontinued operations		317		402
Property and equipment, net		37		34
Intangible assets, net		881		915
Goodwill		1,413		1,413
Deferred tax assets		40		43
Other long-term assets		157		155
Total assets of discontinued operations	$	2,845	$	2,962
Liabilities:
Accounts payable and other current liabilities	$	37	$	39
Accrued compensation and benefits		18		18
Accrued marketing		8		6
Lease liabilities, current portion		17		15
Deferred revenue		845		892
Total current liabilities of discontinued operations		925		970
Deferred tax liabilities		6		7
Other long-term liabilities		58		51
Deferred revenue, less current portion		545		604
Total liabilities of discontinued operations	$	1,534	$	1,632

The following table presents information regarding certain components of income from discontinued operations, net of taxes:


	Three Months Ended				Six Months Ended
(in millions)	June 26, 2021		June 27, 2020		June 26, 2021		June 27, 2020
Net revenue	$	346	$	333	$	677	$	664
Operating income	$	54	$	49	$	73	$	58
Income before income taxes	$	51	$	49	$	69	$	58
Income tax expense	$	11	$	9	$	18	$	17
Income from discontinued operations, net of taxes	$	40	$	40	$	51	$	41

The following table presents significant non-cash items and capital expenditures of discontinued operations:


	Six Months Ended
(in millions)	June 26, 2021		June 27, 2020
Depreciation and amortization	$	41	$	112
Equity-based compensation expense	$	45	$	3
Additions to property and equipment	$	3	$	4

In July 2021, two amendments to the definitive agreement with a consortium led by STG for the purchase of the Enterprise Business were executed. The amendments modified certain provisions for assets and liabilities to be transferred as well as the timing and procedures for transfer of certain assets and employees in foreign jurisdictions in connection with the sale, and clarifying requirements for maintenance of such assets prior to transfer. The amendments also include certain other modifications or clarifications of the purchase agreement.

On July 27, 2021, we completed the sale of certain assets and the assumption of certain liabilities of our Enterprise Business to STG for an all-cash purchase price of $4.0 billion. In connection with the transaction, we expect to recognize a gain in excess of $2 billion, net of taxes. As a direct result of the taxable gain on the Enterprise Business divestiture, we expect to realize certain tax benefits subject to our TRA and thus we expect to record a TRA liability of between $170 million and $260 million.

Subsequent to the completion of the sale of the Enterprise Business, we notified our lenders of our intent to prepay approximately $1 billion of our indebtedness, which will be completed in August 2021. In connection with this prepayment, we expect to incur a loss on extinguishment of debt in Q3 2021 of approximately $10 million related to recognition of unamortized discount and deferred financing costs (Note 11). We also terminated $150 million of our $250 million notional interest rate swap that had an expiration date of January 29, 2022 (Note 13).

Additionally, on August 3, 2021, the Board of Directors of McAfee Corp. declared a special one-time cash dividend of $4.50 per share of Class A common stock payable to shareholders of record at 5:00 PM Eastern Time on August 13, 2021 (the “Special Dividend”). In connection with the declaration of the Special Dividend, the Board of Directors of McAfee Corp., as sole managing member of FTW, authorized FTW to declare a special one-time cash distribution to its members in the aggregate of approximately $2.8 billion (the “Special Distribution”). The Special Distribution is expected to result in the payment of approximately $1.7 billion to Continuing LLC Owners and approximately $1.1 billion to McAfee Corp. McAfee Corp. will use approximately $0.8 billion of its share of the Special Distribution to pay the Special Dividend to participating shareholders on or about August 27, 2021. Under the provisions of our equity plans, the Special Dividend is anticipated to constitute an equity restructuring under applicable accounting rules, which will require us to make certain adjustments to our outstanding equity awards.

In connection with the sale of the Enterprise Business we have incurred costs consisting primarily of consulting fees, legal fees, and other costs to facilitate the sale transaction and the separation of the Enterprise Business, including incremental costs associated with data disentanglement and acceleration of data migration to the cloud. During the three and six months ended June 26, 2021, we recorded $39 million and $61 million, respectively, for these transition costs. These costs are recorded within Income from discontinued operations, net of taxes, on the condensed consolidated statements of operations.

Revenue from Contract with Customers

6 Months Ended

Jun. 26, 2021

Revenue From Contract With Customer [Abstract]

Revenue from Contracts with Customers

NOTE 4: REVENUE FROM CONTRACTS WITH CUSTOMERS

Deferred Revenue

During the six months ended June 26, 2021, we recognized $553 million from our deferred revenue balance as of December 26, 2020. During the six months ended June 27, 2020, we recognized $483 million in revenue from our deferred revenue balance as of December 28, 2019.

Transaction Price Allocated to the Remaining Performance Obligations

As of June 26, 2021, we have $1,019 million in estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied), which includes deferred revenue and amounts that will be billed and recognized as revenue in future periods. We expect to recognize approximately 91% as revenue over the next 12 months, 9% in next 13 to 36 months.

Net Revenue by Geographic Region

Net revenue by geographic region based on the sell-to address of the end-users is as follows:


	Three Months Ended										Six Months Ended
(in millions except percentages)	June 26, 2021		% of Total			June 27, 2020		% of Total			June 26, 2021		% of Total			June 27, 2020		% of Total
Americas	$	309		66.2	%	$	251		65.5	%	$	601		66.1	%	$	482		65.4	%
EMEA		109		23.3	%		90		23.5	%		213		23.4	%		175		23.7	%
APJ		49		10.5	%		42		11.0	%		95		10.5	%		80		10.9	%
Total net revenue	$	467		100.0	%	$	383		100.0	%	$	909		100.0	%	$	737		100.0	%

Note: The Americas include U.S., Canada and Latin America; EMEA includes Europe, Middle East and Africa; APJ includes Asia Pacific and Japan. See Note 8 for individual countries that accounted for more than 10% of net revenue.

Net Revenue by Channel

Direct to Consumer revenue is from customers who transact with us directly through McAfee web properties, including those converted after the trial period of the McAfee product preinstalled on their new PC purchase or converted subsequent to their subscription period purchased from another channel. Indirect revenue is driven by users who purchase directly through a partner inclusive of mobile providers, ISPs, electronics retailers, ecommerce sites, and search providers.

Net revenue by channel of the end-users is as follows:


	Three Months Ended										Six Months Ended
(in millions except percentages)	June 26, 2021		% of Total			June 27, 2020		% of Total			June 26, 2021		% of Total			June 27, 2020		% of Total
Direct to Consumer	$	344		73.7	%	$	294		76.8	%	$	673		74.0	%	$	575		78.0	%
Indirect		123		26.3	%		89		23.2	%		236		26.0	%		162		22.0	%
Total net revenue	$	467		100.0	%	$	383		100.0	%	$	909		100.0	%	$	737		100.0	%

- Definition

The entire disclosure of revenue from contract with customer to transfer good or service and to transfer nonfinancial asset. Includes, but is not limited to, disaggregation of revenue, credit loss recognized from contract with customer, judgment and change in judgment related to contract with customer, and asset recognized from cost incurred to obtain or fulfill contract with customer. Excludes insurance and lease contracts.

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+ Details

Leases

6 Months Ended

Jun. 26, 2021

Leases [Abstract]

Leases

NOTE 5: LEASES

As of June 26, 2021, we have operating leases primarily for corporate offices and data centers and no significant finance leases. Information related to operating leases, including leases associated with our discontinued operations, was as follows:


	Six Months Ended
(in millions)	June 26, 2021		June 27, 2020
Cash paid for amounts included in the measurement of lease liabilities	$	19	$	20
Right-of-use assets obtained in exchange for lease obligations		20		14

Lease expense from continuing operations	$	7	$	9
Lease expense from discontinued operations		11		10
Total lease expense	$	18	$	19

Balance sheet information related to leases, excluding leases associated with our discontinued operations, was as follows:


(in millions)	June 26, 2021			December 26, 2020
Other long-term assets	$	31		$	33
Lease liabilities, current portion	$	9		$	10
Other long-term liabilities		34			37
Total lease liabilities	$	43		$	47
Weighted Average Remaining Lease Term (in years)		8			8
Weighted Average Discount Rate (percentage)		6.1	%		6.3	%

Maturities of lease liabilities, excluding lease liabilities associated with our discontinued operations, were as follows:


(in millions)	June 26, 2021
Remainder of 2021	$	5
2022		8
2023		6
2024		5
2025		5
Thereafter		26
Total lease payments		55
Less imputed interest		(12	)
Total lease liabilities	$	43

Transactions with Members, Shareholders and Related Parties

6 Months Ended

Jun. 26, 2021

Transactions with Members, Shareholders and Related Parties

NOTE 6: TRANSACTIONS WITH MEMBERS, SHAREHOLDERS AND RELATED PARTIES

Total tax and excess cash distributions to its members declared by FTW were as follows:


	Three Months Ended				Six Months Ended
(in millions)	June 26, 2021		June 27, 2020		June 26, 2021		June 27, 2020
FTW members excluding McAfee Corp.	$	65	$	81	$	152	$	131
McAfee Corp.		39		—		90		—
Total tax and excess cash distributions declared	$	104	$	81	$	242	$	131

McAfee Corp. used a portion of its share of the cash distributions declared by FTW to declare or pay the dividends noted in the table below during the six months ended June 26, 2021. Remaining distributions received by McAfee Corp. were used for corporate taxes and general corporate purposes.


Declaration Date	Record Date	Payment Date	Dividend per Share		Amount (in millions)
December 9, 2020	December 24, 2020	January 7, 2021	$	0.087	$	14
March 11, 2021	March 26, 2021	April 9, 2021	$	0.115	$	19
June 10, 2021	June 25, 2021	July 9, 2021	$	0.115	$	19

Distributions and dividends of $50 million were recorded primarily within Accounts payable and other current liabilities on the condensed consolidated balance sheet as of June 26, 2021, and $50 million was paid in July 2021.

In February 2020, we entered into an agreement with our former President and Chief Executive Officer to repurchase equity units for an aggregate repurchase price of $10 million. We also agreed to repurchase his remaining outstanding equity units in April 2021 at fair market value, contingent on the satisfaction of certain terms and conditions. Upon a sale of the company or an IPO prior to the repurchase date, the units were not required to be repurchased. The units were classified as temporary equity within Redeemable units from the time of the agreement until the IPO when they were reclassified to permanent equity. As of June 27, 2020, the estimated value of the April 2021 repurchase was $17 million.

We had these additional transactions, inclusive of discontinued operations, with TPG, Intel or other Continuing LLC Owners and companies owned or partially owned by those parties that therefore qualify as related parties. These transactions include sales of our products and purchases of various goods or services.


	Three Months Ended				Six Months Ended
(in millions)	June 26, 2021		June 27, 2020		June 26, 2021		June 27, 2020
Sales with related parties:
TPG affiliates	$	—	$	—	$	1	$	1
Other		—		2		—		2
Total	$	—	$	2	$	1	$	3
Payments to related parties:
Intel	$	—	$	2	$	1	$	2
TPG