NetScreen Technologies Reports Record Fiscal Fourth Quarter and 2003 Financial Results

Sunnyvale, CA - NetScreen Technologies, Inc. (Nasdaq: NSCN), today announced financial results for its fourth fiscal quarter and full fiscal year ended September 30, 2003.

Revenue in the quarter ended September 30, 2003 was a record $71.6 million, an increase of 74.4 percent over revenue of $41.1 million in the same quarter last year and an increase of 11.3 percent over revenue of $64.3 million in the quarter ended June 30, 2003. Revenue for fiscal 2003 was $245.3 million, an increase of 77.2 percent over revenue of $138.5 million for fiscal 2002.

Net income calculated on the basis of generally accepted accounting principles (GAAP) for the quarter ended September 30, 2003 was $7.1 million, or $0.09 per basic and $0.08 per diluted share, compared to a net loss of $925,000, or ($0.01) per basic and diluted share, in the same quarter last year. GAAP net income for the quarter ended September 30, 2003 includes a non-cash charge of $5.6 million for stock-based compensation associated primarily with stock options granted prior to the company's initial public offering and approximately $244,000 for amortization of intangible assets associated with the September 2002 acquisition of OneSecure, Inc. GAAP net loss in the same quarter last year includes the effect of a non-cash charge of $6.1 million for stock-based compensation associated primarily with stock options. GAAP net income applicable to common stockholders for fiscal 2003 was $51.5 million, or $0.65 per basic and $0.61 per diluted share, compared to a GAAP net loss applicable to common stockholders of $41.1 million, or ($0.68) per basic and diluted share in fiscal 2002. GAAP net income for fiscal 2003 included a non-cash net tax benefit of $29.6 million resulting from the non- recurring recognition of previously reserved deferred tax assets such as net operating losses, a non-cash charge of $23.2 million for stock-based compensation associated primarily with stock options granted prior to the company's initial public offering and a non-cash charge of approximately $978,000 for amortization of intangible assets associated with the September 2002 acquisition of OneSecure. GAAP net income for fiscal 2002 included the effect of a non-cash charge of $24.3 million for stock-based compensation associated primarily with stock options.

Pro forma net income for the quarter ended September 30, 2003 was $11.9 million, or $0.15 per basic and $0.14 per diluted share, compared to pro forma net income of $5.2 million, or $0.07 per basic and diluted share, in the same quarter last year and pro forma net income of $15.4 million, or $0.19 per basic and $0.18 per diluted share, in the quarter ended June 30, 2003. Pro forma net income for fiscal 2003 was $51.2 million, or $0.65 per basic and $0.60 per diluted share, compared to pro forma net income of $11.9 million, or $0.20 per basic and $0.16 per diluted share for fiscal 2002. Pro forma net income and pro forma net income per share information differs from the GAAP results because it excludes the effect of non-cash stock-based compensation charges and non-cash amortization of intangibles charges noted above. In addition, pro forma net income for the quarter ended September 30, 2003 reflects the company's normalized pro forma effective tax rate of approximately 39 percent. Pro forma net income for the quarter ended June 30, 2003 reflects the company's previous pro forma tax rate of 15 percent.

"Our superb execution in the September quarter capped off another outstanding fiscal year for NetScreen," said Robert Thomas, president and chief executive officer. "We completed our fiscal 2003 with exceptional results and strong momentum as NetScreen's value proposition and layered security approach continues to resonate with our enterprise and service provider customers on a global basis."

Remo Canessa, NetScreen's chief financial officer, stated, "Strong sales in North America and a continued strong presence in other geographies helped NetScreen post record revenues in the September quarter and during the 2003 fiscal year. The strength of our products also allowed us to achieve record pro forma gross margins of 79.3 percent in the September quarter and, equally important, allowed us to achieve pro forma income from operations of $61.4 million in fiscal 2003, 386 percent above fiscal 2002. NetScreen also generated $25.3 million in operating cash flow in the September quarter bringing our total operating cash flow to $85.0 million for fiscal 2003. Our cash and short-term investments balance as of September 30, 2003 was $340.7 million."

Recent Company Highlights

• Signed a definitive agreement to acquire Neoteris Inc., the market leader in the SSL VPN market as well as a leader in the application security gateway market.
• Announced the Deep Inspection firewall, a new class of firewall with application-level intrusion prevention capabilities providing protection against more than 250 application-level attacks and protocol deviations.
• Unveiled the new NetScreen-Security Manager 2004, the industry's first security management platform to combine device-, network- and security policy-level control and monitoring while enabling role-based delegation of tasks, responsibilities and access to the system.
• Expanded international "Rapid Response" customer support services to include more than 200 countries and 1,100 locations.
• Announced new large enterprise, government and service provider customer wins including Indiana University, ManagedStorage International, Virginia Hospital Center, Dutch Railways, the office of Mexico's Federal Attorney General, China Unicom, PCCW Limited and Ubizen.
• Gained the No. 1 position in unit market share in the overall security appliance market in Japan in the second half of 2002, according to IDC Japan.
• Achieved 16 percent factory revenue market share in the worldwide security appliance market for the quarter ended June 30, 2003, up from 9.1 percent the same quarter in the previous year, according to IDC.
• Established a new Emerging Technologies sales group -- a special global sales task force established to drive adoption of NetScreen's newest product and technology offerings, such as NetScreen's Intrusion Detection and Prevention (IDP) and antivirus products.
• Signed a distribution agreement allowing NEC Corporation to offer co-branded NetScreen products in Japan.
• Ranked as the 24th fastest growing technology company on the 2003 Deloitte Technology Fast 500, a ranking of the fastest growing technology companies in North America.

"We have grown our business substantially over the course of the past year while we continue to invest in the future of the company," continued Thomas. "Over the course of our fiscal 2004 we plan to introduce several new products and upgrades to existing products that I believe will further our competitive advantage in the marketplace. In addition, I believe our anticipated acquisition of Neoteris, which we expect to complete later this quarter, will help accelerate the realization of our goal to become the No. 1 network security company in the world."

Outlook
The following statements are based on information the company has available today, and will be the company's only statements of this nature until updated in the future. NetScreen assumes no duty to update this information at any time. These statements are forward-looking, and actual results may differ materially.
For the quarter ending December 31, 2003, excluding the impact from the company's planned acquisition of Neoteris, Inc., NetScreen currently expects to achieve revenue growth of between 7 and 9 percent over the September 2003 quarter. On a GAAP basis, gross margins are expected to be between 75 and 76 percent and operating expenses are expected to increase by 3 to 4 percent in the December 2003 quarter. Pro forma gross margins are expected to be between 76 and 77 percent. In addition, the company expects pro forma operating expenses for the December 2003 quarter to increase by 6 to 7 percent over the September 2003 quarter. Pro forma operating expense and pro forma gross margin expectations exclude stock-based compensation and the amortization of intangible assets.

Assuming a December 1, 2003 close of the company's planned acquisition of Neoteris, NetScreen believes it will incur an additional $3 to $4 million in additional pro forma operating expenses, including integration expenses, in the December 2003 quarter while revenue contribution to the December 2003 quarter is not expected to be significant.

For the fiscal year ending September 30, 2004, including revenue contribution from the company's planned acquisition of Neoteris, NetScreen is projecting total revenue to range between $350 million and $370 million, representing year over year revenue growth of approximately 43 percent to 51 percent.

About NetScreen

NetScreen Technologies, Inc., is a leading developer of integrated network security solutions that offer the security, performance and total cost of ownership required by enterprises and carriers. NetScreen's innovative solutions provide key security technologies, such as virtual private network, denial of service protection, firewall and intrusion prevention, in a line of easy-to-manage security appliances and systems.