Red Hat 8-K Report of Independent Auditors

EXHIBIT 99.2

UNAUDITED PRO FORMA COMBINED STATEMENTS

The Unaudited Pro Forma Combined Consolidated Balance Sheet as of November 30, 2003, and the Unaudited Pro Forma Combined Consolidated Statements of Operations for the year ended February 28, 2003 and the nine months ended November 30, 2003 combine the historical Red Hat and Sistina balance sheets and statements of operations as if the acquisition of Sistina, which occurred on December 24, 2003, had been completed on November 30, 2003 for purposes of the presentation of the Unaudited Pro Forma Combined Consolidated Balance Sheet, and as of March 1, 2002 and March 1, 2003 for purposes of the presentation of the Unaudited Pro Forma Combined Consolidated Statements of Operations.

We acquired all of the outstanding common stock of Sistina, which included the assumption of all stock options and stock warrants on December 23, 2003 in exchange for the issuance of 1,979,874 shares of our common stock. The total purchase price of the Sistina acquisition was approximately $31.0 million and has been accounted for using the purchase method of accounting. At closing, we issued 1,979,874 shares of our common stock with a fair value of approximately $31.0 million to the stockholders of Sistina. In addition, the transaction includes $12.0 million of contingent consideration based on an earnout carved into three tranches. The earnout is based on the achievement of certain bookings targets for the technologies and services previously sold by Sistina over the period commencing December 23, 2003 and ending March 31, 2005. Shares issued under the earnout will be determined based on the average closing price of the Company’s common stock during the 10 trading days prior to issuance of each tranche of such earnout shares. The unaudited pro forma combined financial statements should be read together with the consolidated financial statements including the notes to these statements of Red Hat and the historical financial statements of Sistina.

The pro forma adjustments reflecting the consummation of the Sistina acquisition are based on the purchase method of accounting, available financial information, and certain estimates and assumptions set forth in the notes to the Unaudited Pro Forma Combined Consolidated Financial Statements. The Unaudited Pro Forma Combined Consolidated Financial Statements reflects our best estimates based on preliminary information. The final purchase price allocation and the actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to various factors, including, without limitation, access to additional financial information and changes in value based on a final purchase price allocation determined by an independent valuation expert. The valuation will result in some amount, which may be significant, allocated to identifiable intangibles, which we expect to be amortized over a period between three to five years. The pro forma adjustments do not reflect any operating efficiencies or cost savings that may be achievable with respect to the combined business of Red Hat and Sistina.

The Unaudited Pro Forma Combined Consolidated Financial Statements for the year ended February 28, 2003 and as of and for the nine months ended November 30, 2003, do not purport to represent what the actual financial condition or results of operations of the combined businesses would have been if the acquisition of Sistina had occurred on the dates indicated in these pro forma combined financial statements nor does this information purport to project our results or financial position for any future periods.

UNAUDITED PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET

November 30, 2003

(in thousands)

ASSETS

	November 30, 2003 Red Hat			September 30, 2003 Sistina			Combined			Pro Forma Adjustments			Pro Forma Combined
Current assets:
Cash and cash equivalents	$	61,315		$	4,130		$	65,445					$	65,445
Investments in debt securities		36,269			—			36,269						36,269
Accounts receivable, net		30,292			269			30,561						30,561
Estimated earnings in excess of billings		5,364			—			5,364						5,364
Inventory		1,325			—			1,325						1,325
Prepaid expenses and other current assets		3,888			57			3,945						3,945
Total current assets		138,453			4,456			142,909			—			142,909
Property and equipment, net		24,745			485			25,230						25,230
Goodwill and identifiable intangibles, net		41,048			—			41,048			27,108	a		68,156
Investments in debt securities		231,225			—			231,225						231,225
Other assets, net		4,372			48			4,420						4,420
Total assets	$	439,843		$	4,989		$	444,832		$	27,108		$	471,940
LIABILITIES, CONVERTIBLE REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	4,628		$	175		$	4,803					$	4,803
Accrued expenses		8,559			531			9,090			1,106d			10,196
Deferred revenue		42,270			160			42,430						42,430
Short term payable		15,003			—			15,003						15,003
Current portion of capital lease obligations		1,116			—			1,116						1,116
Total current liabilities		71,576			866			72,442			1,106			73,548
Deferred lease credits		5,399			—			5,399						5,399
Capital lease obligations		584			—			584						584
Commitments and contingencies		—			—			—						—
Convertible redeemable preferred stock		—			9,961			9,961			(9,961	)b		—
Stockholders’ equity (deficit):
Noncontrolling interest in subsidiary		292			—			292						292
Preferred stock		—			—			—						—
Common stock		18			1			19			(1	)b		18
Additional paid-in capital		647,301			5,072			652,373			(10,693	)b		641,680
											30,685	a		30,685
Deferred compensation		(562	)		—			(562	)		(560	)c		(1,122	)
Accumulated deficit		(281,403	)		(10,906	)		(292,309	)		16,527	b		(275,782	)
Treasury stock		(7,436	)		—			(7,436	)					(7,436	)
Accumulated other comprehensive income (loss)		4,074			(5	)		4,069			5	b		4,074
Total stockholders’ equity (deficit)		362,284			(5,838	)		356,446			35,963			392,409
Total liabilities and stockholders’ equity	$	439,843		$	4,989		$	444,832		$	27,108		$	471,940

(a) Reflects the value of the 1,979,874 shares of our common stock issued to acquire Sistina and the assumption of 33,494 stock options on December 24, 2003, based on the average closing price of our common stock of $15.50 for the three day period immediately preceding and following the date of our announcement of the acquisition of Sistina, as well as, the date of announcement, and the assumption of approximately $4.1 million in net assets of Sistina assuming that the acquisition occurred on November 30, 2003. The preliminary assumption is that cash, accounts receivable, prepaid expenses, and property and equipment will be valued at net book value. This may be adjusted as the final purchase price allocation is prepared. The amount to be allocated between goodwill and identifiable intangibles is subject to an independent valuation being finalized.

(b) Reflects the elimination of the stockholders' equity balances of Sistina as this acquisition is being accounted for using the purchase method of accounting.

(c) Reflects the value of deferred compensation recorded in the acquisition. Deferred compensation is calculated as the difference between the market value of Red Hat's common stock at the date of closing and the exercise price per share of the underlying stock option multiplied by the number of unvested employee stock options.

(d) Reflects severance for employees terminated immediately prior to the closing of the acquisition and the cost of leases terminated immediately prior to the closing of the acquisition.

UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS

Year Ended February 28, 2003

(in thousands)

	Twelve Months Ended						Combined			Pro Forma Adjustments			Pro Forma Combined
	February 28, 2003 Red Hat			December 31, 2002 Sistina
Subscription and services revenue:
Subscription:
Enterprise technologies	$	30,438		$	341		$	30,779					$	30,779
Retail		14,833			—			14,833						14,833
Embedded		3,321			—			3,321						3,321
Total subscription revenue		48,592			341			48,933						48,933
Services:
Enterprise technologies		38,522			—			38,522						38,522
Embedded development services		3,812			—			3,812						3,812
Total services revenue		42,334			—			42,334						42,334
Total subscription and services revenue		90,926			341			91,267						91,267
Cost of subscription and services revenue:
Subscription:
Enterprise technologies and retail		8,625			53			8,678						8,678
Embedded		496			—			496						496
Total cost of subscription revenue		9,121			53			9,174						9,174
Services:
Enterprise technologies		18,595			—			18,595						18,595
Embedded development services		3,750			—			3,750						3,750
Stock-based embedded development services		(4	)		—			(4	)					(4	)
Total cost of services revenue		22,341						22,341						22,341
Total cost of subscription and services revenue		31,462			53			31,515						31,515
Gross profit enterprise technologies and retail		56,573			288			56,861						56,861
Gross profit embedded		2,891			—			2,891						2,891
Gross profit on enterprise technologies, retail and embedded revenue		59,464			288			59,752						59,752
Operating expense:
Sales and marketing		32,969			1,503			34,472			(724	)a		33,748
Stock-based sales and marketing expense		505			—			505						505
Research and development		21,274			1,906			23,180			(325	)a		22,855
Stock-based research and development expense		1,165			—			1,165			187	b		1,352
General and administrative		15,239			1,721			16,960			(291	)a		16,669
General and administrative – mergers and acquisitions		522			—			522						522
Stock-based general and administrative expense		2,146			—			2,146						2,146
Lease buyout costs		285			—			285						285
Amortization of intangibles		1,062			—			1,062						1,062
Restructuring charges		1,461			—			1,461						1,461
Total operating expense		76,628			5,130			81,758			(1,153	)		80,605
Loss from continuing operations		(17,164	)		(4,842	)		(22,006	)		(1,153	)		(20,853	)
Other income (expense), net		10,826			(578	)		10,248						10,248
Loss from continuing operations before extraordinary item		(6,338	)		(5,420	)		(11,758	)		(1,153	)		(10,605	)
Discontinued operations:
Loss from discontinued operations		—			—			—						—
Loss before extraordinary item		(6,338	)		(5,420	)		(11,758	)		(1,153	)		(10,605	)
Extraordinary item-loss on disposal of discontinued operations		(261	)		—			(261	)					(261	)
Net loss	$	(6,599	)	$	(5,420	)	$	(12,019	)	$	(1,153	)	$	(10,866	)
Earnings Per Share Data Basic and Diluted:
Pro forma combined net loss from continuing operations before extraordinary item	($	0.04	)										($	0.06	)
Discontinued operations:
Loss from discontinued operations	$	0.00											$	0.00
Extraordinary item-loss on disposal of discontinued operations	($	0.00	)										($	0.01	)
Pro forma combined net loss per share	($	0.04	)										($	0.07	)
Pro forma combined weighted average shares outstanding		170,158												172,138

(a) To reverse the cost of certain individuals who were notified of their termination on the acquisition date. As these individuals have not been offered positions, Red Hat believes the reductions in operating expenses for Sistina is factually supportable for this proforma presentation.

(b) Reflects the amortization of deferred compensation recorded in the acquisition.

UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS

Nine Months Ended November 30, 2003

(in thousands)

	Nine Months Ended					Combined			Pro Forma Adjustments			Pro Forma Combined
	November 30, 2003 Red Hat		September 30, 2003 Sistina
Subscription and services revenue:
Subscription:
Enterprise technologies	$	44,986	$	623		$	45,609					$	45,609
Retail		11,310		—			11,310						11,310
Embedded		1,602		—			1,602						1,602
Total subscription revenue		57,898		623			58,521						58,521
Services:
Enterprise technologies		28,073		—			28,073						28,073
Embedded development services		3,148		—			3,148						3,148
Total services revenue		31,221		—			31,221						31,221
Total subscription and services revenue		89,119		623			89,742						89,742
Cost of subscription and services revenue:
Subscription:
Enterprise technologies and retail		7,878		214			8,092						8,092
Embedded		288		—			288						288
Total cost of subscription revenue		8,166		214			8,380						8,380
Services:
Enterprise technologies		15,197		—			15,197						15,197
Embedded development services		2,482		—			2,482						2,482
Total cost of services revenue		17,679					17,679						17,679
Total cost of subscription and services revenue		25,845		214			26,059						26,059
Gross profit enterprise technologies and retail		61,294		409			61,703						61,703
Gross profit embedded		1,980					1,980						1,980
Gross profit on enterprise technologies, retail and embedded revenue		63,274		409			63,683						63,683
Operating expense:
Sales and marketing		28,386		2,004			30,390			(543	)a		29,847
Stock-based sales and marketing expense		411		—			411						411
Research and development		18,885		2,038			20,923			(244	)a		20,679
Stock-based research and development expense		670		—			670			140b			810
General and administrative		13,288		1,103			14,391			(218	)a		14,173
Stock-based general and administrative expense		918		—			918						918
Amortization of intangibles		38		—			38						38
Restructuring charges		—		—			—						—
Total operating expense		62,596		5,145			67,741			(865	)		66,876
Income (loss) from operations		678		(4,736	)		(4,058	)		(865	)		(3,193	)
Other income (expense), net		8,323		(46	)		8,277			—			8,277
Gain on debt extinguishment		—		5,621			5,621			(5,621	)		—
Net income	$	9,001	$	839		$	9,840		$	(4,756	)	$	5,084
Earnings Per Share Data:
Pro forma combined basic net income per share	$	0.05										$	0.03
Pro forma combined diluted net income per share	$	0.05										$	0.03
Weighted average shares outstanding:
Basic		172,417											174,397
Diluted		185,641											187,621

(a) To reverse the cost of certain individuals who were notified of their termination on the acquisition date. As these individuals have not been offered positions, Red Hat believes the reductions in operating expenses for Sistina is factually supportable for this proforma presentation.

(b) Reflects the amortization of deferred compensation recorded in the acquisition.