Red Hat Annual Report 2002 || Letter to Shareholders

Matthew Szulik
Chairman and Chief
Executive Officer

Dear Red Hat Shareholder:

Against a backdrop of negative industry activity, we proved a business could be built around open source software:

	Delivered profitable or break-even adjusted earnings and operating cash flows in every quarter of fiscal 2002.
	Improved gross margins to 65% by Q4.
	Ended the year with no long-term debt and $287 million in the bank.

Red Hat is improving the customer experience. Everywhere you look, our technology and services are leading the Red Hat Linux migration.

In the past year we expanded our engineering capabilities, opening a new engineering facility in Boston, Massachusetts.

We developed Red Hat Linux Advanced Server, raising Linux to true enterprise class.

We worked with Wall Street's top financial firms -- the most demanding proving grounds for corporate success.

We saw market-leading software vendors confirm the demand for Red Hat Linux by certifying their applications on it.

And we fought to advance open source and provide technology access in schools.