<PAGE>
                                                                    EXHIBIT 13.1

Summary of Consolidated Financial Data
--------------------------------------------------------------------------------
PEMSTAR Inc.

The following table summarizes financial data regarding our business and should
be read together with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," our consolidated financial statements and
the related notes included in this report.

<TABLE>
<CAPTION>
---------------------------------------------------
Year ended March 31                          2001          2000           1999            1998           1997
(In thousands, except per share data)
<S>                                       <C>            <C>            <C>            <C>            <C>
---------------------------------------------------
---------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME DATA:
Net sales                                 $ 635,307      $ 393,842      $ 187,381      $ 165,049      $  31,895
Cost of goods sold                          581,278        363,974        172,219        147,962         27,347
-----------------------------------------------------------------------------------------------------------------
Gross profit                                 54,029         29,868         15,162         17,087          4,548
Selling, general and
  administrative expenses                    37,366         21,576         10,955          8,328          2,976
Amortization                                  1,961          1,281            190             54             --
-----------------------------------------------------------------------------------------------------------------
Operating income                             14,702          7,011          4,017          8,705          1,572
Other income (expense) - net                    967            (74)          (438)           455            247
Interest expense                             (7,550)        (3,588)          (640)          (746)          (315)
-----------------------------------------------------------------------------------------------------------------
Income before income taxes                    8,119          3,349          2,939          8,414          1,504
Income tax expense                            1,436            698          1,273          3,097            554
-----------------------------------------------------------------------------------------------------------------
Net income                                $   6,683      $   2,651      $   1,666      $   5,317      $     950
=================================================================================================================
Net income per share:
         Basic                            $     .29      $     .23      $     .15      $     .55      $     .12
         Diluted                                .25            .15            .12            .49            .12
Weighted average number of
  common shares outstanding(1)
         Basic                               23,013         11,503         10,897          9,653          8,009
         Diluted                             26,943         17,167         14,143         10,874          8,039

OTHER FINANCIAL DATA:
Depreciation                              $  12,097      $   7,455      $   3,331      $   1,929      $     911
Capital expenditures                         42,542         13,415          8,657          8,393          2,887

SUPPLEMENTAL DATA:
EBITDA(2)                                 $  29,727      $  15,673      $   7,100      $  11,143      $   2,730
Net cash (used in) provided by
  operating activities                      (54,219)       (20,225)            65         (1,374)           776
Net cash used in investing
  activities                                (62,684)       (52,611)        (4,989)       (10,126)        (2,938)
Net cash provided by financing
  activities                                119,512         74,734          2,556         14,661          2,133
-----------------------------------------------------------------------------------------------------------------

---------------------------------------------------
As of March 31                               2001           2000           1999           1998           1997
(In thousands)
---------------------------------------------------
---------------------------------------------------
CONSOLIDATED BALANCE SHEET DATA:
Unrestricted cash and cash
  equivalents                             $   5,882      $   2,727      $     827      $   3,195      $      34
Working capital                             131,851         49,649         12,783         12,873            525
Total assets                                349,077        190,451         64,983         61,121         16,334
Long-term debt and capital lease
  obligations less current maturities        84,873         55,181          7,090          6,340          2,251

Total shareholders' equity                  150,712         22,673         16,555         19,544          3,009
-----------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  For an explanation of the determination of the weighted average number of
     common shares outstanding used in computing net income per share, see Note
     1 of the notes to consolidated financial statements.

(2)  EBITDA means earnings before net interest expense, income taxes,
     depreciation and amortization. EBITDA is presented because we believe it is
     an indicator of our ability to incur and service debt and a similar formula
     is used by our lenders in determining compliance with financial covenants.
     However, EBITDA should not be considered as an alternative to cash flow
     from operating activities, as a measure of liquidity or as an alternative
     to net income as a measure of operating results in accordance with
     generally accepted accounting principles.

14
<PAGE>

Management's Discussion and Analysis of Financial Condition and Results of
Operations
--------------------------------------------------------------------------------
PEMSTAR Inc.

You should read the following discussion in conjunction with the "Summary of
Consolidated Financial Data" section of this report and our consolidated
financial statements and notes to those statements included elsewhere in this
report. The forward-looking statements in this discussion regarding the
electronics manufacturing services industry, our expectations regarding our
future performance, liquidity and capital resources and other non-historical
statements in this discussion include numerous risks and uncertainties. Our
actual results may differ materially from those contained in any forward-looking
statements.

OVERVIEW
We are a rapidly growing provider of electronics manufacturing services to
original equipment manufacturers in the communications, computing, data storage,
industrial and medical equipment markets. We provide these manufacturers with a
comprehensive range of engineering, manufacturing and fulfillment services on a
global basis through 15 facilities strategically located in North America, Asia,
Europe and South America. Our comprehensive service offerings support our
customers' products from initial development and design through manufacturing to
worldwide distribution and aftermarket support.

     We were founded in January 1994 by a group of eight senior IBM managers who
had led the storage product operations at IBM's Rochester, Minnesota facility.
We have maintained a significant relationship with IBM, which remains one of our
major customers. Since our inception, we have diversified our customer base to
include industry leading and emerging original equipment manufacturers. We have
also expanded our geographic presence, enhanced our product and service
offerings and increased our volume production capabilities. Our key growth
initiatives have been the opening of new facilities in Austin, Texas;
Guadalajara, Mexico; Tianjin, China; Navan, Ireland; Singapore; Hortolandia,
Brazil; Yokohama, Japan; and Bangkok, Thailand and the acquisition of
established businesses in Almelo, the Netherlands; San Jose, California;
Dunseith, North Dakota; and Taunton, Massachusetts. These growth initiatives
have given us:
     o    expanded geographic presence in established and emerging markets and
          strengthened our presence in target markets;
     o    enhanced product and service offerings while allowing us to offer
          cost-effective manufacturing and engineering capabilities;
     o    access to new customers; and
     o    specialized test and process equipment design, manufacturing and
          service capabilities.

     We derive most of our net sales from customer purchase orders. We charge
our customers separately for engineering and manufacturing services. We
recognize revenues from product sales, net of product returns and warranty
costs, typically at the time of product shipment. In limited circumstances,
although the product remains in our facilities, we recognize revenue when title
to, and risks and rewards of ownership of, the products have contractually
passed to the customer. Revenue from services is recognized as they are
performed and collection is reasonably certain. Our engineering services
accounted for 4.3%, 4.2% and 5.7% of our total net sales in fiscal 1999, 2000
and 2001, respectively, while manufacturing services accounted for 95.7%, 95.8%
and 94.3% of our total net sales in fiscal 1999, 2000 and 2001, respectively.
Our cost of goods sold includes the cost of components and materials, labor
costs and manufacturing overhead. The procurement of raw materials and
components requires us to commit significant working capital to our operations
and to manage the purchasing, receiving, inspection and stocking of these items.

     Our operating results are also impacted by the level of capacity
utilization of our manufacturing facilities, indirect labor, and selling,
general and administrative expenses. During periods of high capacity
utilization, our gross margins and operating margins generally improve, while,
during periods of lower capacity utilization, our gross margins and operating
margins generally decline. We have incurred, and will continue to incur,
substantial selling, general and administrative expenses to establish a global
platform of facilities, to develop a worldwide sales infrastructure and to
implement industry-leading information technology systems. We believe that we
have developed an infrastructure that will support substantially higher levels
of sales in the future.

     Our production volumes are based on purchase orders for the delivery of
products. These orders typically do not commit firm production schedules for
more than 30 to 90 days in advance. We work to minimize the risk relative to our
inventory by ordering materials and components only to the extent necessary to
satisfy existing customer orders. To the extent our orders of materials and
components for specific jobs exceed our customers' orders, we may incur a charge
for inventory obsolescence for a portion of the inventory cost, which in most
cases, we negotiate with the customer to recover some or all of this inventory
cost. In fiscal 2001, inventory obsolescence reserves increased by $1.6 million.
We believe we are largely protected from the risk of inventory cost fluctuations
because we generally pass these costs through to our customers.

                                                                              15
                                                                    from concept
                                                                     to customer
<PAGE>

Management's Discussion and Analysis of Financial Condition and Results of
Operations
--------------------------------------------------------------------------------

RESULTS OF OPERATIONS
The table below sets forth certain operating data expressed as a percentage of
our net sales for the years indicated:

------------------------------------------
Fiscal year ended March 31         2001        2000         1999
------------------------------------------
------------------------------------------
Net sales                          100.0%      100.0%       100.0%
Cost of goods sold                  91.5        92.4         91.9
--------------------------------------------------------------------
Gross profit                         8.5         7.6          8.1
Selling, general and
  administrative expenses            5.9         5.5          5.9
Amortization                          .3          .3           .1
--------------------------------------------------------------------
Operating income                     2.3         1.8          2.1
Other income (expense) - net          .2         (.0)         (.2)
Interest expense                    (1.2)        (.9)         (.3)
--------------------------------------------------------------------
Income before Income taxes           1.3          .9          1.6
Income tax expense                    .2          .2           .7
--------------------------------------------------------------------
Net income                           1.1%         .7%          .9%
====================================================================

Fiscal Year Ended March 31, 2001 Compared to Fiscal Year Ended March 31, 2000

Net sales - Our net sales increased $241.5 million, or 61.3%, to $635.3 million
in fiscal 2001 from $393.8 million in fiscal 2000. This increase resulted from
both internal growth and the acquisition of Turtle Mountain. In fiscal 2001,
our internal growth, which excludes net sales increases from operations acquired
in the preceding 12 months, accounted for $203.7 million, or 84.3%, of total
year-to-year growth and was driven by new projects with existing and new
customers in North America and Asia. Our acquisition of Turtle Mountain
accounted for $37.8 million, or 15.7%, of total year-to-year growth.

Gross profit - Our gross profit increased $24.1 million to $54.0 million in
fiscal 2001 from $29.9 million in fiscal 2000. This increase in gross profit
reflects the year-to-year growth in net sales. This higher gross profit in
fiscal 2001 was primarily due to higher sales volumes from existing and new
customers in both domestic and certain international locations and the
acquisition of Turtle Mountain. Gross profit increased to 8.5% of net sales in
fiscal 2001 from 7.6% in fiscal 2000 due to increased utilization of our
facilities.

Selling, general and administrative expenses - Our selling, general and
administrative expenses increased $15.8 million to $37.4 million in fiscal 2001
from $21.6 million in fiscal 2000. As a percentage of net sales, our selling,
general and administrative expenses increased to 5.9% in fiscal 2001 from 5.5%
in fiscal 2000. These increases were primarily due to $5.6 million for
additional sales and administrative compensation, $4.2 million of overhead
expenses for existing and new facilities, $1.0 million of expenses from
acquired businesses and $1.0 million of additions to information technology
infrastructure.

Amortization - Amortization increased $0.7 million to $2.0 million in fiscal
2001 from $1.3 million in fiscal 2000, primarily as a result of amortization of
goodwill arising out of our acquisition of Turtle Mountain.

Other income (expense) -- net - In fiscal 2001, we had other income of $1.0
million as compared to other expense of $0.1 million in fiscal 2000. This change
in other income was primarily a result of currency gains in certain foreign
locations and gains from sales of fixed assets.

Interest expense - Our interest expense increased $4.0 million to $7.6 million
in fiscal 2001 from $3.6 million in fiscal 2000. This increase reflects
increased borrowings required to fund the Turtle Mountain acquisition and
opening of new facilities as well as increased working capital requirements
driven by growth in business with new and existing customers.

Income tax expense - In fiscal 2001, our effective tax rate decreased to 17.7%
from 20.8% in fiscal 2000. This decrease resulted from the mix of domestic
versus international income from operations and the benefit of our foreign
sales corporation. In general, our international operations are being taxed at a
lower rate than our domestic operations due to tax holidays and incentives.

Fiscal Year Ended March 31, 2000 Compared to Fiscal Year Ended March 31, 1999

Net sales - Our net sales increased $206.4 million, or 110.1%, to $393.8
million in fiscal 2000 from $187.4 million in fiscal 1999. This increase
resulted from both internal growth and strategic acquisition. In fiscal 2000,
our internal growth, which excludes net sales increases from operations acquired
in the preceding twelve months, accounted for $61.9 million, or 30.0%, of total
year-to-year growth and was driven by new projects with existing and new
customers in North America and Asia. Our acquisitions of Quadrus Manufacturing
and a European division of Fluke Corporation accounted for $144.5 million, or
70.0% of total year-to-year growth.

Gross profit - Our gross profit increased $14.7 million to $29.9 million in
fiscal 2000 from $15.2 million in fiscal 1999. This increase in gross profit
reflects the year-to-year growth in net sales. Gross margins decreased to 7.6%
of net sales in fiscal 2000 from 8.1% in fiscal 1999. This lower gross profit in
fiscal 2000 was primarily due to initially lower gross margins of acquired
businesses in fiscal 2000, which represented approximately 50% of the decline
in gross profit, and less than full utilization of assets at our Thailand
facility and set-up costs related to new product introductions, each of which
factors represented approximately 25% of the decline in gross profit.

Selling, general and administrative expenses - Our selling, general and
administrative expenses increased $10.6 million to $21.6 million in fiscal 2000
from $11.0 million in fiscal 1999. Approximately

16
PEMSTAR
2001 AR
<PAGE>

Management's Discussion and Analysis of Financial Condition and Results of
Operations
--------------------------------------------------------------------------------

$5.2 million of this increase consisted of our assumption of existing selling,
general and administrative expenses from acquired businesses. Approximately $5.4
million of this increase was a result of increased staffing levels and higher
selling and administrative costs to support our growth. As a percentage of net
sales, our selling, general and administrative expenses decreased to 5.5% in
fiscal 2000 from 5.9% in fiscal 1999, due to our leveraging these expenses over
an increased revenue base.

Amortization - Amortization increased $1.1 million to $1.3 million in fiscal
2000 from $0.2 million in fiscal 1999, primarily as a result of amortization of
goodwill arising out of our fiscal 2000 acquisitions.

Other income (expense) - net - Our other expense decreased $0.3 million to $0.1
million in fiscal 2000 from $0.4 million in fiscal 1999. Fiscal 1999 includes a
$0.4 million loss on the sale of property and equipment.

Interest expense - Our interest expense increased $3.0 million to $3.6 million
in fiscal 2000 from $0.6 million in fiscal 1999. This increase reflects
increased borrowings required to fund acquisitions and opening of new
facilities, as well as increased working capital requirements driven by growth
in business with new and existing customers.

Income tax expense - In fiscal 2000, our effective tax rate decreased to 20.8%
from 43.3% in fiscal 1999. This decrease resulted from the mix of domestic
versus international income from operations and the benefit of state tax
credits generated by the acquisition of Quadrus Manufacturing. In general, our
international operations are being taxed at a lower rate than our domestic
operations due to tax holidays and incentives.

LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations from the proceeds of bank debt, private and public
offerings of equity, cash and cash equivalents generated from operations and
lease financing of capital equipment. Our principal uses of cash have been to
finance working capital, acquisitions, new operations, capital expenditures and
debt service requirements. We anticipate these uses will continue to be our
principal uses of cash in the future.

     Net cash provided by (used in) operating activities for fiscal 2001, 2000
and 1999 was ($54.2) million, ($20.2) million and $0.1 million, respectively.
Net cash used in operating activities increased in fiscal 2001 primarily as a
result of increased working capital needs due to our higher sales volumes and
higher inventory.

     Net cash used in investing activities for fiscal 2001, 2000 and 1999 was
$62.7 million, $52.6 million and $5.0 million, respectively. In fiscal 2001, our
cash used in investing activities consisted primarily of $21.2 million used in
the acquisition of Turtle Mountain and $42.5 million used for capital
expenditures. Capital expenditures increased in fiscal 2001 by $29.1 million as
compared to the prior fiscal year. Capital expenditures were principally used
for printed circuit board assembly equipment, optical technology equipment,
buildings and information technology equipment and upgrades across several of
our facilities. We estimate capital expenditures in fiscal 2002 will decrease as
compared to fiscal 2001.

     Net cash provided by financing activities for fiscal 2001, 2000 and 1999
was $119.5 million, $74.7 million and $2.6 million, respectively. Our principal
sources of cash from financing activities in fiscal 2001 included proceeds of
approximately $93.9 million from our initial public offering of common stock and
net increase in long-term borrowings of $16.5 million. Net cash provided by
financing activities for fiscal 1999 consisted primarily of proceeds from
long-term debt, offset in part by payments of long-term debt.

     As of March 31, 2001, we had unrestricted cash and cash equivalents of $5.9
million and total borrowings, including capitalized lease obligations, of
approximately $98.0 million. Borrowings under our two U.S. credit facilities
are limited to the lesser of the facility amount or the available borrowing
base calculated as a percentage of accounts receivable and inventory balances,
which limits may restrict our ability to access the full amount of available
borrowings. As of March 31, 2001, we had $21.2 million outstanding under our US
Bank credit facility and $40.0 million outstanding under our IBM facility. Our
increase in borrowings from March 31, 2000 was primarily due to increased
working capital requirements to support higher sales, increased capital
expenditures and the Turtle Mountain acquisition. We also have a $3.2 million
credit facility serving our Netherlands operations. As of March 31, 2001, we had
$1.6 million outstanding under our Netherlands credit facility. Each credit
facility bears interest on outstanding borrowings at variable interest rates,
which as of March 31, 2001, were 8.5% for the US Bank facility, 9.2% for the IBM
facility and 7.0% for the Netherlands facility. Our US Bank credit facility
matures in August 2002 and our IBM credit facility matures in May 2002. As of
March 31, 2001, we had an aggregate of $14.6 million of borrowing availability
under our credit facilities. We are currently renegotiating our existing credit
facilities to increase our borrowing capacity.

     All of these credit facilities are secured by substantially all of our
assets. We are also required to meet financial covenants under these facilities
relating to the ratio of our indebtedness to our earnings before net interest
expense, income taxes, depreciation and amortization, or EBITDA, the ratio of
our EBITDA, less specified expenditures, to our principal and interest payments,
the ratio of the value of our current assets to current liabilities, our
tangible net worth and capital expenditures. On March 31, 2001, we were not in
compliance with our monthly leverage ratio covenant under our US Bank credit
facility, which if not cured or waived, could have resulted in an event of
default. We have obtained a one-time waiver of our compliance with this leverage
ratio covenant from US Bank.

                                                                              17
                                                                    from concept
                                                                     to customer
<PAGE>

Management's Discussion and Analysis of Financial Condition and Results of
Operations
--------------------------------------------------------------------------------

     In addition to our credit facilities, we had other debt obligations
totaling $21.2 million as of March 31, 2001. See Notes 8 and 11 to our
consolidated financial statements. We have filed a registration statement
related to the intended sale of 4.5 million common shares with the Securities
and Exchange Commission. If completed, the proceeds from the sale will be used
to repay indebtedness under our credit facilities. We believe that cash flows
from operating activities, borrowings available in our current financing
agreements and the potential proceeds from this offering will be sufficient to
fund our currently anticipated working capital, planned capital expenditures
and debt service requirements for the next 12 months. However, in the absence of
completing the sale, we will need to secure additional required funding to
support planned capital expenditures. Also, we regularly review acquisition and
additional new operations opportunities as well as major new program
opportunities with new or existing customers, any of which may require us to
sell additional equity or secure additional financing during this period. Beyond
the current 12-month period, we believe we will have sufficient funds to support
our current operations. However, we will need to raise additional capital to
fund potential growth and make capital expenditures associated with this growth.
The sale of additional equity could result in additional dilution to our
shareholders. We cannot assure you that any financing arrangements will be
available in amounts or on terms acceptable to us.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Interest Rate Risk
Our exposure to interest rate risk arises principally from the variable rates
associated with our borrowings. On March 31, 2001, we had total borrowings of
$76.4 million bearing variable interest rates. An adverse change of one percent
in the interest rate of all borrowings which bear interest at variable rates
would cause us to incur a change in interest expense of approximately $764,000
on an annual basis. As of March 31, 2000, an adverse change of one percent in
the interest rate would have caused us to incur a change in interest expense of
approximately $605,000 on an annual basis for all borrowings outstanding bearing
interest at variable rates at March 31, 2000.

Foreign Currency Exchange Risk
Fluctuations in the rate of exchange between the U.S. dollar and the currencies
of countries other than the U.S. in which we conduct business could adversely
affect our financial results. Except for sales in the Netherlands, Singapore and
China, our sales are principally denominated in U.S. dollars. As a result, we
have relatively limited exposure to foreign currency exchange risk on our
sales. For fiscal 2001, sales denominated in Dutch guilders totalled $32.4
million, sales denominated in Singapore dollars totalled $9.2 million and sales
denominated in Chinese renminbi totalled $41.9 million. Costs related to these
sales are largely denominated in their respective currencies, thereby limiting
our transaction risk exposures. However, for sales not denominated in U.S.
dollars, if there is an increase in the rate at which a foreign currency is
exchanged for U.S. dollars, it will require more of the foreign currency to
equal a specified amount of U.S. dollars than before the rate increase. In such
cases, and if we price our products and services in the foreign currency, we
will receive less in U.S. dollars than we did before the rate increase went into
effect. If we price our products and services in U.S. dollars and competitors
price their products in local currency, an increase in the relative strength of
the U.S. dollar could result in our prices being uncompetitive in a market where
business is transacted in the local currency.

     The reported results of our foreign operations will be influenced during
their translation into U.S. dollars by currency movements against the U.S.
dollar. The result of a uniform 10% strengthening in the value of the U.S.
dollar from March 31, 2001 and 2000 levels relative to each of the currencies
in which our revenues and expenses are denominated would result in a decrease in
operating income of approximately $790,000 and $148,000, respectively, for the
fiscal years ended March 31, 2001 and 2000.

     For the fiscal year ended March 31, 2001, the amount we consider
permanently invested in foreign subsidiaries and translated into dollars using
the year end exchange rate is $43.7 million and $8.3 million, respectively, and
the potential loss in fair value resulting from a hypothetical 10% adverse
change in foreign currency exchange rate amounts to $4.0 million and $758,000,
respectively. Actual amounts may differ.

     We currently do not hedge our exposure to foreign currency exchange rate
fluctuations, however, we may hedge such exposures in the future.

Impact of Inflation

We believe that our results of operations are not dependent upon moderate
changes in the inflation rate.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards (SFAS)
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities at fair value. This statement is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000
and is therefore applicable to us beginning with our fiscal quarter ending June
30, 2001. We adopted SFAS No. 133 effective April 1, 2001. The adoption of SFAS
No. 133 did not have a material impact on our financial position or results of
operations.

18
PEMSTAR
2001 AR
<PAGE>

Consolidated Balance Sheets
--------------------------------------------------------------------------------
PEMSTAR Inc.

<TABLE>
<CAPTION>
March 31                                                           2001             2000
(In thousands, except per share amounts)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
<S>                                                             <C>              <C>
ASSETS

Current assets:
Cash and cash equivalents                                       $   5,882        $   2,727
Restricted cash                                                       459              528
Accounts receivable, net                                          106,510           60,061
Inventories, net                                                  113,421           64,437
Deferred income taxes                                               1,322            2,232
Prepaid expenses and other                                         15,572            3,458
--------------------------------------------------------------------------------------------
         Total current assets                                     243,166          133,443
Property and equipment, net                                        73,806           34,933
Goodwill, net                                                      29,164           20,691
Other assets                                                        2,048            1,384
Deferred income taxes                                                 893               --
--------------------------------------------------------------------------------------------
         Total assets                                           $ 349,077        $ 190,451
============================================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Bank overdrafts                                                 $  13,443        $  10,213
Accounts payable                                                   70,791           47,138
Accrued expenses and other                                         12,762            9,740
Income taxes payable                                                1,197            1,474
Current maturities of long-term debt                                9,041           12,930
Current maturities of capital lease obligations                     4,081            2,299
--------------------------------------------------------------------------------------------
         Total current liabilities                                111,315           83,794
Long-term debt, less current maturities                            75,136           51,114
Capital lease obligations, less current maturities                  9,737            4,067
Other deferred credits                                              2,177            2,237
Deferred income taxes                                                  --               17

Redeemable stock:
Series A preferred stock, $0.01 par value; 570 shares
  issued and outstanding in 2000                                       --            8,549
Series B preferred stock, $0.01 per share; 1,000 shares
  issued and outstanding in 2000                                       --           18,000

Shareholders' equity:
Common stock, $0.01 par value; 150,000 shares authorized;
  shares issued and outstanding; 2001 - 28,294 shares;
  2000 - 13,819 shares                                                283              138
Additional paid-in capital                                        137,139           15,395
Accumulated other comprehensive loss                               (2,299)            (772)
Retained earnings                                                  17,853           11,170
Loans to shareholders                                              (2,264)          (3,258)
--------------------------------------------------------------------------------------------
         Total shareholders' equity                               150,712           22,673
--------------------------------------------------------------------------------------------
         Total liabilities and shareholders' equity             $ 349,077        $ 190,451
============================================================================================
</TABLE>

See accompanying notes.

                                                                              19
<PAGE>

Consolidated Statements of Income
--------------------------------------------------------------------------------
PEMSTAR Inc.

<TABLE>
<CAPTION>
Year ended March 31                                            2001             2000             1999
(In thousands, except per share amounts)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
<S>                                                         <C>              <C>              <C>
Net sales                                                   $ 635,307        $ 393,842        $ 187,381
Cost of goods sold                                            581,278          363,974          172,219
-----------------------------------------------------------------------------------------------------------
Gross profit                                                   54,029           29,868           15,162
Selling, general and administrative expenses                   37,366           21,576           10,955
Amortization                                                    1,961            1,281              190
-----------------------------------------------------------------------------------------------------------
Operating income                                               14,702            7,011            4,017
Other income (expense) - net                                      967              (74)            (438)
Interest expense                                               (7,550)          (3,588)            (640)
-----------------------------------------------------------------------------------------------------------
Income before income taxes                                      8,119            3,349            2,939
Income tax expense                                              1,436              698            1,273
Net income                                                  $   6,683        $   2,651        $   1,666
===========================================================================================================
Net income per common share:
         Basic                                              $     .29        $     .23        $     .15
         Diluted                                                  .25              .15              .12
Shares used in computing net income per common share:
         Basic                                                 23,013           11,503           10,897
         Diluted                                               26,943           17,167           14,143
-----------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes.

20
<PAGE>

Consolidated Statement of Shareholders' Equity
--------------------------------------------------------------------------------
PEMSTAR Inc.

<TABLE>
<CAPTION>
                                                                                   Accumulated
                                                       Common Stock    Additional        Other
                                                     ----------------     Paid-In    Comprehen-   Retained     Loans to
(In thousands)                                       Shares   Amount      Capital     sive Loss   Earnings  Shareholders     Total
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>        <C>      <C>          <C>         <C>         <C>         <C>
Balance, March 31, 1998                              10,404     $104     $  4,019     $    --     $ 6,871     $    --     $ 10,994
Issuance of common stock upon exercise of
         stock options                                  111        1           45          --          --          --           46
Issuance of common stock                                783        8        3,907          --          --          --        3,915
Repurchase of common stock                              (28)      --          (22)         --         (12)         --          (34)
Comprehensive income:
         Net income                                      --       --           --          --       1,666          --        1,666
         Foreign currency translation adjustment         --       --           --         (32)         --          --          (32)
                                                                                                                          ---------
         Comprehensive income                            --       --           --          --          --          --        1,634
-----------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1999                              11,270      113        7,949         (32)      8,525          --       16,555

Issuance of common stock upon exercise of
         stock options                                1,565       15        2,410          --          --      (1,855)         570
Issuance of common stock                                985       10        4,913          --          --      (1,403)       3,520
Repurchase of common stock                               (1)      --           --          --          (6)         --           (6)
Comprehensive income:
         Net income                                      --       --           --          --       2,651          --        2,651
         Foreign currency translation adjustment         --       --           --        (740)         --          --         (740)
                                                                                                                          ---------
         Comprehensive income                            --       --           --          --          --          --        1,911
Other                                                    --       --          123          --          --          --          123
-----------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2000                              13,819      138       15,395        (772)     11,170      (3,258)      22,673

Issuance of common stock upon exercise of
         stock options                                  449        4        1,437          --          --        (200)       1,241
Payments on loans to shareholders                        --       --           --          --          --       1,194        1,194
Issuance of common stock                              9,316       94       93,805          --          --          --       93,899
Conversion of redeemable stock                        4,710       47       26,502          --          --          --       26,549
Comprehensive income:
         Net income                                      --       --           --          --       6,683          --        6,683
         Foreign currency translation adjustment         --       --           --      (1,527)         --          --       (1,527)
                                                                                                                          ---------
         Comprehensive income                            --       --           --          --          --          --        5,156
-----------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2001                              28,294     $283     $137,139     $(2,299)    $17,853     $(2,264)    $150,712
===================================================================================================================================
</TABLE>

See accompanying notes.

                                                                              21
<PAGE>

Consolidated Statements of Cash Flows
--------------------------------------------------------------------------------
PEMSTAR Inc.

<TABLE>
<CAPTION>
Year ended March 31                                          2001         2000         1999
(In thousands)
----------------------------------------------------------------------------------------------
<S>                                                        <C>          <C>          <C>
Cash flows from operating activities:
Net income                                                 $  6,683     $  2,651     $ 1,666
Adjustments to reconcile net income to net cash
  (used in) provided by operating activities:
   Depreciation                                              12,097        7,455       3,331
   Amortization                                               1,961        1,281         190
   Deferred income taxes                                       (146)      (2,179)        151
   (Gain) loss on sale of property and equipment               (417)         (42)        377
   Issuance of stock options for services                        --          150          --
   Other deferred credits                                      (292)        (571)       (670)
   Changes in operating assets and liabilities:
       Accounts receivable                                  (41,563)     (23,828)        439
       Inventories                                          (43,222)     (22,962)      2,418
       Recoverable income taxes                                  --        1,889      (1,214)
       Prepaid expenses and other                           (12,620)        (343)     (1,127)
       Accounts payable                                      21,149       15,404      (5,733)
       Accrued expenses and other                             2,151          870         237
----------------------------------------------------------------------------------------------
           Net cash (used in) provided by operating
              activities                                    (54,219)     (20,225)         65

Cash flows from investing activities:
Decrease in restricted cash                                      10          155         583
Business acquisitions, net of cash acquired                 (21,225)     (39,473)         --
Proceeds from sale of property and equipment                  1,073          122       3,085
Purchases of property and equipment                         (42,542)     (13,415)     (8,657)
----------------------------------------------------------------------------------------------
           Net cash used in investing activities            (62,684)     (52,611)     (4,989)

Cash flows from financing activities:
Bank overdrafts                                               3,242        8,569      (1,273)
Proceeds from common stock sales                             93,899           --          --
Proceeds from exercise of stock options                       1,241          802          46
Payments on loans to shareholders                             1,194           --          --
Repurchase of common stock                                       --           (6)        (34)
Proceeds from private placement offering                         --       18,000          --
Proceeds from minority interest shareholder                      --           --         296
Proceeds from sale and leaseback                              4,060           --          --
Principal payments on long-term borrowings                  (94,457)      (4,645)     (1,879)
Proceeds from long-term borrowings                          110,968       52,892       5,956
Debt placement costs                                           (635)        (878)       (556)
----------------------------------------------------------------------------------------------
           Net cash provided by financing activities        119,512       74,734       2,556
Effect of exchange rate changes on cash                         546            2          --
----------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents          3,155        1,900      (2,368)

Cash and cash equivalents:
Beginning of year                                             2,727          827       3,195
----------------------------------------------------------------------------------------------
End of year                                                $  5,882     $  2,727     $   827
==============================================================================================
</TABLE>

See accompanying notes.

22
<PAGE>

Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
--------------------------------------------------------------------------------
PEMSTAR Inc.


-------
   1      NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
-------

Business - PEMSTAR Inc. (the "Company") is a leading provider ofelectronics
manufacturing services to original equipment manufacturers in the
communications, computing, data storage, industrial and medical equipment
sectors. The Company provides its services to customers on a global basis
through manufacturing facilities located in North America, Asia, Europe and
South America.

Principles of consolidation - The accompanying financial statements include the
accounts of PEMSTAR Inc., its majority-owned subsidiaries and the Company's
share of net earnings or losses of 50 percent or less owned companies accounted
for using the equity method. All material intercompany accounts and
transactions are eliminated in the consolidated financial statements.

Revenue recognition - Revenue from the sale of products is recognized when the
product is shipped to the customer. In limited circumstances, although the
physical product remains on the Company's premises at the request of the
customer, when title to and risks and rewards of ownership have contractually
passed to the customer, revenue is recognized in accordance with the guidance of
Staff Accounting Bulletin No. 101. Revenue from design, development and
engineering services is recognized when the services are performed and
collectibility is reasonably certain. The Company warrants a majority of its
products against defects for up to 90 days. Product warranty expenses are
recorded as products are returned and are not material to the Company's
financial statements.

Cash and cash equivalents - The Company considers all highly liquid debt
investments purchased with a maturity of three months or less to be cash
equivalents. Cash equivalents are recorded at cost which approximates market
value.

Inventories - Inventories are stated at the lower of cost (first-in, first-out
method) or market and include freight-in, materials, labor and manufacturing
overhead costs.


Property and equipment - Property and equipment is stated at cost. Depreciation
is computed using the straight-line method over the following estimated useful
lives:

--------------------------------------------------------------
                                             Number of years
--------------------------------------------------------------
--------------------------------------------------------------
Buildings and improvements                           4 to 40
Machinery and equipment                               4 to 5
Furniture and fixtures                               2 to 10
Computer hardware and software                             4

     Amortization of assets acquired under capital leases is included with
depreciation expense.

Goodwill and other intangible assets - Goodwill represents the excess of the
purchase price over the fair value of the net assets acquired and is being
amortized on a straight-line basis over 20 years. Other intangible assets
principally consist of debt financing costs that are being amortized over the
terms of the applicable agreement.

Long-lived assets - The Company follows Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." SFAS No. 121 requires that
long-lived assets, including goodwill, be reviewed for impairment whenever
events or circumstances indicate the carrying amount of an asset may not be
recoverable. The Company evaluates potential impairment by comparing the
carrying amount of the assets with the estimated undiscounted cash flows
associated with them. If an impairment exists, the Company measures the
impairment utilizing discounted cash flows.

Estimated warranty claim - The Company sells its products with a warranty that
provides for repairs or replacements of any defective workmanship for a
three-month period after the sale. Based upon historical experience the accrual
for warranty claims is not material at March 31, 2000 and 2001.

Foreign currency - Foreign currency denominated assets and liabilities are
translated into United States dollars using the exchange rates in effect at the
balance sheet date. Results of operations are translated using the average
exchange rates throughout the period. The effect of exchange rate fluctuations
on translation of assets and liabilities is recorded as a component of
shareholders' equity. Gains and losses from foreign currency transactions are
included in net other income or expense.

Shipping and handling fees - The Company classifies costs associated with
shipping and handling fees as a component of cost of goods sold. Customer
billings related to shipping and handling fees are reported as net sales.

Income taxes - The Company accounts for income taxes following the provisions
of SFAS No. 109, "Accounting for Income Taxes." SFAS No. 109 requires that
deferred income taxes be recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year end, based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable earnings.

                                                                              23
                                                                    from concept
                                                                     to customer
<PAGE>

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

Valuation allowances are established when necessary to reduce deferred tax
assets to the amount more likely than not to be realized. The effect of changes
in tax rates is recognized in the period in which the rate change occurs.

Research and development - Research and development costs are expensed when
incurred and totaled $387, $410 and $489 for the years ended March 31, 1999,
2000 and 2001, respectively.

Use of estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Comprehensive income - Comprehensive income reflects the change in equity of a
business during a period from transactions and other events and circumstances
from non-owner sources. For the Company, comprehensive income represents net
income adjusted for foreign currency translation adjustments.

Stock-based compensation - The Company accounts for stock options issued to
employees using the intrinsic value method of Accounting Principles Board
Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees." Compensation
expense is recorded on the date stock options are granted only if the current
fair value of the underlying stock exceeds the exercise price of the option.

Net income per common share - The Company follows the provisions of SFAS No.
128, "Earnings Per Share." Basic net income per share is computed based upon the
weighted average number of common shares issued and outstanding during each
year. Diluted net income per share amounts assume conversion, exercise or
issuance of all potential common stock instruments (stock options as discussed
in Note 15 and convertible preferred stock as discussed in Note 13). The
following table reflects the components of common shares outstanding in
accordance with SFAS No. 128:

----------------------------------------------------------------------------
Year ended March 31                         2001        2000       1999
--------------------------------------------------
--------------------------------------------------
Weighted average common shares
   outstanding - basic                     23,013      11,503     10,897
Effect of dilutive securities:
   Preferred stock conversion               1,677       4,144      1,710
   Stock options                            2,253       1,520      1,536
----------------------------------------------------------------------------
Shares used in computing net income
   per common share - diluted              26,943      17,167     14,143
============================================================================

New accounting pronouncements - In June 1998, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." SFAS No. 133 establishes accounting and reporting standards
for derivative instruments and hedging activities. It requires an entity
recognize all derivatives as either assets or liabilities at fair value. This
statement is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000. The Company adopted SFAS No. 133 effective April 1, 2001. The
adoption of SFAS No. 133 did not have a material impact on the Company's
financial position or its results of operations.

Reclassification - Certain prior year amounts have been reclassified to conform
with the current year presentation.


-------
   2      ACQUISITIONS
-------

In June 1999, the Company acquired Quadrus, Inc., a division of Bell
Microproducts, Inc. Quadrus is a provider of electronic manufacturing services
to original equipment manufacturers. The purchase price of $34,966 was funded
through the issuance of Series B preferred stock in the aggregate amount of
$18,000 to certain of the Company's existing investors, with the remaining
amount funded by borrowings under the Company's operating line of credit. The
transaction was accounted for as a purchase. Accordingly, the net assets and
operating results have been included in the Company's financial statements from
the date of acquisition. The excess of the purchase price over the estimated
fair value of the net assets acquired of $12,346 has been recorded as goodwill
and is being amortized over an estimated useful life of 20 years.

     In August 2000, the Company acquired Turtle Mountain Corporation. Turtle
Mountain is an electronics manufacturing services provider for commercial and
military customers. The purchase price of $20,638, including liabilities
assumed, was funded with proceeds of a term loan of $9,500 with the remainder
borrowed under the Company's operating line of credit. The transaction was
accounted for as a purchase. Accordingly, the net assets and operating results
have been included in the Company's financial statements from the date of
acquisition. The excess of the purchase price over the estimated fair value of
the net assets acquired of $9,680 has been recorded as goodwill and is being
amortized over an estimated useful life of 20 years.

     The following unaudited pro forma combined summary statement of income for
the years ended March 31, 1999, 2000 and 2001 was prepared in accordance with
Accounting Principles Board Opinion No. 16 and assumes the acquisitions had
occurred at the beginning of the periods presented. The following pro forma
PEMSTAR Inc. data reflect

24
PEMSTAR
2001 AR
<PAGE>

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

adjustments for interest expense, amortization of goodwill and depreciation of
fixed assets. The unaudited pro forma financial information is provided for
informational purposes only and does not purport to be indicative of the future
results of the Company.

Unaudited Pro Forma Consolidated Statements of Income

--------------------------------------------------
Year ended March 31                         2001         2000        1999
--------------------------------------------------
--------------------------------------------------
Net sales                               $650,904     $436,891    $273,480
Net income (loss)                          6,944          218      (2,591)
Net income (loss) per share - basic     $    .30     $    .02    $   (.24)
Net income (loss) per share - diluted        .26          .01        (.24)
-----------------------------------------------------------------------------


-------
   3      ACCOUNTS RECEIVABLE
-------

Accounts receivable consists of the following:

---------------------------------------------------------------
March 31                                                 2001        2000
---------------------------------------------------------------
---------------------------------------------------------------
Accounts receivable                                  $107,744     $60,614
Less allowance for doubtful accounts                   (1,234)       (553)
----------------------------------------------------------------------------
                                                     $106,510     $60,061
============================================================================


-------
   4      INVENTORIES
-------

Inventories consist of the following:

---------------------------------------------------------------
March 31                                                 2001        2000
---------------------------------------------------------------
---------------------------------------------------------------
Raw materials                                        $ 94,971     $49,948
Work in process                                        11,042       8,675
Finished goods                                          9,562       6,387
Less allowance for inventory obsolescence              (2,154)       (573)
----------------------------------------------------------------------------
                                                     $113,421     $64,437
============================================================================


-------
   5      PROPERTY AND EQUIPMENT
-------

Property and equipment consists of the following:

---------------------------------------------------------------
March 31                                                 2001        2000
---------------------------------------------------------------
---------------------------------------------------------------
Land                                                 $  1,812    $  1,022
Buildings and improvements                             15,860      11,818
Machinery and equipment                                54,150      27,388
Computer hardware and software                         12,360       7,595
Construction in progress                               11,538       1,131
----------------------------------------------------------------------------
                                                       95,720      48,954
Less accumulated depreciation                         (21,914)    (14,021)
----------------------------------------------------------------------------
                                                     $ 73,806    $ 34,933
============================================================================


-------
   6      GOODWILL
-------

Goodwill consists of the following:

---------------------------------------------------------------
March 31                                                 2001        2000
---------------------------------------------------------------
---------------------------------------------------------------
Goodwill                                             $ 31,570     $21,717
Less accumulated amortization                          (2,406)     (1,026)
----------------------------------------------------------------------------
                                                     $ 29,164     $20,691
============================================================================


-------
   7      OTHER ASSETS
-------

Other assets consist of the following:

---------------------------------------------------------------
March 31                                                 2001        2000
---------------------------------------------------------------
---------------------------------------------------------------
Restricted cash                                        $  240      $  182
Other intangible assets, net of accumulated
   amortization -  2001 - $865; 2000 - $299             1,093       1,055
Other                                                     715         147
----------------------------------------------------------------------------
                                                       $2,048      $1,384
============================================================================


-------
   8      FINANCING ARRANGEMENTS
-------

Long-term debt consists of the following:
------------------------------------------------------------------
March 31                                                    2001        2000
------------------------------------------------------------------
------------------------------------------------------------------
Revolving credit facilities, interest at prime plus
  a margin ranging from 50 to 200 basis points or
  LIBOR plus a margin ranging from 225 to 375 basis
  points (8.91% at March 31, 2001 and 10.21% at
  March 31, 2000).                                       $62,866    $ 56,557
Note payable bearing interest at prime plus 2.00%
  (10.00% at March 31, 2001), interest due monthly.
  Quarterly payments of principal ranging from
  $400 to $1,450 are due through June 2004.
  The note is unsecured.                                   8,500          --

Note payable bearing interest at 10.8%, due in monthly
  payments of principal and interest of $55 through
  September 2003, with a final balloon payment of
  $790 due October 2003. The Company has an option
  to extend the final balloon payment for 24 months.
  The note is secured by equipment.                        2,043          --

Bonds payable to the City of Rochester with variable
  interest rates ranging from 4.20% to 6.25%, interest
  due monthly. Annual principal payments ranging
  from $75 to $285 are due through June 2018.              4,990       5,510

Other                                                      5,778       1,977
-------------------------------------------------------------------------------
                                                          84,177      64,044
Less current maturities                                   (9,041)    (12,930)
-------------------------------------------------------------------------------
                                                         $75,136    $ 51,114
===============================================================================

                                                                              25
                                                                    from concept
                                                                     to customer
<PAGE>

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

     Payment of the bonds is secured by irrevocable letters of credit in favor
of the trustee in the amount of $5,081 expiring August 2003. The Company is
required to maintain letters of credit sufficient to pay all outstanding
principal and interest under the bonds. Interest on the bonds is variable and is
payable monthly until, at the option of the Company with the consent of US Bank,
the rate is fixed (conversion date). In the event the Company exercises its
option to convert the interest rate on the bonds from a variable rate to a fixed
rate, a remarketing agent, currently FBS Investment Services, Inc., shall
determine the fixed rate in accordance with a remarketing agreement. Upon
exercise of this option, a mandatory tender date shall occur on which date the
bonds are called and reissued. Prior to the conversion date, the holders of the
bonds may require the trustee to purchase the bonds at a price equal to the
principal amount thereof plus accrued interest thereon. Upon presentation for
redemption, the remarketing agent will attempt to resell the bonds at a price
that is not less than par. Bond sinking funds and proceeds from the bonds, to
the extent unused, are reported as restricted cash.

     Aggregate maturities of long-term debt are as follows:

-------------------------------------------------------------------------------
Year ending March 31:
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
2002                                                             $  9,041
2003                                                               64,503
2004                                                                4,580
2005                                                                1,730
2006                                                                  291
Thereafter                                                          4,032
-------------------------------------------------------------------------------
                                                                 $ 84,177
================================================================================

     The Company has Revolving Credit Facilities with US Bank and IBM Credit
Corporation totaling $80,000 ($40,000 - "Revolver A" and $40,000 - "Revolver B",
respectively) for revolving credit loans and letter of credit which expire on
Revolver A - August 2002 and Revolver B - May 2002. Advances under the Revolving
Credit Facilities, which are limited to the lesser of the facility amount or the
available borrowing base calculated as a percentage of eligible accounts
receivable and inventory balance, bear interest at prime or LIBOR plus a margin
depending on the ratio of consolidated senior debt to EBITDA. The Company is
obligated to pay a monthly fee of 0.25% to 0.375% on the unused portion of the
facilities. The Revolving Credit Facilities are collateralized by substantially
all domestic non-real estate assets of the Company. The lender for Revolver B is
also a major customer of the Company. In addition, the Company has letters of
credit totaling $5,695 outstanding as of March 31, 2001.

     The Company also has, through one of its subsidiaries, a separate line of
credit totaling $3,257. Advances under the line of credit bear interest at the
bank's base rate plus 1.5% (7.0% at March 31, 2001).The line of credit is
secured by the inventory and receivables of the subsidiary and the corporate
guarantee of the Company.

     Notes payable totaling $972 are subordinated to the Revolving Credit
Facilities. The financing arrangements are subject to certain covenants that
require the Company to maintain certain financial ratios, including minimum
liquidity and debt coverage, and limit investments and cash distributions.


-------
   9      OTHER INCOME (EXPENSE) - NET
-------

The other income and expense consists of the following:

----------------------------------------------------
March 31                                     2001        2000        1999
----------------------------------------------------
----------------------------------------------------
Foreign currency gains                       $507       $ 243       $   -
Minority interest in net (income)/
   loss of consolidated subsidiaries           84        (191)       (277)
Net other income (expense)                    376        (126)       (161)
--------------------------------------------------------------------------------
                                             $967       $ (74)      $(438)
================================================================================


-------
  10      FAIR VALUE OF FINANCIAL INSTRUMENTS
-------

The carrying values of cash and cash equivalents, and accounts receivable and
payable approximate fair value due to the short-term maturity of these
instruments. The carrying amount of the Company's revolving line of credit and
long-term notes approximate fair value because the majority of the amounts
outstanding accrue interest at variable rates.

-------
  11      COMMITMENTS AND CONTINGENCIES
-------

The Company has various capital and operating leases which expire on various
dates through 2013. Future minimum payments under both capital leases and
operating leases are as follows:

--------------------------------------------------------------------------------
                                                      Capital   Operating
Fiscal year ending March 31:                           Leases      Leases
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
   2002                                              $  4,454     $ 7,723
   2003                                                 4,252       6,882
   2004                                                 4,035       5,872
   2005                                                 2,188       3,846
   2006                                                   150       3,896
   Thereafter                                              --       6,908
--------------------------------------------------------------------------------
Total minimum lease payments                           15,079     $35,127
                                                                ===========
Less amount representing interest                      (1,261)
--------------------------------------------------------------------------------
Present value of minimum lease payment                 13,818
Less current portion                                   (4,081)
--------------------------------------------------------------------------------
                                                     $  9,737
================================================================================

26
PEMSTAR
2001 AR
<PAGE>

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

Property and equipment includes the following amounts for capitalized leases:

---------------------------------------------------------------
March 31                                                 2001        2000
---------------------------------------------------------------
---------------------------------------------------------------
Machinery and equipment                               $12,294     $ 5,189
Furniture and fixtures                                    645          84
Computer hardware and software                          5,049       2,019
----------------------------------------------------------------------------
                                                       17,988       7,292
Less accumulated depreciation                          (3,479)       (719)
----------------------------------------------------------------------------
                                                      $14,509     $ 6,573
============================================================================

     Total rent expense recognized under operating leases for the years ended
March 31, 1999, 2000 and 2001 totaled $1,567, $3,027 and $5,175, respectively.


-------
  12      INCOME TAXES
-------

Income before income taxes consisted of the following:

---------------------------------------------
Year ended March 31                   2001        2000         1999
---------------------------------------------
---------------------------------------------
Domestic                            $3,403       $2,485       $1,837
Foreign                              4,716          864        1,102
-----------------------------------------------------------------------
                                    $8,119       $3,349       $2,939
=======================================================================

     The provision for income taxes consisted of the following:

---------------------------------------------
Year ended March 31                   2001         2000         1999
---------------------------------------------
---------------------------------------------
Current:
   Domestic                        $ 2,500      $ 2,378      $   624
   Foreign                            (918)         499          498
-----------------------------------------------------------------------
                                     1,582        2,877        1,122
Deferred:
   Domestic                         (1,247)      (1,678)         151
   Foreign                           1,101         (501)          --
-----------------------------------------------------------------------
                                      (146)      (2,179)         151
-----------------------------------------------------------------------
                                   $ 1,436      $   698       $1,273
=======================================================================

     A reconciliation of the provision for income taxes at the statutory rates
to the reported income tax provision is as follows:

---------------------------------------------
Year ended March 31                   2001         2000         1999
---------------------------------------------
---------------------------------------------
Computed "expected" tax rate       $ 2,761       $1,139       $  999
Increase (decrease) in income
  taxes resulting from:
    State taxes, net of credits
      and federal income tax
      benefit                          105         (289)          80
    Benefit of foreign sales
      corporation                     (244)          --           --
   Foreign taxes                    (1,284)        (296)         108
   Other                                98          144           86
-----------------------------------------------------------------------
                                   $ 1,436       $  698       $1,273
=======================================================================

     A summary of deferred tax assets (liabilities) is as follows:

----------------------------------------------------------
March 31                                           2001         2000
----------------------------------------------------------
----------------------------------------------------------
Deferred tax assets:
   Deferred revenue                             $   730       $  794
   Expenses accelerated for financial
     reporting purposes                           1,665        1,135
   Foreign net operating losses                   1,002          492
   State tax credits                                866          523
   Other                                             48          139
-----------------------------------------------------------------------
Total deferred tax assets                         4,311        3,083
Deferred tax liabilities:
   Unbilled services                                 --         (495)
   Foreign expenses accelerated for
     tax purposes                                (1,611)          --
   Accounting basis of assets in
     excess of tax basis                           (485)        (373)
-----------------------------------------------------------------------
Total deferred tax liabilities                   (2,096)        (868)
-----------------------------------------------------------------------
Net deferred tax asset                          $ 2,215       $2,215
=======================================================================

     No provision has been made for U.S. income taxes related to undistributed
earnings of foreign subsidiaries that are intended to be permanently reinvested.
The Company had approximately $2,623 of foreign net operating loss
carryforwards, which have an unlimited carryforward period. The state tax credit
carryforwards of $1,311 expire at varying dates through 2016. The foreign tax
expense was decreased by $231 ($.02 and $.01 per share on a basic and diluted
basis, respectively) in fiscal 2000 and by $480 ($.02 and $.02 per share on a
basic and diluted basis, respectively) in fiscal 2001 as a result of the benefit
of a tax holiday. This holiday ran at full relief of the normal income tax rate
of 15% through December 31, 2000, and will continue at half rate thereafter
through December 31, 2002.

                                                                              27
                                                                    from concept
                                                                     to customer
<PAGE>

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------


-------
  13      MANDATORY REDEEMABLE AND CONVERTIBLE PREFERRED STOCK
-------

The Company has authorized 5,000 shares of $0.01 par value preferred stock. As
of March 31, 2000, 667 shares, of which 570 were outstanding, were designated as
Series A, and 1,000 shares were designated and outstanding as Series B. The
preferred stock was automatically converted into 4,710 shares of common stock at
conversion prices of $5.00 per share for Series A and $6.00 per share for Series
B for upon the completion of the Company's initial public offering in August
2000.


-------
  14      GEOGRAPHIC AND CONCENTRATION OF CREDIT RISK INFORMATION
-------

The Company derives its revenue from one reportable segment, electronic
manufacturing services. The following is a summary of net sales and long-lived
assets by geographic location:

---------------------------------------------
March 31                              2001         2000         1999
---------------------------------------------
---------------------------------------------
Net sales:
   United States                  $529,907     $318,616     $176,373
   Asia                             72,982       44,314       11,008
   Europe                           32,418       30,912           --
-----------------------------------------------------------------------
                                  $635,307     $393,842     $187,381
=======================================================================
Long-lived assets:
   United States                  $ 67,018     $ 42,463     $ 19,546
   Asia                             33,860       10,421        3,538
   Europe                            5,033        4,124           --
-----------------------------------------------------------------------
                                  $105,911     $ 57,008     $ 23,084
=======================================================================

     Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of trade receivables. Sales of
the Company's products are concentrated among specific customers in the same
industry. The Company generally does not require collateral. The Company
considers concentrations of credit risk in establishing the allowance for
doubtful accounts and believes the recorded amount is adequate.

     Customers that accounted for more than 10% of consolidated net sales are as
follows:

---------------------------------------------
March 31                              2001         2000         1999
---------------------------------------------
---------------------------------------------
Customer A                             23%          37%          64%
Customer B                             16           15           11
Customer C                             11           --           --
-----------------------------------------------------------------------

     As of March 31, 2000 and 2001, receivables from these customers represented
33% and 29% of total accounts receivable, respectively.


-------
  15      SHAREHOLDERS' EQUITY
-------

In August and September of 2000, the Company sold 9,280 shares in an initial
public offering from which the Company received net proceeds of $93,617.

     The Company has reserved 302 shares of common stock for issuance to board
members and employees under incentive stock option and purchase plans approved
by shareholders. Current exercisable options are granted at prices equal to the
fair market value on the dates of grant. All options are exercisable over a
10-year period.

     Grants under stock option plans are accounted for using APB No. 25 and
related interpretations. Accordingly, no compensation cost has been recognized
for grants under these stock option plans as the exercise price equaled the fair
market value of the stock on the date of grant. Had compensation cost for stock
option grants been based on the grant date fair values of awards (the method
described in SFAS No. 123), reported net income would have been reduced to the
pro forma amounts reported below.

---------------------------------------------
March 31                              2001         2000         1999
---------------------------------------------
---------------------------------------------
Net income (loss):
         As reported                $6,683      $ 2,651       $1,666
         Pro forma                   4,207       (4,499)       1,451
Basic earnings (loss) per share:
         As reported                $  .29      $   .23       $  .15
         Pro forma                     .18         (.39)         .13
Diluted earnings (loss) per share:
         As reported                $  .25      $   .15       $  .12
         Pro forma                     .16         (.39)         .10
--------------------------------------------------------------------------------

     The fair value of each option grant has been estimated at the grant date
using a Black-Scholes option pricing model with the following weighted average
assumptions: dividend rate of 0% for all years; risk-free interest rates of
5.53%, 6.13% and 5.70% for 1999, 2000 and 2001, respectively, volatility factor
of expected market price of our common stock of .3, .5 and 1.4 for 1999, 2000
and 2001, respectively, and expected lives of 10 years.

28
PEMSTAR
2001 AR
<PAGE>

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

     Following is a summary of stock option activity for the fiscal years ended
March 31:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------
                                                      2001                        2000                       1999
                                                             Weighted                    Weighted                   Weighted
                                                              Average                     Average                    Average
                                             Shares    Exercise Price    Shares    Exercise Price    Shares   Exercise Price
-----------------------------------------------------------------------
-----------------------------------------------------------------------
<S>                                           <C>              <C>        <C>               <C>       <C>              <C>
Outstanding, beginning of year                3,845            $ 3.91     2,173             $1.40     1,866            $ .65
Granted                                       1,189             11.44     3,269              4.39       418             4.52
Exercised/forfeited                            (615)             3.96    (1,597)             1.47      (111)             .39
-------------------------------------------------------------------------------------------------------------------------------
Outstanding, end of year                      4,419              5.93     3,845              3.91     2,173             1.40
===============================================================================================================================
Exercisable, end of year                      3,081              5.08     3,029              4.18       937              .57
Weighted average fair value per share of
  options granted during the year            $10.92                     $  2.35                      $ 2.85
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

     At March 31, 2001, the options outstanding have average remaining
contractual lives and exercise prices as follows:

----------------------------------------------------------
                         Average
Shares          Contractual Life         Exercise Price
----------------------------------------------------------
----------------------------------------------------------
3,305                  8.1 years         $  .33 - $5.00
1,114                  9.3 years           6.06 - 23.31
----------------------------------------------------------

     As of March 31, 2000 and 2001, the Company had loans outstanding to
shareholders in connection with the exercise of stock options for the purchase
of 1,008 and 624 shares, respectively. Loans totaling $2,064 and $200 are due in
March, 2002, and December, 2002, respectively, and bear interest at 6.0% to
6.5%. The loans are secured by the shares of common stock purchased and provide
for full recourse against the respective shareholder's personal assets.


-------
  16      EMPLOYEE BENEFIT PLANS
-------

Retirement Plans
The Company sponsors various employee retirement savings plans that allow
qualified employees to provide for their retirement on a tax-deferred basis. In
accordance with the terms of the retirement savings plans, the Company is
required to match certain of the participants' contributions and/or provide
employer contributions based on the Company's performance and other factors.
Employer contributions for the years ended March 31, 1999, 2000 and 2001
totaled $295, $413 and $1,063, respectively.

     The Company sponsors a defined benefit retirement plan program at its
Netherlands facility. As of March 31, 2001, the fair value of the plan assets
and projected benefit obligations were $3,895 and $3,615, respectively. Expenses
associated with this plan totalled $62 and $295 for the years ended March 21,
2000 and 2001, respectively.

Employee Stock Purchase Plan
During 2001, the Company established an employee stock discount purchase plan
which provides for the sale of up to 500 shares of the Company's common stock at
discounted purchase prices, subject to certain limitations. The cost per share
under this plan is 85 percent of the market value of the Company's common stock
at the date of purchase, as defined. During the year ended March 31, 2001, 36
shares of common stock were issued to employees pursuant to this plan. The
weighted average fair value of shares sold in 2001 was $7.85.


-------
  17      Supplemental Cash Flow Information
-------

-----------------------------------------------------
Year ended March 31                           2001         2000         1999
-----------------------------------------------------
-----------------------------------------------------
Supplemental disclosures for
  cash flow information:
   Cash payments for:
      Interest                             $ 7,344       $3,555       $  643
      Income taxes                           1,797        1,197        2,332
Supplemental schedule of non-cash
  investing and financing activities:
   Property and equipment acquired
     through capital lease agreements      $11,166       $2,514      $    71

   Purchase of minority interest
     in consolidated subsidiary through
     issuance of common stock (acquired
     30% and 25% interests by issuing
     783 and 653 shares in August, 1998
     and January, 2000, respectively)           --        3,263        3,915
-------------------------------------------------------------------------------

                                                                              29
                                                                    from concept
                                                                     to customer
<PAGE>

Report of Independent Auditors
--------------------------------------------------------------------------------

To the Shareholders and Directors of Pemstar Inc.

We have audited the accompanying consolidated balance sheets of Pemstar Inc. as
of March 31, 2000 and 2001 and the related consolidated statements of income,
shareholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. The statements of income, shareholders' equity and cash flows for
the year ended March 31, 1999, were audited by other auditors whose report dated
May 10, 1999 expressed an unqualified opinion on those statements.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Pemstar Inc. at
March 31, 2000 and 2001 and the consolidated results of their operations and
their cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States.

/s/ Ernst & Young LLP

ERNST & YOUNG LLP

Minneapolis, Minnesota
April 30, 2001

30
PEMSTAR
2001 AR
<PAGE>

Other Information
--------------------------------------------------------------------------------

QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table sets forth unaudited quarterly financial information of
Pemstar for the quarterly periods in fiscal 2000 and 2001. Historically, we have
experienced some seasonal variation in net sales, with net sales typically being
highest in the quarter ended December 31 and lowest in the quarter ended March
31. This seasonal variation reflects the order patterns of our largest
customers, who typically order a higher proportion of their annual production in
their final fiscal quarter. This variation may be offset in part by internal
growth and acquisitions. This information has been derived from our monthly
consolidated financial statements which are unaudited, but, in the opinion of
management, fairly represent our financial performance. This information should
be read in conjunction with the consolidated financial statements and the
related notes contained elsewhere in this report. The operating results for any
previous quarter are not necessarily indicative of results for any future
period.

<TABLE>
<CAPTION>
----------------------------------------------
Quarter Ended                        Mar. 31,   Dec. 31,   Sept. 30,   June 30,   Mar. 31,   Dec. 31,   Sept. 30,  June 30,
                                         2001       2000        2000       2000       2000       1999        1999      1999
(In thousands, except per share data)
----------------------------------------------
----------------------------------------------
<S>                                  <C>        <C>         <C>        <C>        <C>        <C>          <C>       <C>
Net sales                            $184,435   $184,366    $143,902   $122,604   $115,939   $111,745     $97,560   $68,598
Cost of goods sold                    167,728    168,319     132,535    112,696    108,037    103,351      90,157    62,429
------------------------------------------------------------------------------------------------------------------------------
Gross profit                           16,707     16,047      11,367      9,908      7,902      8,394       7,403     6,169
Selling, general and
administrative expenses                11,597     10,187       8,062      7,520      6,816      5,749       5,075     3,936
Amortization                              568        547         503        343        528        277         271       205
------------------------------------------------------------------------------------------------------------------------------
Operating income                        4,542      5,313       2,802      2,045        558      2,368       2,057     2,028
Other income (expense) - net              752        176         275       (236)       831       (329)       (542)      (34)
Interest expense                       (2,165)    (1,900)     (1,622)    (1,863)    (1,485)      (986)       (776)     (341)
------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes       3,129      3,589       1,455        (54)       (96)     1,053         739     1,653
Income tax expense (benefit)              336        954         349       (203)      (453)        62         351       738
------------------------------------------------------------------------------------------------------------------------------
Net income                           $  2,793   $  2,635    $  1,106   $    149   $    357   $    991     $   388   $   915
==============================================================================================================================
Net income per common share:
  Basic                              $    .10   $    .09    $    .05   $    .01   $    .03   $    .08     $   .04   $   .08
  Diluted                                 .09        .09         .04        .01        .02        .05         .02       .06
==============================================================================================================================
Market price per common share
  (as reported on Nasdaq National
  Market since August 8, 2000,
  initial public offering):
  High                               $ 15.250   $ 20.000    $ 25,875
  Low                                   6.250      5.500      11.219
==============================================================================================================================
</TABLE>

SHAREHOLDERS
There were approximately 436 shareholders of record at May 10, 2001.

                                                                              31
                                                                    from concept
                                                                     to customer