Note 2 – Stock-Based Compensation

The Benchmark Electronics, Inc. 2000 Stock Awards Plan (the 2000 Plan) and the Benchmark Electronics, Inc. 2010 Omnibus Incentive Compensation Plan (the 2010 Plan) authorize the Company, upon recommendation of the compensation committee of the Board of Directors, to grant a variety of types of awards, including stock options, restricted share awards, restricted stock units, stock appreciation rights, performance compensation awards, phantom stock awards and deferred share units, or any combination thereof, to any director, officer, employee or consultant (including any prospective director, officer, employee or consultant) of the Company. Stock options are granted to employees with an exercise price equal to the market price of the Company's common shares on the date of grant, generally vest over a four-year period from the date of grant and have a term of ten years. Restricted shares, restricted stock units and phantom stock awards granted to employees generally vest over a four-year period from the date of grant, subject to the continued employment of the employee by the Company. The 2000 Plan expired on February 16, 2010 and no additional grants can be made under that plan. The 2010 Plan was approved by the Company's shareholders on May 18, 2010 and replaced the 2000 Plan. Members of the Board of Directors who are not employees of the Company participate in the Benchmark Electronics, Inc. 2002 Stock Option Plan for Non-Employee Directors (the 2002 Plan) that authorizes for the granting of stock options upon the occurrence of the non-employee director's election or re-election to the Board of Directors. All awards under the 2002 Plan are fully vested upon the date of grant and have a term of ten years. Non-employee directors may also receive equity awards under the 2010 plan. In 2011, these awards have been in the form of restricted stock units, which vest in equal quarterly installments over a one year period from the grant date. As of June 30, 2011, 4.1 million additional common shares are available for issuance under the Company's existing plans.

All share-based payments to employees, including grants of employee stock options, are recognized in the financial statements based on their fair values. The total compensation cost recognized for stock-based awards was $1.5 million and $2.6 million for the three and six months ended June 30, 2011, and $1.9 million and $3.2 million for the three and six months ended June 30, 2010. The compensation expense for stock-based awards includes an estimate for forfeitures and is recognized over the vesting period of the awards using the straight-line method. Cash flows from the tax benefits resulting from tax deductions in excess of the compensation cost recognized for stock-based awards (excess tax benefits) are classified as cash flows from financing activities. Awards of restricted shares, restricted stock units, performance restricted stock units and phantom stock are valued at the closing market price of the Company's common shares on the date of grant. For restricted stock unit awards with performance conditions, compensation expense is currently based on the target number of shares that would vest if 100% of the target performance goal is achieved, which was considered the probable outcome at the grant date. Throughout the requisite service period, management monitors the probability of achievement of the performance conditions. If it becomes probable, based on the Company's expectation of performance during the measurement period, that more or less than the current estimate of the awarded shares will vest, an adjustment to stock-based compensation expense will be recognized as a change in accounting estimate.

The Company issued 3 thousand and 399 thousand stock options during the three and six months ended June 30, 2011, and 61 thousand stock options during both the three and six months ended June 30, 2010. The weighted-average assumptions used to value the options granted during the three and six months ended June 30, 2011 and 2010 were as follows:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Expected term of options	5.0 years			7.0 years			6.2 years			7.0 years
Expected volatility		42	%		40	%		41	%		40	%
Risk-free interest rate		1.877	%		2.94	%		2.674	%		2.94	%
Dividend yield	zero			zero			zero			zero

The expected term of the options represents the estimated period of time until exercise and is based on historical experience, giving consideration to the contractual terms, vesting schedules and expectations of future plan participant behavior. Separate groups of plan participants that have similar historical exercise behavior are considered separately for valuation purposes. Expected stock price volatility is based on the historical volatility of the Company's common shares. The risk-free interest rate is based on the U.S. Treasury zero-coupon rates in effect at the time of grant with an equivalent remaining term. The dividend yield reflects that the Company has not paid any cash dividends since inception and does not anticipate paying cash dividends in the foreseeable future.

The Company issued performance based restricted stock unit awards to employees during the six months ended June 30, 2011. The number of performance based restricted stock unit awards that will ultimately be earned will not be determined until the end of the performance period, which is December 31, 2014, and may vary from as low as zero to as high as three times the target number, 0.1 million shares, depending on the level of achievement of certain performance goals. The level of achievement of these goals is based upon the audited financial results for the last full calendar year within the performance period (the year ending December 31, 2014) as compared to the base year (the year ended December 31, 2010). The Company's performance goals consist of certain levels of achievement in the following financial metrics: revenue growth, operating income margin expansion, and return on invested capital. If the Company's performance goals are not met, the applicable performance based restricted stock unit awards will not vest and will be forfeited.

As of June 30, 2011, there was approximately $6.2 million of total unrecognized compensation cost related to nonvested stock options. That cost is expected to be recognized over a weighted-average period of 1.7 years. As of June 30, 2011, there was $4.7 million of total unrecognized compensation cost related to restricted share awards. That cost is expected to be recognized over a weighted-average period of 2.9 years. As of June 30, 2011, there was $1.8 million of total unrecognized compensation cost related to restricted stock units and phantom stock awards. That cost is expected to be recognized over a weighted-average period of 2.4 years. As of June 30, 2011, there was $1.6 million of total unrecognized compensation cost related to performance based restricted stock units. That cost is expected to be recognized over a weighted-average period of 3.7 years.

The weighted-average fair value per option granted during the three and six months ended June 30, 2011 was $6.55 and $8.14, respectively. The total cash received as a result of stock option exercises for the six months ended June 30, 2011 and 2010 was $1.5 million and $1.6 million, respectively. The excess tax benefit realized as a result of the stock option exercises during the six months ended June 30, 2011 and 2010, was $0.3 million and $1.1 million, respectively, which has been recorded as an increase to additional paid-in capital. For the six months ended June 30, 2011 and 2010, the total intrinsic value of stock options exercised was $0.8 million and $0.8 million, respectively. The Company realized an excess tax benefit (loss) of $(1) thousand and $24 thousand during the six months ended June 30, 2011 and 2010, respectively, related to the vesting of restricted shares, which has been recorded as an increase (decrease) to additional paid-in capital.

The following table summarizes the activities relating to the Company's stock options:


						Weighted-
				Weighted-		Average
				Average		Remaining		Aggregate
	Number of			Exercise		Contractual		Intrinsic
	Options			Price		Term (Years)		Value
Outstanding at December 31, 2010		4,825		$	19.18		5.58
Granted		399		$	18.56
Exercised		(130	)	$	11.18
Forfeited or expired		(120	)	$	19.04
Outstanding at June 30, 2011		4,974		$	19.35		5.51	$	5,195
Exercisable at June 30, 2011		3,395		$	20.69		4.33	$	3,146

The aggregate intrinsic value in the table above is before income taxes and is calculated as the difference between the exercise price of the underlying options and the Company's closing stock price of $16.50 as of the last business day of the period ended June 30, 2011 for options that had exercise prices that were below the closing price.

The following table summarizes the activities related to the Company's restricted shares:


				Weighted-
				Average
				Grant Date
	Shares			Fair Value
Non-vested shares outstanding at December 31, 2010		178		$	17.17
Granted		195		$	18.57
Vested		(10	)	$	17.54
Forfeited		(14	)	$	17.57
Non-vested shares outstanding at June 30, 2011		349		$	17.92

The following table summarizes the activities related to the Company's time based restricted stock units and phantom stock awards:


				Weighted-
				Average
				Grant Date
	Shares			Fair Value
Non-vested shares outstanding at December 31, 2010		47		$	17.05
Granted		86		$	17.77
Forfeited		(5	)	$	17.61
Non-vested shares outstanding at June 30, 2011		128		$	17.51

The following table summarizes the activities related to the Company's performance based restricted stock unit awards:


			Weighted-
			Average
			Grant Date
	Shares		Fair Value
Non-vested shares outstanding at December 31, 2010		—		—
Granted(1)		93	$	18.57
Forfeited		—		—
Non-vested shares outstanding at June 30, 2011		93	$	18.57

(1) Represents target number of shares that can vest based on the achievement of certain performance criteria.