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 shares, 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. Members of the Board of Directors who are not employees of the Company hold awards under the Benchmark Electronics, Inc. 2002 Stock Option Plan for Non-Employee Directors (the 2002 Plan). Stock options were granted pursuant to the 2002 Plan upon the occurrence of the non-employee director's election or re-election to the Board of Directors. All awards under the 2002 Plan were fully vested upon the date of grant and have a term of ten years. The 2002 Plan was approved by the Company's shareholders on May 14, 2002 and expired February 26, 2012. No additional grants may be made under the 2002 Plan. Non-employee directors are currently eligible to receive equity awards under the 2010 Plan. Beginning in 2011, awards under the 2010 Plan to non-employee directors were in the form of restricted stock units, which vest in equal quarterly installments over a one-year period, starting from the grant date. As of March 31, 2013, 2.0 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 $1.6 million and $1.3 million for the three months ended March 31, 2013 and 2012, respectively. The total income tax benefit recognized in the income statement for stock-based awards was $0.5 million and $0.2 million for the three months ended March 31, 2013 and 2012, respectively. 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 based on the probability that the performance goals will be achieved, which is monitored by management throughout the requisite service period. If it becomes probable, based on the Company's expectation of performance during the measurement period, that more or less than the previous estimate of the awarded shares will vest, an adjustment to stock-based compensation expense will be recognized as a change in accounting estimate.

As of March 31, 2013, the unrecognized compensation cost and remaining weighted-average amortization period related to stock-based awards are as follows:

Phantom

Performance

Stock and

Based

Stock

Restricted

(in thousands)

Options

Stock Units

Unrecognized compensation cost

6,014

3,926

4,995

3,390

Remaining weighted-average amortization period

2.2 years

2.4 years

3.5 years

3.0 years

During the three months ended March 31, 2013 and 2012, the Company issued 0.3 million and 0.4 million stock options, respectively. The weighted-average assumptions used to value the options granted during the three months ended March 31, 2013 and 2012, were as follows:


	Three Months Ended
	March 31,
	2013			2012
Expected term of options		7.4 years			6.3 years
Expected volatility		42	%		42	%
Risk-free interest rate		1.396	%		1.314	%
Dividend yield		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 weighted-average fair value per option granted during the three months ended March 31, 2013 and 2012 was $7.87 and $6.85, respectively. The total cash received as a result of stock option exercises for the three months ended March 31, 2013 and 2012 was approximately $3.3 million and $1.4 million, respectively. The actual tax benefit realized as a result of stock option exercises and the vesting of other share-based awards during the three months ended March 31, 2013 and 2012 was $1.0 million and $0.5 million, respectively. For the three months ended March 31, 2013 and 2012, the total intrinsic value of stock options exercised was $0.8 million and $0.6 million, respectively.

The Company issued performance based restricted stock unit awards to employees during the three months ended March 31, 2013 and 2012. The number of performance based restricted stock unit awards that will ultimately be earned will not be determined until the end of the performance periods, which are December 31, 2015 and 2016, and may vary from as low as zero to as high as three times the target number depending on the level of achievement of certain performance goals. The level of achievement of these goals is based upon the audited financial results of the Company for the last full calendar year within the performance period (the years ending December 31, 2015 and 2016). The performance goals consist of certain levels of achievement using the following financial metrics: revenue growth, operating income margin expansion, and return on invested capital. If the performance goals are not met based on the Company's financial results, the applicable performance based restricted stock unit awards will not vest and will be forfeited.

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



						Weighted-
				Weighted-		Average
				Average		Remaining		Aggregate
	Number of			Exercise		Contractual		Intrinsic
(in thousands, except per share data)	Options			Price		Term (Years)		Value
Outstanding as of December 31, 2012		4,240		$	19.88
Granted		348		$	17.37
Exercised		(234	)	$	14.22
Forfeited or expired		(55	)	$	20.58
Outstanding as of March 31, 2013		4,299		$	19.97		5.02	$	3,798
Exercisable as of March 31, 2013		3,422		$	20.69		4.03	$	2,896

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 as of the last business day of the period ended March 31, 2013 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
(in thousands, except per share data)	Shares			Fair Value
Non-vested shares outstanding as of December 31, 2012		340		$	16.81
Vested		(86	)	$	16.84
Forfeited		(6	)	$	16.77
Non-vested shares outstanding as of March 31, 2013		248		$	16.80

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


				Weighted-
				Average
				Grant Date
(in thousands, except per share data)	Shares			Fair Value
Non-vested shares outstanding as of December 31, 2012		103		$	16.70
Granted		234		$	17.37
Vested		(31	)	$	16.38
Forfeited		(2	)	$	17.14
Non-vested shares outstanding as of March 31, 2013		304		$	17.25

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


			Weighted-
			Average
			Grant Date
(in thousands, except per share data)	Shares		Fair Value
Non-vested shares outstanding as of December 31, 2012		164	$	16.39
Granted⁽¹⁾		76	$	17.37
Non-vested shares outstanding as of March 31, 2013		240	$	16.70

⁽¹⁾

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