**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-K**

 

**(Mark One)**

| **x** | ** ** | **Annual Report Pursuant to  Section 13 or 15(d) of the Securities Exchange Act of 1934** |
|-------|------------|-----------------------------------------------------------------------------------------------------|

 

**For the fiscal year ended December 31,2007**

 

**or**

 

| **o** | ** ** | **Transition Report Pursuant to  Section 13 or 15(d) of the Securities Exchange Act of 1934** |
|-------|------------|---------------------------------------------------------------------------------------------------------|

 

**For thetransition period from                           to                           **

 

**Commission File Number 1-10560**

 

**BENCHMARKELECTRONICS, INC.**

(Exact name ofregistrant as specified in its charter)

 

| **Texas**                        | ** ** | **74-2211011**          |
|----------------------------------|------------|-------------------------|
| (State or other  jurisdiction of |       | (I.R.S. Employer        |
| incorporation or  organization)  |       | Identification  Number) |

 

**3000 Technology Drive**

**Angleton, Texas 77515**

**(979) 849-6550**

(Address, including zip code, and telephone number,including area code, of principal executive offices)

 

**Securitiesregistered pursuant to Section 12(b) of the Act:**

 

| **Title of  each class**                 | ** ** | **Name of  each exchange on which registered** |
|------------------------------------------|------------|------------------------------------------------|
| Common Stock,  par value $0.10 per share |       | New York Stock  Exchange, Inc.            |
| Preferred Stock  Purchase Rights         |       | New York Stock  Exchange, Inc.            |

 

**Securities registered pursuant to Section 12(g) ofthe Act: None**

 

Indicate by check mark ifthe registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act.Yes x No o

 

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 or Section 15(d) ofthe Act.Yes o No x

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days. Yes x No o

 

Indicate by check mark if disclosureof delinquent filers pursuant to Item 405 of Regulation S-K is not containedherein, and will not be contained, to the best of registrant’s knowledge, indefinitive proxy or information statements incorporated by reference in Part IIIof this Form 10-K or any amendment to this Form 10-K. x

 

Indicate by check markwhether the registrant is a large accelerated filer, or a non-acceleratedfiler. See definition of “large accelerated filer and non-accelerated filer” inRule 12b–2 of the Act.

 
| Large accelerated filer  x |   | Accelerated filer o |   | Non-accelerated filer o |   | Smaller Reporting  Company o |
|----------------------------|--------|---------------------|--------|-------------------------|--------|------------------------------|

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b–2of the Act).

Yeso No x

 

As of June 30,2007, the number of outstanding Common Shares was 72,892,154.  As of such date, the aggregate market valueof the Common Shares held by non-affiliates, based on the closing price of theCommon Shares on the New York Stock Exchange on such date, was approximately$1.6 billion.

 

As of February 27,2008, there were 69,154,560 Common Shares of Benchmark Electronics, Inc.,par value $0.10 per share, outstanding.

 

**DocumentsIncorporated by Reference:**

 

Portions of the Company’sProxy Statement for the 2008 Annual Meeting of Shareholders (Part III,Items 10-14).

 

 

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|   | **TABLE  OF CONTENTS** |   |
|--------|------------------------|--------|

 
| ** ** | ** **                                                                                                          | **Page** |
|------------|---------------------------------------------------------------------------------------------------------------------|----------|
|       |                                                                                                                |     |
|       | **PART I**                                                                                                     |     |
|       |                                                                                                                |     |
| Item  1.   | Business                                                                                                            | 3        |
| Item 1A.   | Risk Factors                                                                                                        | 12       |
| Item  1B.  | Unresolved  Staff Comments                                                                                          | 20       |
| Item 2.    | Properties                                                                                                          | 21       |
| Item 3.    | Legal Proceedings                                                                                                   | 22       |
| Item  4.   | Submission  of Matters to a Vote of Security Holders                                                                | 22       |
|       |                                                                                                                |     |
|       | **PART II**                                                                                                    |     |
|       |                                                                                                                |     |
| Item  5.   | Market  for Registrant’s Common Equity, Related Shareholder Matters and Issuer  Purchases of Equity Securities | 23       |
| Item  6.   | Selected  Financial Data                                                                                            | 26       |
| Item  7.   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                         | 27       |
| Item  7A.  | Quantitative  and Qualitative Disclosures About Market Risk                                                         | 39       |
| Item  8.   | Financial  Statements and Supplementary Data                                                                        | 40       |
| Item  9.   | Changes  in and Disagreements With Accountants on Accounting and Financial Disclosure                               | 74       |
| Item  9A.  | Controls  and Procedures                                                                                            | 74       |
| Item  9B.  | Other  Information                                                                                                  | 76       |
|       |                                                                                                                |     |
|       | **PART III**                                                                                                   |     |
|       |                                                                                                                |     |
| Item  10.  | Directors,  Executive Officers and Corporate Governance                                                             | 76       |
| Item  11.  | Executive  Compensation                                                                                             | 76       |
| Item  12.  | Security  Ownership of Certain Beneficial Owners and Management and Related Shareholder  Matters                    | 77       |
| Item  13.  | Certain  Relationships and Related Transactions, and Director Independence                                          | 77       |
| Item  14.  | Principal  Accounting Fees and Services                                                                             | 77       |
|       |                                                                                                                |     |
|       | **PART IV**                                                                                                    |     |
|       |                                                                                                                |     |
| Item  15.  | Exhibits,  Financial Statement Schedules                                                                            | 78       |
| Signatures |                                                                                                                | 84       |

 

 

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**PART I**

** **

**Item1.  *Business***

 

**Background**

 

Benchmark Electronics, Inc.,formerly named Electronics, Inc., began operations in 1979 and wasincorporated under Texas law in 1981 as a wholly owned subsidiary ofIntermedics, Inc., a medical implant manufacturer based in Angleton,Texas. In 1986, Intermedics sold 90% of the outstanding common shares of theCompany to Electronic Investors Corp., a corporation formed by Donald E.Nigbor, Steven A. Barton and Cary T. Fu, three of our executive officers. In1988, Electronic Investors Corp. was merged into Benchmark, and in 1990 wecompleted the initial public offering of our common shares.

 

**General**

 

We are in the business ofmanufacturing electronics and we provide our services to original equipmentmanufacturers (OEMs) of computers and related products for businessenterprises, medical devices, industrial control equipment, testing andinstrumentation products, and telecommunication equipment. The services that weprovide are commonly referred to as electronics manufacturing services (EMS).We offer our customers comprehensive and integrated design and manufacturingservices, from initial product design to volume production and direct orderfulfillment. We also provide specialized engineering services, includingproduct design, printed circuit board layout, prototyping and test development.We believe that we have developed strengths in the manufacturing process forlarge, complex, high-density printed circuit boards as well as the ability tomanufacture high and low volume products in lower cost regions such as Brazil,China, Malaysia, Mexico, Romania and Thailand.

 

As our customers expandinternationally, they increasingly require their EMS partners to have strategicregional locations and global procurement capabilities. We believe that ourglobal manufacturing presence increases our ability to be responsive to ourcustomers’ needs by providing accelerated time-to-market and time-to-volumeproduction of high quality products. These capabilities should enable us tobuild stronger strategic relationships with our customers and to become a moreintegral part of their operations. Our customers face challenges in planning,procuring and managing their inventories efficiently due to fluctuations incustomer demand, product design changes, short product life cycles andcomponent price fluctuations. We employ production management systems to managetheir procurement and manufacturing processes in an efficient andcost-effective manner so that, where possible, components arrive on ajust-in-time, as-and-when needed basis. We are a significant purchaser ofelectronic components and other raw materials, and can capitalize on theeconomies of scale associated with our relationships with suppliers tonegotiate price discounts, obtain components and other raw materials that arein short supply, and return excess components. Our expertise in supply chainmanagement and our relationships with suppliers across the supply chain enableus to reduce our customers’ cost of goods sold and inventory exposure.

 

Wecurrently operate a total of 59 surface mount production lines (whereelectrical components are soldered directly onto printed circuit boards) at ourdomestic facilities and 85 surface mount production lines at our internationalfacilities. Our worldwide facilities include 1.4 million square feet in ourdomestic facilities in Alabama, Minnesota, New Hampshire, North Dakota, Oregonand Texas; and 1.3 million square feet in our international facilities inBrazil, China, Ireland, Malaysia, Mexico, the Netherlands, Romania, Singaporeand Thailand.

 

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Ourcapabilities have continued to grow through acquisitions and through internalexpansion. In January 2007, we acquired Pemstar Inc. (Pemstar), a publiclytraded EMS company headquartered in Rochester, Minnesota (the Merger). Thisacquisition expanded our customer base and added depth to our engineering andsystems integration capabilities. Additionally, we expanded our relationshipswith certain customers during 2007 and added a new facility in Penang,Malaysia. With these acquisitions and expansions, our global operations nowinclude 20 facilities in ten countries. We expanded our manufacturing capacityin Thailand with a printed circuit board assembly (PCBA) facility in Korat in2004 and a new systems integration facility in Ayudhaya in 2005.

 

We believe our primary competitiveadvantages are our design, manufacturing, testing and supply chain managementcapabilities. We offer our customers flexible manufacturing solutionsthroughout the life cycle of their products. These solutions provideaccelerated time-to-market, time-to-volume production, and reduced productioncosts. As a result of working closely with our customers and respondingpromptly to their needs, we have become an integral part of their operations.

 

**Our Industry**

** **

The EMS industry experienced rapidchange and growth over most of the past decade as an increasing number of OEMsoutsourced their manufacturing requirements. In mid-2001, the industry’srevenue declined as a result of significant cut backs in its customers’production requirements, which was consistent with the overall global economicdownturn. Industry revenues began to stabilize in 2003. OEMs have continued toturn to outsourcing in order to reduce product cost; achieve acceleratedtime-to-market and time-to-volume production; access advanced design andmanufacturing technologies; improve inventory management and purchasing power;and reduce their capital investment in manufacturing resources. This enablesOEMs to concentrate on what they believe to be their core strengths, such asnew product definition, marketing and sales. In addition, the number ofindustries serviced, as well as the market penetration in certain industries,by EMS providers has increased over the past three years. We believe furthergrowth opportunities exist for EMS providers to penetrate the worldwideelectronics markets.

 

**OurStrategy**

 

Our goal is to be the EMS outsourcingprovider of choice to leading OEMs in the electronics industry that we perceivefrom time to time to offer the greatest potential for growth. To meet thisgoal, we have implemented the following strategies:

 

·                  *Maintain and Develop Close, Long-Term Relationships with Customers*. Our core strategyis to maintain and establish long-term relationships with leading OEMs inexpanding industries by becoming an integral part of our customers’manufacturing operations. To accomplish this, we work closely with ourcustomers throughout the design, manufacturing and distribution process, and weoffer flexible and responsive services. We believe that we develop strongercustomer relationships by relying on our local management teams that respond tofrequently changing customer design specifications and production requirements.

 

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·                  *Focus on High-End Products in Growth Industries.*EMSproviders produce products for a wide range of OEMs in different industries,such as consumer electronics, Internet-focused businesses and informationtechnology equipment. The product scope ranges from easy to assemble, low-costhigh-volume products targeted for the consumer market to complicatedstate-of-the-art, mission critical electronic hardware targeted for military, medicaland other high-end computer use. Similarly, OEMs’ customers range fromconsumer-oriented companies that compete primarily on price and redesign theirproducts every year to manufacturers of high-end telecommunications equipmentand computer and related products for business enterprises that compete ontechnology and quality. We currently offer state-of-the-art products forindustry leaders who require specialized engineering design and productionservices, as well as high volume manufacturing capabilities to our customerbase. Our ability to offer both of these types of services enables us to expandour business relationships.

 

·                  *Deliver Complete High and Low Volume Manufacturing Solutions Globally*. We believeOEMs are increasingly requiring a wide range of specialized engineering andmanufacturing services from EMS providers in order to reduce costs andaccelerate their time-to-market and time-to-volume production. Building on ourintegrated engineering and manufacturing capabilities, we offer services frominitial product design and test to final product assembly and distribution toOEM customers. Our systems integration assembly and direct order fulfillmentservices allow our customers to reduce product cost and risk of productobsolescence by reducing their total work-in-process and finished goodsinventory. These services are available at many of our manufacturing locations.We also offer our customers high volume production in low cost regions of theworld, such as Brazil, China, Malaysia, Mexico, Romania and Thailand. Thesefull service capabilities allow us to offer customers the flexibility to movequickly from design and initial product introduction to production anddistribution. We offer our customers the opportunity to combine the benefits oflow cost manufacturing (for the portions of their products or systems that canbenefit from the use of these geographic areas) with the benefits andcapabilities of our higher complexity support of systems integration in Asia,Europe or the United States.

 

·                  *Leverage Advanced Technological Capabilities.* In additionto traditional strengths in manufacturing large, complex high-density printedcircuit boards we offer customers advanced design, technology and manufacturingsolutions for their primary products. We provide this engineering expertisethrough our design capabilities in each of our facilities, and in our designcenters. We believe our capabilities help our customers improve productperformance and reduce costs.

 

·                  *Continue to Seek Cost Savings and Efficiency Improvements.* We seek tooptimize our facilities to provide cost-efficient services for our customers.We provide operations in lower cost locations, including Brazil, China,Malaysia, Mexico, Romania and Thailand, and we continue to expand our presencein these lower cost locations to meet the needs of our customers.

 

·                  *Continue Our Global Expansion.*A network ofstrategically positioned facilities can reduce costs, simplify and shorten anOEM’s supply chain and thus reduce the time it takes to bring product tomarket. We are committed to geographic expansion in order to support ourcustomers with cost-effective and timely delivery of quality products andservices worldwide. Our acquisition of facilities in Malaysia, Romania and theNetherlands has expanded our service scope to provide a global manufacturingsolution to our customers through our 20 facilities in ten countries located inBrazil, China, Ireland, Malaysia, Mexico, the Netherlands, Romania, Singapore,Thailand and the United States.

 

5

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·                  *Pursue Strategic Acquisitions.* Our capabilitieshave continued to grow through acquisitions and we will continue to selectivelyseek acquisition opportunities. Our acquisitions, including the Pemstaracquisition, have enhanced our business in the following ways:

 

·                  expanded geographic presence;

·                  enhanced customer growthopportunities;

·                  developed strategic relationships;

·                  broadened service offerings;

·                  diversified into new market sectors;and

·                  added experienced management teams.

 

We believe that growth by selective acquisitions is criticalfor achieving the scale, flexibility and breadth of customer services requiredto remain competitive in the EMS industry.

 

**Services We Provide**

** **

Weoffer a wide range of engineering, automation, test, manufacturing andfulfillment solutions that support our customers’ products from initial designthrough prototyping, design validation, testing, ramp to volume production,worldwide distribution and aftermarket support. We support all of our serviceofferings with supply chain management systems, superior quality programmanagement and sophisticated information technology systems. Our comprehensiveservice offerings enable us to provide a complete solution for our customers’outsourcing requirements.

 

***Engineering Solutions***

 

Ourapproach is to coordinate and integrate our design, prototype and otherengineering capabilities. Through this approach, we provide a broad range ofengineering services and, in some cases, dedicated production lines forprototypes. These services strengthen our relationships with manufacturingcustomers and attract new customers requiring specialized engineering services.

 

·                  *NewProduct Design, Prototype, Test and Related Engineering Solutions*. We offer afull spectrum of new product design, prototype, test and related engineeringsolutions. Our concurrent engineering approach shortens product developmentcycles and gives our customers a competitive advantage in time-to-market andtime-to-profit. Our multi-disciplined engineering teams provide expertise in anumber of core competencies critical to serving OEMs in our target markets,including award-winning industrial design, mechanical and electrical hardware,firmware, software and systems integration and support. We createspecifications, designs and quick-turn prototypes, and validate and ramp ourcustomers’ products into high volume manufacturing. Our technical expertise includeselectronic circuit design for analog, digital, radio frequency, microwave andmixed signal technology, as well as Microsoft and Intel design capabilities.

 

·                  *CustomTest and Automation Equipment Design and Build Solutions.* We provideour customers with a comprehensive range of custom automated test equipment,functional test equipment, process automation and replication solutions. Wehave expertise in tooling, testers, equipment control, systems planning,automation, floor control, systems integration, replication and programming.Our custom functional test equipment, process automation and replicationsolutions are available to our customers as part of our full service productdesign and manufacturing solutions package or on a stand-alone basis for productsdesigned and manufactured elsewhere. We also provide custom test equipment andautomation system solutions to OEMs. Our ability to provide thesesolutions allows us to capitalize on OEMs’ increasing needs for custommanufacturing solutions and provides an additional opportunity for us tointroduce these customers to our comprehensive engineering and manufacturingservices.

 

6

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***Manufacturing andFulfillment Solutions***

 

As OEMsseek to provide greater functionality in smaller products, they increasinglyrequire more sophisticated manufacturing technologies and processes. Ourinvestment in advanced manufacturing equipment and our experience in innovativepackaging and interconnect technologies enable us to offer a variety ofadvanced manufacturing solutions. These packaging and interconnect technologiesinclude:

 

·                  *PrintedCircuit Board Assembly & Test*. We offer a widerange of printed circuit board assembly and test solutions, including printedcircuit board assembly, assembly of subsystems, circuitry and functionalitytesting of printed assemblies, environmental and stress testing and componentreliability testing.

 

·                  *FlexCircuit Assembly & Test*. We provide our customers with awide range of flex circuit assembly and test solutions. We utilize specializedtooling strategies and advanced automation procedures to minimize circuithandling and ensure that consistent processing parameters are maintainedthroughout the assembly process.

 

·                  *SystemsAssembly & Test.* We work with our customers todevelop product-specific test strategies. Our test capabilities include manufacturingdefect analysis, in-circuit tests to test the circuitry of the board andfunctional tests to confirm that the board or assembly operates in accordancewith its final design and manufacturing specifications. We either custom designtest equipment and software ourselves or use test equipment and softwareprovided by our customers. In addition, we provide environmental stress testsof assemblies of boards or systems.

 

Wealso have expertise in advanced precision and electromechanical technologiesand optical manufacturing services. In order to meet our customers’ demand forsystems assembly and test solutions, we offer subassembly build, finalassembly, functionality testing, configuration and software installation andfinal packaging services.

 

*Precision ElectromechanicalAssembly and Test.* We offer a full spectrum ofprecision subsystem and system integration services. These services includeassembly, configuration and test of complex computers and related products forbusiness enterprises, medical devices, industrial control equipment, testingand instrumentation products, and telecommunication equipment. We design,develop and build product specific manufacturing processes utilizing manual,mechanized or fully automated lines to meet our customers’ product volume andquality requirements. All of our assembly and test processes are developedaccording to customer specifications and replicated within our facilities.Product life cycle testing services are provided such as Ongoing ReliabilityTesting where units are continuously cycled for extended testing whilemonitoring for early life failures.

 

*Direct Order Fulfillment.* We providedirect order fulfillment for certain of our OEM customers. Direct orderfulfillment involves receiving customer orders, configuring products to quicklyfill the orders and delivering the products either to the OEM, a distributionchannel or directly to the end customer. We manage our direct order fulfillmentprocesses using a core set of common systems and processes that receive orderinformation from the customer and provide comprehensive supply chainmanagement, including procurement and production planning. These systems andprocesses enable us to process orders for multiple system configurations, andvarying production quantities, including single units. Our direct orderfulfillment services include build-to-order (BTO) and configure-to-order (CTO)capabilities. BTO involves building a system having the particularconfiguration ordered by the OEM customer. CTO involves configuring systems toan end customer’s order. The end customer typically places this order bychoosing from a variety of possible system configurations and options. We arecapable of meeting a 20 to 48 hour turn-around-time for BTO and CTO. We supportour direct order fulfillment services with logistics that include delivery ofparts and assemblies to the final assembly site, distribution and shipment offinished systems, and processing of customer returns.

 

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*AftermarketNon-Warranty Services.* We provideour customers with a range of aftermarket non-warranty services, includingrepair, replacement, refurbishment, remanufacturing, exchange, systems upgradeand spare part manufacturing throughout a products life cycle. These servicesare tracked and supported by specific information technology systems that canbe tailored to meet our customers’ individual requirements.

 

*Value-AddedSupport System*s. We supportour engineering, manufacturing, distribution and aftermarket support serviceswith an efficient supply chain management system and a superior qualitymanagement program. All of our value-added support services are implemented andmanaged through web-based information technology systems that enable us to collaboratewith our customers throughout all stages of the engineering, manufacturing andorder fulfillment processes.

 

*Supply ChainManagement.*Our inventory management and volume procurementcapabilities contribute to cost reductions and reduce total cycle time. Ourmaterials strategy is focused on leveraging our procurement volume company widewhile providing local execution for maximum flexibility at the division level.In addition, our systems integration facilities have developed materialprocesses required to support system integration operations.

 

We utilize a full complement of electronic datainterchange transactions with our suppliers to coordinate forecasts, orders,reschedules, inventory and component lead times. Our enterprise resourceplanning systems provide product and production information to our supply chainmanagement, engineering change management and floor control systems. Ourinformation systems also control serialization, production and quality data forall of our facilities around the world utilizing state-of-the-art statisticalprocess control techniques for continuous process improvements. To enhance ourability to rapidly respond to changes in our customers’ requirements byeffectively managing changes in our supply chain, we utilize web-basedinterfaces and real-time supply chain management software products from KinaxisInc. Kinaxis allows for scaling operations to meet customer needs, shiftingcapacity in response to product demand fluctuations, reducing materials costsand effectively distributing products to our customers or their end-customers.

 

*ManufacturingTechnologies.* We offer our customersexpertise in a wide variety of traditional and advanced manufacturingtechnologies. Our technical expertise supports standard printed circuit boardassembly as well as complex products that require advanced engineering skillsand equipment.

 

We also provide our customers with a comprehensive setof manufacturing technologies and solutions which include:

 

·                  Pin Thru Hole,

·                  SurfaceMount Technology,

·                  FinePitch,

·                  BallGrid Array,

·                  FlipChip,

·                  ChipOn Board/Wirebonding,

·                  In-CircuitTest,

·                  BoardLevel Functional Test, and

·                  StressTesting.

 

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We also provide specialized solutions in support ofOptical and Wireless components and systems which include:

 

·                  Adhesives,

·                  ConformalCoating,

·                  LaserWelding,

·                  HybridOptical/Electrical Printed Circuit Board Assembly and Test, and

·                  Sub-micronAlignment of Optical Sub-Assemblies.

 

Through ourComponent Engineering Services, we are helping our customers deal with thechanging international environmental regulations such as the European Union(EU) Restriction of the Use of Hazardous Substances in electrical andelectronic Equipment (RoHS). Manufacturing sites in the Americas, Asia andEuropean regions are certified in both water soluble and no-clean processes andare currently producing products that are RoHS compliant.

 

**Marketing and Customers**

** **

We market our services through adirect sales force and independent marketing representatives. In addition, ourdivisional and executive management teams are an integral part of our sales andmarketing teams. We generally enter into supply arrangements with ourcustomers. These arrangements, similar to purchase orders, generally govern theconduct of business between our customer and ourselves relating to, among otherthings, the manufacture of products which in many cases were previouslyproduced by the customer itself. Such arrangements generally identify the specificproducts to be manufactured, quality and production requirements, productpricing and materials management. There can be no assurance that at any timethese arrangements will remain in effect or be renewed.

 

Our key customer accounts aresupported by a dedicated team, including a global account manager who isdirectly responsible for account management. Global account managers coordinateactivities across divisions to effectively satisfy customer requirements andhave direct access to our executive management to quickly address customerconcerns. Local customer account teams further support the global teams and arelinked by a comprehensive communications and information managementinfrastructure. In addition, our executive management, including our chiefexecutive officer, Cary Fu, and our president, Gayla Delly, are heavilyinvolved in customer relations and devote significant attention to broadeningexisting, and developing new, customer relationships.

 

The following table sets forth thepercentages of our sales by industry for 2007, 2006 and 2005.

 
| ** **                                                      | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|-----------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                            |       |     |       |     |       |     |       |
| Computers &  related products for business enterprises |       | 53       | %          | 58       | %          | 56       | %          |
| Telecommunication  equipment                                    |       | 15       |       | 12       |       | 14       |       |
| Medical devices                                                 |       | 13       |       | 13       |       | 12       |       |
| Industrial  control equipment                                   |       | 13       |       | 11       |       | 12       |       |
| Testing &  instrumentation products                    |       | 6        |       | 6        |       | 6        |       |

 

Asubstantial percentage of our sales have been made to a small number ofcustomers, and the loss of a major customer, if not replaced, would adverselyaffect us. Sales to our largest customer, Sun Microsystems, Inc.,represented 22% of our sales during 2007 compared to 39% of our sales in 2006.Our future sales are dependent on the success of our customers, some of whichoperate in businesses associated with rapid technological change and consequentproduct obsolescence. Developments adverse to our major customers or theirproducts, or the failure of a major customer to pay for components or services,could have an adverse effect on us.

 

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**Suppliers**

** **

We maintain a network of suppliers ofcomponents and other materials used in our operations. We procure componentswhen a purchase order or forecast is received from a customer and occasionallyutilize components or other materials for which a supplier is the single sourceof supply. If any of these single source suppliers were to be unable to providethese materials, a shortage of these components could temporarily interrupt ouroperations and lower our profits until such time as an alternate componentcould be identified and qualified for use. Although we experience componentshortages and longer lead times for various components from time to time, wehave generally been able to reduce the impact of the component shortages byworking with customers to reschedule deliveries, by working with suppliers toprovide the needed components using just-in-time inventory programs, or bypurchasing components at somewhat higher prices from distributors, rather thandirectly from manufacturers. In addition, by developing long-term relationshipswith suppliers, we have been better able to minimize the effects of componentshortages compared to manufacturers without such relationships. Theseprocedures reduce, but do not eliminate, our inventory risk.

 

**Backlog**

** **

We had sales backlog of approximately$1.7 billion at December 31, 2007, as compared to the 2006 year-endbacklog of $1.9 billion. Backlog consists of purchase orders received,including, in some instances, forecast requirements released for productionunder customer contracts. Although we expect to fill substantially all of ouryear-end backlog during 2008, we currently do not have long-term agreementswith all of our customers and customer orders can be canceled, changed ordelayed by customers. The timely replacement of canceled, changed or delayedorders with orders from new customers cannot be assured, nor can there be anyassurance that any of our current customers will continue to utilize ourservices. Because of these factors, our backlog is not a meaningful indicatorof future financial results.

 

**Competition**

** **

The electronics manufacturingservices we provide are available from many independent sources as well as fromthe in-house manufacturing capabilities of current and potential customers. Ourcompetitors include Celestica Inc., Flextronics International Ltd. (which recentlyacquired Solectron Corporation), Hon Hai Precision Industry Co., Ltd., JabilCircuit, Inc., and Sanmina-SCI Corporation, who may be more established inthe industry and have substantially greater financial, manufacturing ormarketing resources than we do. We believe that the principal competitivefactors in our targeted markets are engineering capabilities, product quality,flexibility, cost and timeliness in responding to design and schedule changes,reliability in meeting product delivery schedules, pricing, technologicalsophistication and geographic location.

 

In addition, in recent years,original design manufacturers (ODMs) that provide design and manufacturingservices to OEMs have significantly increased their share of outsourcedmanufacturing services provided to OEMs in markets such as notebook and desktopcomputers, personal computer motherboards, and consumer electronic products.Competition from ODMs may increase if our business in these markets grows or ifODMs expand further into or beyond these markets.

 

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**Governmental Regulation**

** **

Our operations, and the operations ofbusinesses that we acquire, are subject to certain foreign, federal, state andlocal regulatory requirements relating to security clearance, environmental,waste management, and health and safety matters. We believe we operate insubstantial compliance with all applicable requirements. However, materialcosts and liabilities may arise from these requirements or from new, modifiedor more stringent requirements, which could affect our earnings and competitiveposition. In addition, our past, current and future operations, and those ofbusinesses we acquire, may give rise to claims of exposure by employees or thepublic or to other claims or liabilities relating to environmental, wastemanagement or health and safety concerns.

 

We periodically generate andtemporarily handle limited amounts of materials that are considered hazardouswaste under applicable law. We contract for the off-site disposal of thesematerials and have implemented a waste management program to address relatedregulatory issues.

 

**Employees**

** **

As of December 31, 2007, weemployed 10,920 people, of whom 7,852 were engaged in manufacturing andoperations, 1,348 in materials control and procurement, 853 in design anddevelopment, 285 in marketing and sales, and 582 in administration. None of ourdomestic employees are represented by a labor union. In certain internationallocations, our employees are represented by labor unions and by works councils.Some European countries also often have mandatory legal provisions regardingterms of employment, severance compensation and other conditions of employmentthat are more restrictive than U.S. laws. We have never experienced a strike orsimilar work stoppage and we believe that our employee relations aresatisfactory.

 

**Segments and International Operations**

** **

Benchmark has 20 manufacturingfacilities in the Americas, Asia and Europe regions to serve its customers.Benchmark is operated and managed geographically and management evaluatesperformance and allocates Benchmark’s resources on a geographic basis. Wecurrently operate outside the United States in Brazil, China, Ireland,Malaysia, Mexico, the Netherlands, Romania, Singapore and Thailand. During 2007and 2006, 43% and 37%, respectively, of our sales were from our internationaloperations. As a result of customer demand overseas, we expect foreign sales tocontinue to increase. Our foreign sales and operations are subject to risk ofdoing business abroad, including fluctuations in the value of currency, exportduties, import controls and trade barriers, including stoppages, longer paymentcycles, greater difficulty in accounts receivable collection, burdens ofcomplying with a wide variety of foreign laws and, in certain parts of the world,political instability. While, to date, these factors have not had a materialadverse effect on Benchmark’s results of operations, we can make no assurancesthat there will not be an adverse impact in the future. See Note 9 and Note 13of Notes to Consolidated Financial Statements in Item 8 of this report forsegment and geographical information.

 

**Available Information**

** **

Our internet address ishttp://www.bench.com. We make available free of charge through our internetwebsite our filings with the Securities and Exchange Commission (SEC),including our annual reports on Form 10–K, quarterly reports on Form 10–Q,current reports on Form 8–K, and amendments to those reports filed orfurnished pursuant to Section 13(a) or 15(d) of the Exchange Actas soon as reasonably practicable after electronically filing such materialwith, or furnishing it to, the SEC. All reports we file with the SEC are alsoavailable free of charge via EDGAR through the SEC’s website at http://www.sec.gov or to read andcopy at the SEC Public Reference Room located at 100 F Street, N.E.,Washington, D.C. 20549. You can obtain information on the operation of thePublic Reference Room by called the SEC at 1-800-SEC-0330.

 

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###### ** **

###### **Item1A. ***Risk Factors*

###### ** **

**The loss of a major customer would adversely affect us.**

** **

Asubstantial percentage of our sales have been made to a small number ofcustomers, and the loss of a major customer, if not replaced, would adverselyaffect us. During 2007, our largest customer represented 22% of our sales. Ourfuture sales are dependent on the success of our customers, some of whichoperate in businesses associated with rapid technological change and consequentproduct obsolescence. Developments adverse to our major customers or theirproducts, or the failure of a major customer to pay for components or services,could have an adverse effect on us.

 

We expect to continue to depend onthe sales from our largest customer and any material delay, cancellation orreduction of orders from this customer or other significant customers wouldhave a material adverse effect on our results of operations. In addition, wegenerate significant accounts receivables in connection with providingmanufacturing services to our customers. If one or more of our customers wereto become insolvent or otherwise unable to pay for the manufacturing servicesprovided by us, our operating results and financial condition would beadversely affected.

 

**We are dependent on the success of our customers.**

** **

We are dependent on the continuedgrowth, viability and financial stability of our customers. Our customers areOEMs of:

 

·                  computersand related products for business enterprises;

·                  medicaldevices;

·                  industrialcontrol equipment;

·                  testing andinstrumentation products; and

·                  telecommunicationequipment.

 

Often, these industries are subjectto rapid technological change, vigorous competition and short product lifecycles. When our customers are adversely affected by these factors, we may besimilarly affected.

 

**We operate in a highly competitive industry.**

** **

We compete against many providers ofelectronics manufacturing services. Certain of our competitors havesubstantially greater resources and more geographically diversifiedinternational operations than we do. Our competitors include large independentmanufacturers such as Celestica Inc., Flextronics International Ltd. (whichrecently acquired Solectron Corporation), Hon Hai Precision Industry Co., Ltd.,Jabil Circuit, Inc. and Sanmina-SCI Corporation. In addition, we may inthe future encounter competition from other large electronic manufacturers thatare selling, or may begin to sell, electronics manufacturing services.

 

We also face competition from themanufacturing operations of our current and future customers, who arecontinually evaluating the merits of manufacturing products internally againstthe advantages of outsourcing to electronics manufacturing services providers.In addition, in recent years, ODMs that provide design and manufacturingservices to OEMs, have significantly increased their share of outsourcedmanufacturing services provided to OEMs in several markets, such as notebookand desktop computers, personal computer motherboards, and consumer electronicproducts. Competition from ODMs may increase if our business in these marketsgrows or if ODMs expand further into or beyond these markets.

 

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During periods of recession in theelectronics industry, our competitive advantages in the areas of quickturnaround manufacturing and responsive customer service may be of reducedimportance to electronics OEMs, who may become more price sensitive. We mayalso be at a competitive disadvantage with respect to price when compared tomanufacturers with lower cost structures, particularly those with more offshorefacilities located where labor and other costs are lower.

 

Weexperience intense competition, which can intensify further as more companiesenter the markets in which we operate, as existing competitors expand capacityand as the industry consolidates. The availability of excess manufacturingcapacity at many of our competitors creates intense pricing and competitivepressure on the EMS industry as a whole and Benchmark in particular. To competeeffectively, we must continue to provide technologically advanced manufacturingservices, maintain strict quality standards, respond flexibly and rapidly tocustomers’ design and schedule changes and deliver products globally on areliable basis at competitive prices. Our inability to do so could have anadverse effect on us.

 

**Theintegration of acquired operations may pose difficulties for us.**

** **

Our capabilities have continued togrow through acquisitions and we may pursue additional acquisitions over time.These acquisitions involve risks, including:

 

·                  integrationand management of the operations;

·                  retention ofkey personnel;

·                  integrationof purchasing operations and information systems;

·                  retention ofthe customer base of acquired businesses;

·                  managementof an increasingly larger and more geographically disparate business; and

·                  diversion ofmanagement’s attention from other ongoing business concerns.

 

Our profitability will suffer if weare unable to successfully integrate any acquisition and manage any futureacquisitions that we might pursue, or if we do not achieve sufficient revenueto offset the increased expenses associated with these acquisitions.

 

**We may experience fluctuations in quarterly results.**

** **

Our quarterly results may varysignificantly depending on various factors, many of which are beyond ourcontrol. These factors include:

 

·                  the volumeof customer orders relative to our capacity;

·                  customerintroduction and market acceptance of new products;

·                  changes indemand for customer products;

·                  pricing andother competitive pressures;

·                  the timingof our expenditures in anticipation of future orders;

·                  oureffectiveness in managing manufacturing processes;

·                  changes incost and availability of labor and components;

·                  changes inour product mix;

·                  changes ineconomic conditions; and

·                  localfactors and events that may affect our production volume, such as localholidays.

 

Additionally, as is the case withmany high technology companies, a significant portion of our shipmentstypically occurs in the last few weeks of a quarter. As a result, our sales mayshift from one quarter to the next, having a significant effect on reportedresults.

 

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** **

**Our investments in auction rate securities are subject torisks which may cause losses and affect the liquidity of these investments.**

** **

Asof February 27, 2008, we held $95.4 million of auction rate securities,classified as short-term investments, whose underlying assets were inguaranteed student loans backed by a U. S. Government agency and municipalissue bonds. These investments are of a high credit quality with AAA typecredit ratings because of the government agency guarantee and other insurers.Auction rate securities are adjustable rate debt instruments whose interestrates are reset every 7 to 35 days through an auction process, with underlyingsecurities that have original contractual maturities greater than 10 years.Auctions for some of our investments have failed in 2008 and there is noassurance that auctions on the remaining auction rate securities in ourinvestment portfolio will continue to succeed. An auction failure means thatthe parties wishing to sell their securities could not do so. As a result, ourability to liquidate and fully recover the carrying value of our adjustablerate securities in the near term may be limited or not exist. Thesedevelopments may result in the classification of some or all of thesesecurities as long-term investments in our consolidated financial statements.If the issuers of these adjustable rate securities are unable to successfullyclose future auctions or their credit quality deteriorates, we may in thefuture be required to record an impairment charge on these investments. We maybe required to wait until market stability is restored for these instruments oruntil the final maturity of the underlying notes (up to 40 years) to realizeour investments’ recorded value.

 

**Most of our customers do not commit to long-term productionschedules, which makes it difficult for us to schedule production and achievemaximum efficiency of our manufacturing capacity.**

** **

The volume and timing of sales to ourcustomers may vary due to:

 

·                  variation indemand for our customers’ products;

·                  ourcustomers’ attempts to manage their inventory;

·                  electronicdesign changes;

·                  changes inour customers’ manufacturing strategy; and

·                  acquisitionsof or consolidations among customers.

 

Due in part to these factors, most ofour customers do not commit to firm production schedules for more than onequarter in advance. Our inability to forecast the level of customer orders withcertainty makes it difficult to schedule production and maximize utilization ofmanufacturing capacity. In the past, we have been required to increase staffingand other expenses in order to meet the anticipated demand of our customers.Anticipated orders from many of our customers have, in the past, failed tomaterialize or delivery schedules have been deferred as a result of changes inour customers’ business needs, thereby adversely affecting our results ofoperations. On other occasions, our customers have required rapid increases inproduction, which have placed an excessive burden on our resources. Suchcustomer order fluctuations and deferrals have had a material adverse effect onus in the past, and we may experience such effects in the future. A businessdownturn resulting from any of these external factors could have a materialadverse effect on our operating income.

 

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** **

**Our customers may cancel their orders, change productionquantities, delay production or change their sourcing strategy.**

** **

EMS providers must provide increasinglyrapid product turnaround for their customers. We generally do not obtain firm,long-term purchase commitments from our customers and we continue to experiencereduced lead-times in customer orders. Customers may cancel their orders,change production quantities, delay production or change their sourcingstrategy for a number of reasons. The success of our customers’ products in themarket affects our business. Cancellations, reductions, delays or changes intheir sourcing strategy by a significant customer or by a group of customerscould negatively impact our operating income.

 

In addition, we make significantdecisions, including determining the levels of business that we will seek andaccept, production schedules, component procurement commitments, personnelneeds and other resource requirements, based on our estimate of customerrequirements. The short-term nature of our customers’ commitments and thepossibility of rapid changes in demand for their products reduces our abilityto accurately estimate the future requirements of those customers.

 

On occasion, customers may requirerapid increases in production, which can stress our resources and reduceoperating margins. In addition, because many of our costs and operatingexpenses are relatively fixed, a reduction in customer demand can harm ourgross profits and operating results.

 

**Start-upcosts and inefficiencies related to new or transferred programs can adverselyaffect our operating results and such costs may not be recoverable if such newprograms or transferred programs are cancelled.**

** **

Start-up costs, the management oflabor and equipment resources in connection with the establishment of newprograms and new customer relationships, and the need to estimate requiredresources in advance can adversely affect our gross margins and operatingresults. These factors are particularly evident in the early stages of the lifecycle of new products and new programs or program transfers and in the openingof new facilities. These factors also affect our ability to efficiently uselabor and equipment. We are currently managing a number of new programs and areexpanding our capacity in Suzhou, China. Consequently, our exposure to thesefactors has increased. In addition, if any of these new programs or new customerrelationships were terminated, our operating results could be harmed,particularly in the short term. We may notbe able to recoup these start-up costs or replace anticipated new programrevenues.

 

**Complications with the implementation of our informationsystems could disrupt our operations and cause unanticipated increases in ourcosts.**

** **

We have completed the installation ofan Enterprise Resource Planning system in many of our manufacturing sites andin our corporate location. Complications with the implementation of theseinformation systems in the remaining plants to replace the existingManufacturing Resource Planning systems and financial information systems usedby these sites could result in material adverse consequences, includingdisruption of operations, loss of information and unanticipated increases incost.

 

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** **

**We are exposed to general economic conditions, which couldhave a material adverse impact on our business, operating results and financialcondition.**

** **

Our business is cyclical and hasexperienced economic and industry downturns. If the economic conditions anddemand for our customers’ products deteriorate, we may experience a materialadverse impact on our business, operating results and financial condition.

 

In cases where the evidence suggestsa customer may not be able to satisfy its obligation to us, we set up reservesin an amount we determine appropriate for the perceived risk. There can be noassurance that our reserves will be adequate to meet this risk. If thefinancial condition of our customers were to deteriorate, resulting in animpairment of their ability to make payments, additional receivable andinventory reserves may be required.

 

**We may encounter significant delays or defaults in paymentsowed to us by customers for products we have manufactured or components thatare unique to particular customers.**

** **

We structure our agreements withcustomers to mitigate our risks related to obsolete or unsold inventory.However, enforcement of these contracts may result in material expense anddelay in payment for inventory. If any of our significant customers becomeunable or unwilling to purchase such inventory, our business may be materiallyharmed.

 

**We may be affected by consolidation in the electronicsindustry.**

** **

As a result of the current economicclimate, consolidation in the electronics industry has increased. Consolidationin the electronics industry could result in an increase in excess manufacturingcapacity as companies seek to close plants or take other steps to increaseefficiencies and realize synergies of mergers. The availability of excessmanufacturing capacity could create increased pricing and competitive pressuresfor the electronics manufacturing services industry as a whole and our businessin particular. In addition, consolidation could also result in an increasingnumber of very large electronics companies offering products in multiplesectors of the electronics industry. The growth of these large companies, withsignificant purchasing and marketing power, could also result in increasedpricing and competitive pressures for us. Accordingly, industry consolidationcould harm our business.

 

**We are subject to the risk of increased taxes.**

** **

We base our tax position upon theanticipated nature and conduct of our business and upon our understanding ofthe tax laws of the various countries in which we have assets or conductactivities. Our tax position, however, is subject to review and possiblechallenge by taxing authorities and to possible changes in law. We cannotdetermine in advance the extent to which some jurisdictions may assessadditional tax or interest and penalties on such additional taxes.

 

Several countries in which we arelocated allow for tax holidays or provide other tax incentives to attract andretain business. We have obtained holidays or other incentives where available.Our taxes could increase if certain tax holidays or incentives are retracted,or if they are not renewed upon expiration, or tax rates applicable to us insuch jurisdictions are otherwise increased. In addition, further acquisitionsmay cause our effective tax rate to increase.

 

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** **

**We are exposed to intangible asset risk.**

** **

We have recorded intangible assets,including goodwill, in connection with business acquisitions. We are requiredto perform goodwill and intangible asset impairment tests at least on an annualbasis and whenever events or circumstances indicate that the carrying value maynot be recoverable from estimated future cash flows. As a result of our annualand other periodic evaluations, we may determine that the intangible assetvalues need to be written down to their fair values, which could result inmaterial charges that could be adverse to our operating results and financialposition.

 

**There are inherent uncertainties involved in estimates,judgments and assumptions used in the preparation of financial statements inaccordance with US GAAP. Any changes in estimates, judgments and assumptionscould have a material adverse effect on our business, financial position andresults of operations.**

** **

The consolidated financial statementsincluded in the periodic reports we file with the SEC are prepared inaccordance with accounting principles generally accepted in the United States(US GAAP). The preparation of financial statements in accordance with US GAAPinvolves making estimates, judgments and assumptions that affect reportedamounts of assets (including intangible assets), liabilities and relatedreserves, revenues, expenses and income. Estimates, judgments and assumptionsare inherently subject to change in the future, and any such changes couldresult in corresponding changes to the amounts of assets, liabilities,revenues, expenses and income. Any such changes could have a material adverseeffect on our financial position and results of operations.

 

**Our international operations may be subject to certain risks.**

** **

We currently operate outside theUnited States in Brazil, China, Ireland, Malaysia, Mexico, the Netherlands,Romania, Singapore and Thailand. During 2007, 2006 and 2005, 43%, 37% and 35%,respectively, of our sales were from our international operations. Theseinternational operations may be subject to a number of risks, including:

 

·                  difficultiesin staffing and managing foreign operations;

·                  politicaland economic instability;

·                  unexpectedchanges in regulatory requirements and laws;

·                  longercustomer payment cycles and difficulty collecting accounts receivable;

·                  exportduties, import controls and trade barriers (including quotas);

·                  governmentalrestrictions on the transfer of funds;

·                  burdens ofcomplying with a wide variety of foreign laws and labor practices;

·                  fluctuationsin currency exchange rates, which could affect component costs, local payroll,utility and other expenses; and

·                  inability toutilize net operating losses incurred by our foreign operations to reduce ourU.S. income taxes.

 

In addition, several of the countrieswhere we operate have emerging or developing economies, which may be subject togreater currency volatility, negative growth, high inflation, limitedavailability of foreign exchange and other risks. These factors may harm ourresults of operations, and any measures that we may implement to reduce the effectof volatile currencies and other risks of our international operations may notbe effective. In our experience, entry into new international markets requiresconsiderable management time as well as start-up expenses for marketdevelopment, hiring and establishing office facilities before any significantrevenues are generated. As a result, initial operations in a new market mayoperate at low margins or may be unprofitable.

 

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** **

**We are involved in various legal proceedings.**

** **

In the past, we have been notified ofclaims relating to various matters including intellectual property rights,contractual matters or other issues arising in the ordinary course of business.In the event of such a claim, we may be required to spend a significant amountof money to defend or otherwise address the claim. Any litigation, even where aclaim is without merit, could result in substantial costs and diversion ofresources. Accordingly, the resolution or adjudication of such disputes, eventhose encountered in the ordinary course of business, could have a materialadverse effect on our business, consolidated financial conditions and resultsof operations. See Note 15 to the consolidated financial statements in Item 8of this report.

 

**Our success will continue to depend to a significant extenton our executives.**

** **

We depend significantly on certainkey executives, including, but not limited to, Cary T. Fu, Donald F. Adam andGayla J. Delly. The unexpected loss of the services of any one of theseexecutive officers would have an adverse effect on us.

 

**We must maintain our technological and manufacturing processexpertise.**

** **

The market for our manufacturingservices is characterized by rapidly changing technology and continuing processdevelopment. We are continually evaluating the advantages and feasibility ofnew manufacturing processes. We believe that our future success will dependupon our ability to develop and provide manufacturing services which meet ourcustomers’ changing needs. This requires that we maintain technologicalleadership and successfully anticipate or respond to technological changes inmanufacturing processes on a cost-effective and timely basis. Our failure tomaintain our technological and manufacturing process expertise could have amaterial adverse effect on our business.

 

**Environmental laws may expose us to financial liability andrestrictions on operations.**

** **

We are subject to a variety offederal, state, local and foreign environmental laws and regulations relatingto environmental, waste management, and health and safety concerns, includingthe handling, storage, discharge and disposal of hazardous materials used in orderived from our manufacturing processes. If we or companies we acquire havefailed or fail in the future to comply with such laws and regulations, then wecould incur liabilities and fines and our operations could be suspended. Suchlaws and regulations could also restrict our ability to modify or expand ourfacilities, could require us to acquire costly equipment, or could impose othersignificant expenditures. In addition, our operations may give rise to claimsof property contamination or human exposure to hazardous chemicals orconditions.

 

**Shortages or price increases of components specified by ourcustomers would delay shipments and adversely affect our profitability.**

** **

Substantially all of our sales arederived from electronics manufacturing services in which we purchase componentsspecified by our customers. In the past, supply shortages have substantiallycurtailed production of all assemblies using a particular component. Inaddition, industry-wide shortages of electronic components, particularly ofmemory and logic devices, have occurred. If shortages of these components occuror if components received are defective, we may be forced to delay shipments,which could have an adverse effect on our profit margins. Because of thecontinued increase in demand for surface mount components, we anticipatecomponent shortages and longer lead times for certain components to occur fromtime to time. Also, we typically bear the risk of component price increasesthat occur between periodic repricings during the term of a customer contract.Accordingly, certain component price increases could adversely affect our grossprofit margins.

 

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** **

**Our stock price is volatile.**

** **

Our common shares have experiencedsignificant price volatility, and such volatility may continue in the future.The price of our common shares could fluctuate widely in response to a range offactors, including variations in our reported financial results and changingconditions in the economy in general or in our industry in particular. Inaddition, stock markets generally experience significant price and volumevolatility from time to time which may affect the market price of our commonshares for reasons unrelated to our performance.

 

**Provisions in our shareholder rights plan, our charterdocuments and state law may make it harder for others to obtain control of ourcompany even though some shareholders might consider such a development to befavorable.**

** **

Our shareholder rights plan,provisions of our amended and restated articles of incorporation and the TexasBusiness Corporation Act may delay, inhibit or prevent someone from gainingcontrol of our company through a tender offer, business combination, proxycontest or some other method. These provisions include:

 

·                  a “poisonpill” shareholder rights plan;

·                  a statutoryrestriction on the ability of shareholders to take action by less thanunanimous written consent; and

·                  a statutoryrestriction on business combinations with some types of interestedshareholders.

 

**Impact of Governmental Regulation**

** **

Ourworldwide operations are subject to local laws and regulations. Of particularnote at this time are two EU directives, the RoHS directive and the WasteElectrical and Electronic Equipment Directive. These directives restrict thedistribution of products within the EU containing certain substances, includinglead, and require a manufacturer orimporter to recycle products containing those substances. In addition, China has recently passed the Management Methodsfor Controlling Pollution by Electronic Information Products, which willeventually prohibit the import of products for use in China that containsubstances similar to those banned by the RoHS directive.

 

Bothdirectives affect the worldwide electronics, and electronics components,industries as a whole. If we or our customers fail to comply with such laws andregulations, then we could incur liabilities and fines and our operations couldbe suspended.

 

Inaddition, as global warming issues become more prevalent, the U.S. and foreigngovernments are beginning to respond to these issues. This increasinggovernmental focus on global warming may result in new environmentalregulations that may negatively affect us, our suppliers and our customers.This could cause us to incur additional direct costs in complying with any newenvironmental regulations, as well as increased indirect costs resulting fromour customers, suppliers or both incurring additional compliance costs that getpassed on to us. These costs may adversely impact our operations and financialcondition.

 

**Our business may be impacted by geopolitical events.**

** **

Asa global business, we operate and have customers located in many countries.Geopolitical events such as terrorist acts may effect the overall economicenvironment and negatively impact the demand for our customers’ products. As aresult, customer orders may be lower and our financial results may be adverselyaffected.

 

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** **

**Our business may be impacted by natural disasters.**

** **

Someof our facilities, including our corporate headquarters, are located in areaswhich may be impacted by hurricanes, earthquakes, water shortages, tsunamis,floods, typhoons, fires, extreme weather conditions and other natural ormanmade disasters. Our insurance coverage with respect to natural disasters islimited and is subject to deductibles and coverage limits. Such coverage maynot be adequate, or may not continue to be available at commercially reasonablerates and terms.

 

**We may be exposed to interest rate fluctuations.**

** **

We will have exposure to interestrate risk under our variable rate revolving credit facilities to the extent weincur indebtedness under such facilities. These facilities’ interest rates arebased on the spread over the bank’s Eurodollar rate or its prime rate.

 

**Changes in financial accounting standards or policies haveaffected, and in the future may affect, our reported financial condition orresults of operations. Additionally, changes in securities laws and regulationshave increased, and are likely to continue to increase, our operating costs.**

** **

Weprepare our financial statements in conformity with U.S. GAAP. Theseprinciples are subject to interpretation by the Financial Accounting StandardsBoard (FASB), the American Institute of Certified Public Accountants (AICPA),the SEC and various bodies formed to interpret and create appropriateaccounting policies. A change in those policies can have a significant effecton our reported results and may affect our reporting of transactions which arecompleted before a change is announced.

 

Accountingpolicies affecting many other aspects of our business, including rules relatingto revenue recognition, off-balance sheet transactions, stock-basedcompensation, restructurings, asset disposals and asset retirement obligations,intangible assets, derivative and other financial instruments, have recentlybeen revised or are under review. Changes to those rules or thequestioning of how we interpret or implement those rules may have amaterial adverse effect on our reported financial results or on the way weconduct business.

 

TheSarbanes-Oxley Act of 2002 required changes in our corporate governance, publicdisclosure and compliance practices. The number of rules and regulationsapplicable to us has increased and will continue to increase our legal andfinancial compliance costs. These developments could make it more difficult forus to attract and retain qualified members of our board of directors,particularly to serve on our audit committee, and qualified executive officers.In addition, in connection with our Section 404 certification process, wemay identify from time to time deficiencies in our internal controls. Anymaterial weakness or deficiency in our internal controls over financial reportingcould materially and negatively impact our reported financial results and themarket price of our stock could significantly decline. Additionally, adversepublicity related to the disclosure of a material weakness or deficiency ininternal controls over financial reporting could have a negative impact on ourreputation, business and stock price.

 

**Item1B.  *Unresolved Staff Comments***

 

Not applicable.

 

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**Item2.  *Properties***

 

Our customers market numerousproducts throughout the world and therefore need to access manufacturingservices on a global basis. To enhance our EMS offerings, we seek to locate ourfacilities either near our customers and our customers’ end markets in majorcenters for the electronics industry or, where appropriate, in lower costlocations. Many of our plants located near customers and their end markets arefocused primarily on final system assembly and test, while plants located in lowercost areas are engaged primarily in less complex component and subsystemmanufacturing and assembly.

 

The following chart summarizes ourprincipal manufacturing facilities owned or leased by Benchmark and itssubsidiaries:

 
| **Location**             | ** ** | **Sq. Ft.** | ** ** | **Ownership** | ** ** |
|--------------------------|------------|------------------|------------|---------------|------------|
|                     |       |             |       |          |       |
| Almelo, the  Netherlands |       | 132,000          |       | Leased        |       |
| Angleton, Texas          |       | 109,000          |       | Owned         |       |
| Austin, Texas            |       | 93,000           |       | Leased        |       |
| Ayudhaya,  Thailand      |       | 243,000          |       | Owned         |       |
| Ayudhaya,  Thailand      |       | 180,000          |       | Owned         |       |
| Beaverton,  Oregon       |       | 77,000           |       | Leased        |       |
| Brasov, Romania          |       | 30,000           |       | Leased        |       |
| Campinas, Brazil         |       | 40,000           |       | Leased        |       |
| Dublin, Ireland          |       | 104,000          |       | Leased        |       |
| Dunseith, North  Dakota  |       | 47,000           |       | Owned         |       |
| Dunseith, North  Dakota  |       | 53,000           |       | Leased        |       |
| Guadalajara,  Mexico     |       | 150,000          |       | Leased        |       |
| Hudson, New  Hampshire   |       | 170,000          |       | Leased        |       |
| Huntsville,  Alabama (1) |       | 276,000          |       | Owned         |       |
| Huntsville,  Alabama (2) |       | 144,000          |       | Leased        |       |
| Korat, Thailand          |       | 126,000          |       | Owned         |       |
| Penang, Malaysia         |       | 103,000          |       | Leased        |       |
| Rochester,  Minnesota    |       | 260,000          |       | Leased        |       |
| Suzhou, China            |       | 115,000          |       | Leased        |       |
| Singapore                |       | 48,000           |       | Leased        |       |
| Winona,  Minnesota       |       | 199,000          |       | Owned         |       |
|                     |       |             |       |          |       |
| Total                    |       | 2,699,000        |       |          |       |

 

----

| (1) | PCBA  facility.                |
|-----|--------------------------------|
| (2) | Systems  integration facility. |

 

Welease other facilities in the U.S. with a total of 46,000 sq. ft. that houseindividuals that provide engineering services. We also own facilities with atotal of 396,000 sq. ft. and lease facilities with a total of 246,000 sq. ft.that are currently not in operation. These facilities are both in the U.S. andabroad.

 

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**Item3.  *Legal Proceedings***

 

We are involved in various legalactions arising in the ordinary course of business. In the opinion ofmanagement, the ultimate disposition of these matters will not have a materialadverse effect on our consolidated financial position or results of operations.

 

Thefollowing legal proceeding was acquired in the Merger and is considered outsidethe ordinary course of business. On June 16, 2005 a putative class actionwas filed by an individual shareholder against Pemstar and certain of itsofficers and directors. The lawsuit was brought in the United States DistrictCourt for the District Court of Minnesota and is captioned: In re PEMSTAR INC.Securities Litigation, Civil Action No. 05-CV-01182 – JMR/FLN. The lawsuitalleged violations of Section 10(b) and Section 20(a) ofthe Securities Exchange Act of 1934 and Section 11 of the Securities Actof 1933. The plaintiff alleged, in essence, that the defendants defraudedPemstar’s shareholders by failing to timely disclose the circumstances aroundthe discrepancies in the accounting of the Mexico facility that generated arestatement. The lawsuit also alleged that the registration statement filed byPemstar in connection with a secondary offering contained false, materialmisrepresentations. The plaintiff sought to represent a class of persons whopurchased Pemstar stock from January 30, 2003 through and including January 12,2005. The parties reached a settlement which was approved by the court on November 15,2007. The settlement amount, less our retention, was paid from Pemstar’sdirector and officer insurance policy.

 

**Item4.  *Submission of Matters to aVote of Security Holders***

 

No matters were submitted to a voteof security holders during the fourth quarter of 2007.

 

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**PART II**

 

**Item 5.  *Market for Registrant’sCommon Equity, Related Shareholder Matters and Issuer Purchases of EquitySecurities***

 

Ourcommon shares are listed on the New York Stock Exchange under the symbol “BHE.”The following table shows the high and low sales prices for our common sharesas reported on the New York Stock Exchange for the quarters (or portionsthereof) indicated.

 
| ** **                                      | ** ** | **High** | ** ** | **Low** | ** ** |
|-------------------------------------------------|------------|----------|------------|---------|------------|
|                                            |       |     |       |    |       |
| 2008                                            |       |     |       |    |       |
| First quarter  (through February 27, 2008) |       | $        | 18.88      |    | $          | 14.90 |   |
|                                            |       |     |       |    |       |
| 2007                                            |       |     |       |    |       |
| Fourth quarter                                  |       | $        | 24.40      |    | $          | 16.13 |   |
| Third quarter                                   |       | $        | 27.01      |    | $          | 21.03 |   |
| Second quarter                                  |       | $        | 23.54      |    | $          | 20.16 |   |
| First quarter                                   |       | $        | 25.26      |    | $          | 19.86 |   |
|                                            |       |     |       |    |       |
| 2006                                            |       |     |       |    |       |
| Fourth quarter                                  |       | $        | 29.92      |    | $          | 23.62 |   |
| Third quarter                                   |       | $        | 27.39      |    | $          | 20.95 |   |
| Second quarter                                  |       | $        | 28.90      |    | $          | 21.54 |   |
| First quarter                                   |       | $        | 25.95      |    | $          | 22.09 |   |

 

The last reported sale price of ourcommon shares on February 27, 2008, as reported by the New York StockExchange, was $18.42. There were approximately 900 record holders of our commonshares as of February 27, 2008.

 

We have not paid any cash dividendson our common shares in the past. In addition, our credit facility includesrestrictions on the amount of dividends we may pay to shareholders.

 

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**IssuerPurchases of Equity Securities**

 

Thefollowing table provides information about the Company’s repurchases of itsequity securities that are registered pursuant to Section 12 of theExchange Act during the quarter ended December 31, 2007, at a total costof $50.5 million:

 
| ** **                   | ** ** | ** **                 | ** ** | ** **                   | ** ** | ** **            | ** ** | **(d) Maximum**        | ** ** |
|------------------------------|------------|----------------------------|------------|------------------------------|------------|-----------------------|------------|-----------------------------|------------|
| ** **                   | ** ** | ** **                 | ** ** | ** **                   | ** ** | **(c) Total**    | ** ** | **Number (or**         | ** ** |
| ** **                   | ** ** | ** **                 | ** ** | ** **                   | ** ** | **Number of**    | ** ** | **Approximate**             | ** ** |
| ** **                   | ** ** | ** **                 | ** ** | ** **                   | ** ** | **Shares (or**   | ** ** | **Dollar Value)**      | ** ** |
| ** **                   | ** ** | ** **                 | ** ** | ** **                   | ** ** | **Units)**            | ** ** | **of Shares (or** | ** ** |
| ** **                   | ** ** | ** **                 | ** ** | ** **                   | ** ** | **Purchased as** | ** ** | **Units) that**        | ** ** |
| ** **                   | ** ** | **(a) Total**         | ** ** | ** **                   | ** ** | **Part of**      | ** ** | **May Yet Be**    | ** ** |
| ** **                   | ** ** | **Number of**         | ** ** | **(b) Average**         | ** ** | **Publicly**          | ** ** | **Purchased**               | ** ** |
| ** **                   | ** ** | **Shares (or**        | ** ** | **Price Paid per** | ** ** | **Announced**         | ** ** | **Under the**          | ** ** |
| ** **                   | ** ** | **Units)**                 | ** ** | **Share (or**           | ** ** | **Plans or**     | ** ** | **Plans or**           | ** ** |
| **Period**                   | ** ** | **Purchased ****(1)** | ** ** | **Unit) ****(2)**       | ** ** | **Programs**          | ** ** | **Programs ****(3)**   | ** ** |
|                         |       |                       |       |                         |       |                  |       |                        |       |
| October 1  to 31, 2007  |       | 1,493,108                  |       | $                            | 21.21      |                  | 1,493,108  |                        | $          | 90.9 million |   |
| November 1  to 30, 2007 |       | 735,300                    |       | $                            | 19.30      |                  | 735,300    |                        | $          | 76.7 million |   |
| December 1  to 31, 2007 |       | 264,500                    |       | $                            | 17.52      |                  | 264,500    |                        | $          | 72.0 million |   |
|                         |       |                       |       |                         |       |                  |       |                        |       |
| Total                        |       | 2,492,908                  |       | $                            | 20.25      |                  | 2,492,908  |                        |       |   |

 

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(1) All sharerepurchases were made on the open market.

 

(2) Average pricepaid per share is calculated on a settlement basis and excludes commission.

 

(3) On July 25,2007, the Board of Directors of the Company approved the repurchase of up to$125 million of the Company’s outstanding common shares. During the period fromOctober 1 to December 31, 2007, the Company repurchased a total of2,492,908 common shares for $50.5 million at an average price of $20.25 pershare. During the period from July 25, 2007 to December 31, 2007, werepurchased a total of 2,602,008 common shares for $53.0 million at an averageprice of $20.33 per share. All share purchases have been made in the openmarket and the shares repurchased through December 31, 2007 have beenretired. Share purchases may be made in the open market, in privatelynegotiated transactions or block transactions, at the discretion of the Company’smanagement and as market conditions warrant. Purchases will be funded fromavailable cash and may be commenced, suspended or discontinued at any timewithout prior notice. Shares repurchased under the program will be retired.

 

24

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**PerformanceGraph**

 

The following Performance Graph compares the cumulative totalshareholder return on our common shares for the five-year period commencing December 31,2002 and ending December 31, 2007, with the cumulative total return of theStandard & Poor’s 500 Stock Index (which does not include Benchmark),and the Peer Group Index, which is composed of Celestica Inc., Suntron Corp(formerly EFTC Corp), Flextronics International, Ltd. (which recently acquiredSolectron Corporation), Jabil Circuit, Inc., Plexus Corp and Sanmina-SCICorp. Dividend reinvestment has been assumed.

 

****

 
| ** **                        | ** ** | **Dec-02** | ** ** | **Dec-03** | ** ** | **Dec-04** | ** ** | **Dec-05** | ** ** | **Dec-06** | ** ** | **Dec-07** | ** ** |
|-----------------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
|                              |       |       |       |       |       |       |       |       |       |       |       |       |       |
| Benchmark  Electronics, Inc. |       | $          | 100.00     |       | $          | 182.20     |       | $          | 178.50     |       | $          | 176.00     |       | $ | 191.20 |   | $ | 139.20 |   |
| Peer Group                        |       | $          | 100.00     |       | $          | 177.00     |       | $          | 152.50     |       | $          | 134.50     |       | $ | 117.90 |   | $ | 101.90 |   |
| S&P 500                       |       | $          | 100.00     |       | $          | 126.50     |       | $          | 137.80     |       | $          | 141.90     |       | $ | 161.20 |   | $ | 166.90 |   |

 

NOTES: Assumes $100 invested on December 31, 2002in Benchmark Electronics, Inc. Common Shares, in the S&P 500, and inthe Peer Group Index. Reflects month-end dividend reinvestment, and annualreweighting of the Peer Group Index portfolios.

 

25

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**Item6.  *Selected Financial Data***

 
|                                                               |   | **Year Ended December 31,** |      |
|--------------------------------------------------------------------|--------|--------------------------------------------|-----------|
| **(in thousands, except per share data)** |   | **2007**                                   |      | **2006** |   | **2005** |   | **2004** |   | **2003** |   |
|                                                               |   |                                       |      |   |   |   |   |   |   |   |   |
| Selected  Statements of Income Data                                |   |                                       |      |   |   |   |   |   |   |   |   |
|                                                               |   |                                       |      |   |   |   |   |   |   |   |   |
| Sales                                                              |   | $                                          | 2,915,919 |   | $ | 2,907,304 |   | $ | 2,257,225 |   | $ | 2,001,340 |   | $ | 1,839,821 |   |
| Cost of sales                                                      |   | 2,716,985                                  |      | 2,707,781 |   | 2,095,623 |   | 1,847,573 |   | 1,689,548 |   |
|                                                               |   |                                       |      |   |   |   |   |   |   |   |   |
| Gross profit                                                       |   | 198,934                                    |      | 199,523 |   | 161,602 |   | 153,767 |   | 150,273 |   |
| Selling, general  and administrative expenses                      |   | 93,932                                     |      | 69,299 |   | 62,322 |   | 61,108 |   | 64,976 |   |
| Contract  settlement (1)                                           |   | —                                     |      | — |   | — |   | — |   | (8,108 | ) |
| Restructuring  charges and integration costs (2)              |   | 11,581                                     |      | 4,723 |   | — |   | — |   | 2,815 |   |
| Amortization of  intangibles                                       |   | 1,788                                      |      | — |   | — |   | — |   | — |   |
|                                                               |   |                                       |      |   |   |   |   |   |   |   |   |
| Income from  operations                                            |   | 91,633                                     |      | 125,501 |   | 99,280 |   | 92,659 |   | 90,590 |   |
| Interest expense                                                   |   | (2,183                                     | )         | (354 | ) | (330 | ) | (1,705 | ) | (7,714 | ) |
| Interest income                                                    |   | 11,217                                     |      | 8,824 |   | 7,786 |   | 4,516 |   | 3,842 |   |
| Other income  (expense)                                            |   | 693                                        |      | (2,214 | ) | (922 | ) | (1,317 | ) | (3,708 | ) |
| Income tax  expense (3)                                            |   | (8,078                                     | )         | (20,080 | ) | (25,225 | ) | (23,162 | ) | (27,574 | ) |
|                                                               |   |                                       |      |   |   |   |   |   |   |   |   |
| Net income                                                         |   | $                                          | 93,282    |   | $ | 111,677 |   | $ | 80,589 |   | $ | 70,991 |   | $ | 55,436 |   |
|                                                               |   |                                       |      |   |   |   |   |   |   |   |   |
| Earnings per  share: (4)                                           |   |                                       |      |   |   |   |   |   |   |   |   |
| Basic                                                              |   | $                                          | 1.29      |   | $ | 1.74 |   | $ | 1.29 |   | $ | 1.15 |   | $ | 0.97 |   |
| Diluted                                                            |   | $                                          | 1.28      |   | $ | 1.71 |   | $ | 1.25 |   | $ | 1.11 |   | $ | 0.93 |   |
|                                                               |   |                                       |      |   |   |   |   |   |   |   |   |
| Weighted-average  number of shares outstanding:                    |   |                                       |      |   |   |   |   |   |   |   |   |
| Basic                                                              |   | 72,061                                     |      | 64,306 |   | 62,682 |   | 61,701 |   | 57,186 |   |
| Diluted                                                            |   | 72,829                                     |      | 65,121 |   | 64,279 |   | 63,697 |   | 62,148 |   |

 
| ** **                       | ** ** | **December 31,** | ** ** |
|----------------------------------|------------|-----------------------|------------|
| **(in thousands)**          | ** ** | **2007**              | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|                             |       |                  |       |   |   |   |   |   |   |   |   |
| **Selected  Balance Sheet Data** |       |                  |       |   |   |   |   |   |   |   |   |
|                             |       |                  |       |   |   |   |   |   |   |   |   |
| Working capital                  |       | $                     | 884,231    |   | $ | 760,892 |   | $ | 646,363 |   | $ | 569,938 |   | $ | 465,879 |   |
| Total assets                     |       | 1,762,848             |       | 1,406,120 |   | 1,298,408 |   | 1,092,001 |   | 1,038,038 |   |
| Total debt                       |       | 12,526                |       | — |   | — |   | — |   | 21,028 |   |
| Shareholders’  equity       |       | $                     | 1,288,522  |   | $ | 985,022 |   | $ | 846,119 |   | $ | 751,517 |   | $ | 664,325 |   |

 

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(1) During thefirst quarter of 2003, the Company settled and released various claims arisingout of customer manufacturing agreements. In connection with the settlement ofthese claims, the Company recorded a non-cash gain totaling $8.1 million.

(2) See Note 16to the Consolidated Financial Statements for a discussion of the restructuringcharges occurring in 2007 and 2006. In connection with the closing of theScotland facility in the fourth quarter of 2003, the Company recorded $2.8million in restructuring charges.

(3) During the thirdquarter of 2007, the Company recorded a $6.5 million discrete tax benefitrelated to a previously closed facility. During the first quarter of 2006, theCompany recorded a $4.8 million tax benefit for the write-off of the investmentin the Leicester, England subsidiary.

(4) See Note 1 to theConsolidated Financial Statements for the basis of computing earnings pershare.

 

26

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**Item7.  *Management’s Discussionand Analysis of Financial Condition and Results of Operations***

 

Referencesin this report to “the Company,” “Benchmark,” “we,” or “us” mean BenchmarkElectronics, Inc. together with its subsidiaries. The following Management’sDiscussion and Analysis of Financial Condition and Results of Operationscontains certain forward-looking statements within the meaning of Section 27Aof the Securities Act of 1933, as amended and Section 21E of theSecurities Exchange Act of 1934, as amended. These forward-looking statementsare identified as any statement that does not relate strictly to historical orcurrent facts. They use words such as “anticipate,” “believe,” “intend,” “plan,”“projection,” “forecast,” “strategy,” “position,” “continue,” “estimate,” “expect,”“may,” “will,” or the negative of those terms or other variations of them orcomparable terminology. In particular, statements, express or implied,concerning future operating results or the ability to generate sales, income orcash flow are forward-looking statements. Forward-looking statements are notguarantees of performance. They involve risks, uncertainties and assumptions,including those discussed under Item 1A of this report. The future results ofour operations may differ materially from those expressed in theseforward-looking statements. Many of the factors that will determine theseresults are beyond our ability to control or predict. Undue reliance should notbe placed on any forward-looking statements. Should one or more of these risksor uncertainties materialize, or should underlying assumptions prove incorrect,actual outcomes may vary materially from those indicated.

 

The following discussion should beread in conjunction with the Consolidated Financial Statements and Notesthereto in Item 8 of this report.

 

**OVERVIEW**

** **

We are in the business ofmanufacturing electronics and provide our services to original equipmentmanufacturers (OEMs) of computers and related products for businessenterprises, medical devices, industrial control equipment, testing andinstrumentation products, and telecommunication equipment. The services that weprovide are commonly referred to as electronics manufacturing services (EMS).We offer our customers comprehensive and integrated design and manufacturingservices, from initial product design to volume production and direct orderfulfillment. Our manufacturing and assembly operations include printed circuitboards and subsystem assembly, box build and systems integration, the process of integrating subsystems and,often, downloading and integrating software, to produce a fully configuredproduct. We also provide specialized engineering services, including productdesign, printed circuit board layout, prototyping, and test development. Webelieve that we have developed strengths in the manufacturing process forlarge, complex, high-density printed circuit boards as well as the ability tomanufacture high and low volume products in lower cost regions such as Brazil,China, Mexico, Romania and Thailand.

 

As our customers have continued to expand theirglobalization strategy during the past several years, we have continued to makethe necessary changes to align our business operations with our customers’demand. These changes include, among other activities, moving productionbetween facilities, reducing staff levels, realigning our business processesand reorganizing our management. Restructuring charges associated with theserealignment efforts, primarily related to the closure of our Leicester, Englandand Loveland, Colorado facilities, were approximately $4.7 million(pre-tax) during the year ended December 31, 2006. During the year ended December 31,2007, we incurred $4.7 million (pre-tax), primarily related to the closure ofour Redmond, Washington facility, the transfer of the Company’s printed circuitboard assembly (PCBA) operations in Dublin, Ireland to Brasov, Romania and theconsolidation and resizing of certain other facilities, as we continue toexpand our low-cost capacity while realigning and further strengthening ourglobal footprint to support continued

 

27

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business opportunities. In connection with the Merger, a total of$7.0 million (pre-tax) in integration costs were incurred during the year endedDecember 31, 2007. These costs included redundant operating costs that areexpected to be eliminated in future periods. We believe that our globalmanufacturing presence increases our ability to be responsive to our customers’needs by providing accelerated time-to-market and time-to-volume production ofhigh quality products. These capabilities should enable us to build strongerstrategic relationships with our customers and to become a more integral partof their operations. Our customers face challenges in planning, procuring andmanaging their inventories efficiently due to customer demand fluctuations,product design changes, short product life cycles and component pricefluctuations. We employ production management systems to manage theirprocurement and manufacturing processes in an efficient and cost-effectivemanner so that, where possible, components arrive on a just-in-time,as-and-when needed basis. We are a significant purchaser of electroniccomponents and other raw materials, and can capitalize on the economies ofscale associated with our relationships with suppliers to negotiate pricediscounts, obtain components and other raw materials that are in short supply,and return excess components. Our expertise in supply chain management and ourrelationships with suppliers across the supply chain enables us to reduce ourcustomers’ cost of goods sold and inventory exposure.

 

Werecognize revenue from the sale of circuit board assemblies, systems and excessinventory when the goods are shipped, title and risk of ownership have passed,the price to the buyer is fixed and determinable and recoverability isreasonably assured. Revenue from design, development and engineering servicesis recognized when the services are performed and collectibility is reasonablycertain. Such services provided under fixed price contracts are accounted forusing the percentage of completion method. We assume no significant obligationsafter product shipment as we typically warrant workmanship only. Therefore, ourwarranty provisions are immaterial.

 

Our cost of sales includes the costof materials, electronic components and other materials that comprise theproducts we manufacture, the cost of labor and manufacturing overhead, andadjustments for excess and obsolete inventory. Our procurement of materials forproduction requires us to commit significant working capital to our operationsand to manage the purchasing, receiving, inspection and stocking of materials.Although we bear the risk of fluctuations in the cost of materials and excessscrap, we periodically negotiate cost of materials adjustments with ourcustomers. Our gross margin for any product depends on the sales price, theproportionate mix of the cost of materials in the product and the cost of laborand manufacturing overhead allocated to the product. We typically have thepotential to realize higher gross margins on products where the proportionatelevel of labor and manufacturing overhead is greater than that of materials. Aswe gain experience in manufacturing a product, we usually achieve increasedefficiencies, which result in lower labor and manufacturing overhead costs forthat product and higher gross margins.

 

**RecentAcquisition**

 

EffectiveJanuary 8, 2007, we acquired Pemstar Inc. (Pemstar), a publicly traded EMScompany headquartered in Rochester, Minnesota (the Merger). Pursuant to theAgreement and Plan of Merger among Benchmark and Pemstar dated October 16,2006 (the Merger Agreement), each issued and outstanding share of common stock,par value $0.01 per share, of Pemstar was converted into the right to receive0.160 of a common share, par value $0.10 per share, of Benchmark. With theclosing of the Merger, Pemstar became a wholly owned subsidiary of Benchmark.This acquisition expanded our customer base and deepened our engineering andsystems integration capabilities.

 

28

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Theaggregate purchase price was $221.5 million, including common shares valued at$202.5 million, stock options and warrants valued at $9.0 million,conversion feature of debt valued at $4.8 million and acquisition costs of $5.2million. The value of the 7.3 million common shares issued was based onthe average market price of our common shares over the 2-day period before andafter the terms of the acquisition were agreed to and announced.

 

Asa direct result of the Merger, we assumed approximately $89.4 million ofindebtedness, including $5 million in convertible senior subordinated notes.Subsequent to the Merger, we reduced the assumed debt by $72.2 million. Theconvertible senior subordinated notes matured on May 1, 2007 and wereconverted into 0.4 million common shares at the request of the noteholders.Prior to the Merger, the Company had no outstanding debt.

 

We are accounting for the Merger utilizing theaccounting principles promulgated by Statement of Financial AccountingStandards (SFAS) Nos. 141 and 142.Therefore, the results of operations of the Pemstar operations since January 8,2007 have been included in the accompanying consolidated statements of income.The allocation of the net purchase price of the Merger resulted in goodwill ofapproximately $165.9 million.

 

The inclusion of theoperations of the acquired facilities in Benchmark’s accounts is responsiblefor a substantial portion of the variations in the results of our operations(including components thereof) from period to period. The effects of the Mergeron our financial condition and our reported results of operations should beconsidered when reading the financial information contained herein.

 

The Merger constitutes a significantexpansion of our operations. Accordingly, the potential effect of the Merger onour future financial condition, liquidity and results of operations should beconsidered when reading the historical financial information and relateddiscussions set forth in the following section. See Note 2 to the Consolidated Financial Statements in Item 8 of thisreport.

 

**Summary of 2007 Results**

 

Sales for the year ended December 31,2007 and 2006 were $2.9 billion in each year. Sales to our largest customer,Sun Microsystems, Inc., represented 22% of our sales in 2007 compared to39% of our sales in 2006. Sales to this customer decreased to $643.9 million in2007 from $1.1 billion in 2006, a decrease of 42%. This decrease isattributable to a combination of product transitions, the impact of secondsourcing and reduced demand for certain products. The decrease in sales to ourlargest customer was offset by an increase in sales of $483.5 million,primarily a result of the Merger and increased sales under new programs.

 

Our gross profit as a percentage ofsales decreased to 6.8% in 2007 from 6.9% in 2006 due primarily tounder-absorbed fixed costs. Our margin has also been impacted by inefficienciesand resources necessary for the integration activities related to theacquisitions in 2007 as well as the closing of several facilities. Weexperience fluctuations in gross profit from period to period. Fluctuations in2007 were due primarily to changes in production levels, production mix,inventory levels, new program ramps, product crossovers and other factors,including the impacts of acquisitions in 2007 and restructuring activities.Different programs contribute different gross profits depending on factors suchas the types of services involved, location of production, size of the program,complexity of the product, and level of material costs associated with thevarious products. Moreover, new programs can contribute relatively less to ourgross profit in their early stages when manufacturing volumes are usuallylower, resulting in inefficiencies and unabsorbed manufacturing overhead costs.In addition, a number of our new and higher volume programs remain subject tocompetitive constraints that could exert downward pressure on our margins inthe near future.

 

29

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**CRITICAL ACCOUNTING POLICIES AND ESTIMATES**

** **

Management’s discussion and analysisof financial condition and results of operations is based upon our condensedconsolidated financial statements, which have been prepared in accordance withaccounting principles generally accepted in the United States of America. Oursignificant accounting policies are summarized in Note 1 to the ConsolidatedFinancial Statements in Item 8 of this report. The preparation of thesefinancial statements requires us to make estimates and judgments that affectthe reported amounts of assets, liabilities, revenues and expenses, and relateddisclosure of contingent assets and liabilities. On an on-going basis, weevaluate our estimates, including those related to allowance for doubtfulaccounts, inventories, deferred taxes, impairment of long-lived assets, andcontingencies and litigation. We base our estimates on historical experience andon various other assumptions that we believe to be reasonable under thecircumstances, the results of which form the basis for making judgments aboutthe carrying values of assets and liabilities that are not readily apparentfrom other sources. Actual results may differ from these estimates. We believethe following critical accounting policies affect our more significantjudgments and estimates used in the preparation of our consolidated financialstatements.

 

**Allowance for doubtful accounts**

** **

Our accounts receivable balance isrecorded net of allowances for amounts not expected to be collected from ourcustomers. Because our accounts receivable are typically unsecured, weperiodically evaluate the collectibility of our accounts based on a combinationof factors, including a particular customer’s ability to pay as well as the ageof the receivables. To evaluate a specific customer’s ability to pay, weanalyze financial statements, payment history, third-party credit analysisreports and various information or disclosures by the customer or otherpublicly available information. In cases where the evidence suggests a customermay not be able to satisfy its obligation to us, we set up a specific allowancein an amount we determine appropriate for the perceived risk. If the financialcondition of our customers were to deteriorate, resulting in an impairment oftheir ability to make payments, additional allowances may be required.

 

**Inventory obsolescence reserve**

** **

We purchase inventory based onforecasted demand and record inventory at the lower of cost or market. Wereserve for estimated obsolescence as necessary in an amount equal to thedifference between the cost of inventory and estimated market value based onassumptions of future demands and market conditions. We evaluate our inventoryvaluation on a quarterly basis based on current and forecasted usage and thelatest forecasts of product demand and production requirements from ourcustomers. Customers frequently make changes to their forecasts, requiring us tomake changes to our inventory purchases, commitments, and production schedulingand may require us to cancel open purchase commitments with our vendors. Thisprocess may lead to on-hand inventory quantities and on-order purchase commitmentsthat are in excess of our customer’s revised needs, or parts that becomeobsolete before use in production. We record inventory reserves on excess andobsolete inventory. These reserves are established on inventory which we havedetermined that our customers are not responsible for or on inventory that webelieve our customers are unable to fulfill their obligation to ultimatelypurchase such inventory from us. If actual market conditions are less favorablethan those we projected, additional inventory write-downs may be required.

 

**Income Taxes**

** **

We estimate our income tax provisionin each of the jurisdictions in which we operate, including estimatingexposures related to examinations by taxing authorities. We must also makejudgments regarding the ability to realize the deferred tax assets. We record avaluation allowance to reduce our deferred tax assets to the amount that ismore likely than not to be realized. While we have considered future taxableincome and ongoing prudent and feasible tax planning strategies in assessingthe need for the valuation allowance, in the event we were to subsequentlydetermine that we would be able to realize our deferred tax assets in excess ofour net recorded amount, an adjustment to the valuation allowance wouldincrease income in the period such determination was made. Similarly, should wedetermine that we would not be able to realize all or part of our net deferredtax assets in the future, an adjustment to the valuation allowance would reduceincome in the period such determination was made.

 

30

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We are subject to examination by taxauthorities for varying periods in various U.S. and foreign tax jurisdictions.During the course of such examinations disputes occur as to matters of factand/or law. Also, in most tax jurisdictions the passage of time withoutexamination will result in the expiration of applicable statutes of limitationsthereby precluding the taxing authority from conducting an examination of thetax period(s) for which such statute of limitations has expired. Webelieve that we have adequately provided for our tax liabilities.

 

**Impairment of Long-Lived Assets**

In accordance with SFAS No. 144,long-lived assets, such as property, plant, and equipment, and purchasedintangibles subject to amortization, are reviewed for impairment wheneverevents or changes in circumstances indicate that the carrying amount of anasset may not be recoverable. The recoverability of assets to be held and usedis measured by a comparison of the carrying amount of an asset to the estimatedundiscounted future cash flows expected to be generated by the asset. If thecarrying amount of an asset exceeds its estimated undiscounted future cashflows, an impairment charge would be recognized by the amount that the carryingamount of the asset exceeds the fair value of the asset.

 

Goodwill and intangible assets thathave indefinite useful lives are tested annually for impairment, and are testedfor impairment more frequently if events and circumstances indicate that theasset might be impaired. An impairment loss would be recognized to the extentthat the carrying amount exceeds the asset’s fair value. We completed theannual impairment test during the fourth quarter of 2007 and determined that noimpairment existed as of the date of the impairment test. Goodwill and intangibleassets are measured at the reporting unit level, which we have determined to beconsistent with our operating segments as defined in Note 13 to theConsolidated Financial Statements in Item 8 of this report, by determining thefair values of the reporting units using a discounted cash flow model andcomparing those fair values to the carrying values, including goodwill, of thereporting unit. At December 31, 2007, we had net goodwill of approximately$283.7 million, including $170.7 million resulting from 2007 acquisitions.Circumstances that may lead to impairment of goodwill include unforeseendecreases in future performance or industry demand, and the restructuring ofour operations as a result of a change in our business strategy.

 

**Stock-BasedCompensation**

Inaccordance with the provisions of SFAS No. 123 (Revised 2004) and theSecurity and Exchange Commission Staff Accounting Bulletin No. 107 (SAB107), we began recognizing stock-based compensation expense in our consolidatedstatement of income on January 1, 2006. The fair value of each optiongrant is estimated on the date of grant using the Black-Scholes option-pricingmodel. Option pricing models require the input of subjective assumptions,including the expected life of the option and the expected stock pricevolatility. Judgment is also required in estimating the number of option awardsthat are expected to vest as a result of satisfaction of time-based vestingschedules. If actual results or future changes in estimates differ significantlyfrom our current estimates, stock-based compensation could increase ordecrease. See Note 1 to the Consolidated Financial Statements in Item 8 of thisreport.

 

**RecentlyEnacted Accounting Principles**

SeeNote 1 to the Consolidated Financial Statements in Item 8 of this report for adiscussion of recently enacted accounting principles.

 

31

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** **

**RESULTS OF OPERATIONS**

** **

The following table presents thepercentage relationship that certain items in our Consolidated Statements ofIncome bear to sales for the periods indicated. The financial information andthe discussion below should be read in conjunction with the ConsolidatedFinancial Statements and Notes thereto in Item 8 of this report.

 
| ** **                                    | ** ** | **Year ended December 31,** | ** ** |
|-----------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                    | ** ** | **2007**                                   | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                          |       |                                       |       |   |   |   |   |
| Sales                                         |       | 100.0                                      | %          | 100.0 | % | 100.0 | % |
| Cost of sales                                 |       | 93.2                                       |       | 93.1 |   | 92.8 |   |
|                                          |       |                                       |       |   |   |   |   |
| Gross profit                                  |       | 6.8                                        |       | 6.9 |   | 7.2 |   |
| Selling, general  and administrative expenses |       | 3.2                                        |       | 2.4 |   | 2.8 |   |
| Amortization of  intangibles                  |       | 0.1                                        |       | — |   | — |   |
| Restructuring  charges and integration costs  |       | 0.4                                        |       | 0.2 |   | — |   |
|                                          |       |                                       |       |   |   |   |   |
| Income from  operations                       |       | 3.1                                        |       | 4.3 |   | 4.4 |   |
| Other income                                  |       | 0.3                                        |       | 0.2 |   | 0.3 |   |
|                                          |       |                                       |       |   |   |   |   |
| Income before  income taxes                   |       | 3.5                                        |       | 4.5 |   | 4.7 |   |
| Income tax  expense                           |       | (0.3                                       | )          | (0.7 | ) | (1.1 | ) |
|                                          |       |                                       |       |   |   |   |   |
| Net income                                    |       | 3.2                                        | %          | 3.8 | % | 3.6 | % |

** **

**Year Ended December 31, 2007 Compared With Year Ended December 31,2006**

** **

**Sales**

Sales for the year ended December 31,2007 and 2006 were $2.9 billion in each year. The following table sets forththe percentages of our sales by industry for 2007 and 2006.

 
| ** **                                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
|-----------------------------------------------------------------|------------|----------|------------|----------|------------|
| Computers &  related products for business enterprises |       | 53       | %          | 58       | %          |
| Telecommunication  equipment                                    |       | 15       |       | 12       |       |
| Medical devices                                                 |       | 13       |       | 13       |       |
| Industrial  control equipment                                   |       | 13       |       | 11       |       |
| Testing &  instrumentation products                    |       | 6        |       | 6        |       |
|                                                            |       | 100      | %          | 100      | %          |

 

A substantial percentage of our sales have beenmade to a small number of customers, and the loss of a major customer, if notreplaced, would adversely affect us. Sales to our largest customer, SunMicrosystems, Inc., represented 22% of our sales during 2007 compared to39% of our sales in 2006. Sales to this customer decreased to $643.9 million in2007 from $1.1 billion in 2006, a decrease of 42%. This decrease isattributable to a combination of product transitions, the impact of secondsourcing and reduced demand for certain products. The decrease in sales to ourlargest customer was offset by an increase in sales of $483.5 million,primarily a result of the Merger and increased sales under new programs. Ourfuture sales are dependent on the success of our customers, some of whichoperate in businesses associated with rapid technological change and consequentproduct obsolescence. Developments adverse to our major customers or theirproducts, or the failure of a major customer to pay for components or services,could have an adverse effect on us. See Note 10 to the Consolidated FinancialStatements in Item 8 of this report.

 

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Our international operations aresubject to the risks of doing business abroad. These risks have not had amaterial adverse effect on our results of operations through December 31,2007. However, we can make no assurances that there will not be an adverseimpact in the future. See Item 1A for factors pertaining to our internationalsales and fluctuations in the exchange rates of foreign currency and forfurther discussion of potential adverse effects in operating results associatedwith the risks of doing business abroad. During 2007 and 2006, 43% and 37%,respectively, of our sales were from our international operations.

 

We had a backlog of approximately$1.7 billion at December 31, 2007, as compared to the 2006 year-endbacklog of $1.9 billion. Backlog consists of purchase orders received,including, in some instances, forecast requirements released for productionunder customer contracts. Although we expect to fill substantially all of ourbacklog during 2008, at December 31, 2007, we did not have long-termagreements with all of our customers and customer orders can be canceled,changed or delayed by customers. The timely replacement of canceled, changed ordelayed orders with orders from new customers cannot be assured, nor can therebe any assurance that any of our current customers will continue to utilize ourservices. Because of these factors, backlog is not a meaningful indicator offuture financial results.

 

**Gross Profit**

Gross profit decreased 0.3% to $198.9million for 2007 from $199.5 million in 2006. Gross profit as a percentage ofsales decreased to 6.8% during 2007 from 6.9% in 2006 due primarily tounder-absorbed costs. Our margin has also been impacted by inefficiencies andresources necessary for the integration activities related to the acquisitionsin 2007, as well as the closing of several facilities. We experiencefluctuations in gross profit from period to period. Fluctuations in 2007 weredue primarily to changes in production levels, production mix, inventorylevels, new program ramps, product crossovers and other factors, including theimpacts of acquisitions in 2007 and restructuring activities. Differentprograms contribute different gross profits depending on factors such as thetypes of services involved, location of production, size of the program,complexity of the product, and level of material costs associated with thevarious products. Moreover, new programs can contribute relatively less to ourgross profit in their early stages when manufacturing volumes are usuallylower, resulting in inefficiencies and unabsorbed manufacturing overhead costs.In addition, a number of our new and higher volume programs remain subject tocompetitive constraints that could exert downward pressure on our margins inthe near future.

 

**Selling, General and Administrative Expenses**

Selling, general and administrativeexpenses increased 36% to $93.9 million in 2007 from $69.3 million in 2006.Selling, general and administrative expenses, as a percentage of sales, were3.2% and 2.4%, respectively, for 2007 and 2006. The increase in selling,general and administrative expenses is primarily associated with the Merger.

 

**RestructuringCharges and Integration Costs**

Werecognized $11.6 million in restructuring charges and integration costs during2007 related to reductions in workforce and the re-sizing and closure of certainfacilities and the integration of the facilities acquired in the Merger. Inconnection with these activities, we recorded restructuring charges foremployee termination costs and other restructuring and integration relatedcosts.

 

Therecognition of the restructuring charges requires that we make certainjudgments and estimates regarding the nature, timing and amount of costsassociated with the planned exit activity. To the extent our actual results inexiting these facilities differ from our estimates and assumptions, we may berequired to revise the estimates of future liabilities, requiring therecognition of additional restructuring charges or the reduction of liabilitiesalready recognized. At the end of each reporting period, we evaluate the remainingaccrued balances to ensure that no excess accruals are retained and theutilization of the provisions are for their intended purpose in accordance withdeveloped exit plans. See Note 16 to the Consolidated Financial Statementsin Item 8 of this report.

 

33

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** **

**Interest Expense**

Interestexpense for 2007 and 2006 was $2.2 million and $0.4 million, respectively.  The increase is due to interest expense onthe debt assumed in the Merger. See Note 6 to the Consolidated FinancialStatements in Item 8 of this report.

 

**Income Tax Expense**

Income tax expense of $8.1 millionrepresented an effective tax rate of 8.0% for 2007, compared with $20.1 millionat an effective tax rate of 15.2% for the same period in 2006. The decrease inthe effective tax rate is primarily due to a discrete tax benefit of $6.5million recorded in the third quarter of 2007 related to a previously closedfacility that generated a worthless stock deduction and an increase intax-exempt income in certain foreign locations in 2007. In 2006, a discrete taxbenefit of $4.8 million related to the closure of our Leicester, Englandfacility was recorded in the first quarter. See Note 9 to the ConsolidatedFinancial Statements in Item 8 of this report.

 

**Net Income**

We reported net income ofapproximately $93.3 million, or diluted earnings per share of $1.28 for 2007,compared with net income of approximately $111.7 million, or diluted earningsper share of $1.71 for 2006. The net decrease of $18.4 million in 2007 was dueto the factors discussed above.

 

**Year Ended December 31, 2006 Compared With Year Ended December 31,2005**

** **

**Sales**

Sales for 2006 were $2.9 billion, a29% increase from sales of $2.3 billion in 2005. The increase of $650.1 millionresulted from increased sales under new programs and increased activity withexisting customers across all industry sectors.

 

The following table sets forth thepercentages of our sales by industry for 2006 and 2005.

 
| ** **                                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
|-----------------------------------------------------------------|------------|----------|------------|----------|------------|
| Computers &  related products for business enterprises |       | 58       | %          | 56       | %          |
| Medical devices                                                 |       | 13       |       | 12       |       |
| Telecommunication  equipment                                    |       | 12       |       | 14       |       |
| Industrial  control equipment                                   |       | 11       |       | 12       |       |
| Testing &  instrumentation products                    |       | 6        |       | 6        |       |
|                                                            |       | 100      | %          | 100      | %          |

 

During 2006 and 2005, 37% and 35%,respectively, of our sales were from our international operations. The increasein the percentage of international sales for 2006 as compared to 2005 primarilyreflects the additional sales resulting from the operation of the facilities inThailand, including the Thailand systems integration facility which beganoperations in August 2005.

 

We had a backlog of approximately$1.9 billion at December 31, 2006, as compared to the 2005 year-endbacklog of $1.7 billion.

 

**Gross Profit**

Gross profit increased 23% to $199.5million for 2006 from $161.6 million in 2005. Gross profit as a percentage ofsales decreased to 6.9% during 2006 from 7.2% in 2005. Comparing 2006 to 2005,the fluctuations were due to changes in production levels, production mix,inventory levels, new program ramps, product crossovers and other factors.

 

34

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** **

**Selling, General and Administrative Expenses**

Selling, general and administrativeexpenses increased 11% to $69.3 million in 2006 from $62.3 million in 2005. Theincrease in selling, general and administrative expenses during 2006 ispartially due to the recognition of $2.6 million of stock-based compensationexpense resulting from the adoption of SFAS No. 123R. Additional increasesare a result of corporate and administrative expenses necessary to support theincreased size and complexity of our business. Selling, general andadministrative expenses, as a percentage of sales, were 2.4% and 2.8%,respectively, for 2006 and 2005. The decrease in selling, general and administrativeexpenses as a percentage of sales is primarily associated with the increase insales.

 

**Income Tax Expense**

Income tax expense of $20.1 millionrepresented an effective tax rate of 15.2% in 2006, compared with $25.2 millionat an effective tax rate of 23.8% in 2005. The decrease in the effective taxrate is primarily due to a tax benefit of $4.8 million related to the closureof our Leicester, England facility recorded in the first quarter of 2006 and anincrease in tax-exempt income in certain foreign locations. See Note 9 to theConsolidated Financial Statements in Item 8 of this report.

 

**Net Income**

We reported net income ofapproximately $111.7 million, or diluted earnings per share of $1.71 for 2006,compared with net income of approximately $80.6 million, or diluted earningsper share of $1.25 for 2005. The net increase of $31.1 million in 2006 was dueto the factors discussed above.

 

**LIQUIDITY AND CAPITAL RESOURCES**

Wehave historically financed our growth and operations through funds generatedfrom operations, proceeds from the sale of our securities and funds borrowedunder our credit facilities. Cash and cash equivalents increased to $199.2million at December 31, 2007 from $123.9 million at December 31,2006.

 

 Cashprovided by operating activities was $282.1 million in 2007. The cash providedby operations during 2007 consisted primarily of $93.3 million of net incomeadjusted for $43.1 million of depreciation and amortization, a $111.6million decrease in accounts receivable, and a $134.8 million decrease ininventories offset by a $109.3 million decrease in accounts payable. Workingcapital was $884.2 million at December 31, 2007 and $760.9 million at December 31,2006. The increase in working capital during 2007 is primarily due to the levelof business activity during the period including the impact of the Merger.

 

Weexpect increases in working capital to support the anticipated growth in sales.We are continuing the practice of purchasing components only after customerorders are received, which mitigates, but does not eliminate the risk of losson inventories. Supplies of electronic components and other materials used inoperations are subject to industry-wide shortages. In certain instances,suppliers may allocate available quantities to us. We did not experienceshortages of electronic components and other material supplies during thereporting period. If shortages of these components and other material suppliesused in operations occur, vendors may not ship the quantities we need for productionand we may be forced to delay shipments, which would increase backorders.

 

 Cash used in investing activities was $97.1million for the year ended December 31, 2007 primarily due to the purchaseof short-term investments and additional property, plant and equipment offsetby the sale of our short-term investments and the net cash acquired inacquisitions during the year. Capital expenditures of $17.0 million wereprimarily concentrated in manufacturing production equipment in Asia to supportour ongoing business and to expand certain existing manufacturing operations.

 

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Cashused in financing activities was $114.5 million for the year ended December 31,2007. During 2007, we received $9.2 million from the exercise of stock optionsand $1.6 million in federal tax benefits of stock options exercised. As adirect result of the Merger, we assumed approximately $89.4 million ofindebtedness, including $5 million in convertible senior subordinated notes. Subsequentto the Merger, we reduced the assumed debt by $72.2 million. The convertiblesenior subordinated notes matured on May 1, 2007 and were converted into0.4 million common shares at the request of the noteholders. On July 25,2007, our Board of Directors approved the repurchase of up to $125 million ofour outstanding common shares. During the year ended December 31, 2007,share repurchases totaled $53.0 million.

 

Underthe terms of a Credit Agreement (the Credit Agreement), we have a $100.0million five-year revolving credit facility for general corporate purposes witha maturity date of December 21, 2012. The Credit Agreement includes anaccordion feature under which total commitments under the facility may beincreased by an additional $100 million, subject to satisfaction of certainconditions. Interest on outstanding borrowings under the Credit Agreement ispayable quarterly, at our option, at either the bank’s Eurodollar rate plus0.75% to 1.75% or its prime rate plus 0.00% to 0.25%, based upon our debt ratioas specified in the Credit Agreement. A commitment fee of 0.15% to 0.35% perannum (based upon our debt ratio) on the unused portion of the revolving creditline is payable quarterly in arrears. As of December 31, 2007, we had noborrowings outstanding under the Credit Agreement, $0.3 million letters ofcredit outstanding and $99.7 million was available for future borrowings.

 

The Credit Agreement is secured byour domestic inventory and accounts receivable, 100% of the stock of ourdomestic subsidiaries, and 65% of the voting capital stock of each directforeign subsidiary and substantially all of our and our domestic subsidiaries’other tangible and intangible assets. The Credit Agreement contains customaryfinancial covenants as to working capital, debt leverage, fixed charges, andconsolidated net worth, and restricts our ability to incur additional debt, paydividends, sell assets and to merge or consolidate with other persons withoutthe consent of the banks. As of December 31, 2007, we were in compliancewith all such covenants and restrictions.

 

OurThailand subsidiary has a credit agreement with Kasikornbank Public Company(the Thai Credit Agreement). The Thai Credit Agreement provides that the lenderwill make available to our Thailand subsidiary up to approximately$16 million in revolving loans and machinery loans. The Thai CreditAgreement is secured by land, buildings and machinery in Thailand. In addition,the Thai Credit Agreement provides for approximately $2.0 million (62 millionThai baht) in working capital availability in the form of working capital loans(10 million Thai baht) and bank guarantees (52 million Thai baht). Availabilityof funds under the Thai Credit Agreement is reviewed annually and is currentlyaccessible through September 2008. As of December 31, 2007, ourThailand subsidiary had no working capital borrowings outstanding.

 

Ouroperations, and the operations of businesses we acquire, are subject to certainforeign, federal, state and local regulatory requirements relating toenvironmental, waste management, health and safety matters. We believe weoperate in substantial compliance with all applicable requirements and we seekto ensure that newly acquired businesses comply or will comply substantiallywith applicable requirements. To date, the costs of compliance and workplaceand environmental remediation have not been material to us. However, materialcosts and liabilities may arise from these requirements or from new, modifiedor more stringent requirements in the future. In addition, our past, currentand future operations, and the operations of businesses we have or may acquire,may give rise to claims of exposure by employees or the public, or to otherclaims or liabilities relating to environmental, waste management or health andsafety concerns.

 

36

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Asof December 31, 2007, we had cash and cash equivalents totaling $199.2million, short-term investments totaling $182.8 million and $99.7 millionavailable for borrowings under our revolving credit line. As of February 27,2008, we hold $95.4 million of auction rate securities. We believe we will beable to liquidate our investments in these securities within the next yearwithout loss, and we currently believe these securities are not significantlyimpaired, primarily due to the credit quality of the underlying assets,however, it could take until the final maturity of the underlying assets (up to40 years) to realize our investments’ recorded value. Based on our expectedoperating cash flows, and our other sources of cash, we do not anticipate thepotential lack of liquidity on these investments will affect our ability toexecute our current business plan. We believe that during the next twelvemonths, our capital expenditures will be approximately $35 to $45 million,principally for machinery and equipment to support our ongoing business aroundthe globe, in addition to our planned expansion in Asia, primarily a newbuilding in China. On July 25, 2007, our Board of Directors approved therepurchase of up to $125 million of our outstanding common shares. During theperiod from July 25, 2007 to December 31, 2007, we repurchased atotal of 2.6 million common shares for $53.0 million at an average price of$20.33 per share. Through February 27, 2008, we have repurchased a totalof 4.1 million shares for $77.3 million at an average price of $18.86 pershare. We currently have $47.7 million remaining under the plan to purchaseadditional shares. We are under no commitment or obligation to repurchase anyparticular amount of common shares and share purchases may be suspended at anytime at management’s discretion. Management believes that our existing cash andshort-term investment balances and funds generated from operations will besufficient to permit us to meet our liquidity requirements over the next twelvemonths. Management further believes that our ongoing cash flows from operationsand any borrowings we may incur under our credit facilities will enable us tomeet operating cash requirements in future years. Should we desire to consummatesignificant acquisition opportunities, our capital needs would increase andcould possibly result in our need to increase available borrowings under ourrevolving credit facility or access public or private debt and equity markets.There can be no assurance, however, that we would be successful in raisingadditional debt or equity on terms that we would consider acceptable.

 

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** **

**CONTRACTUAL OBLIGATIONS**

** **

We have certain contractualobligations that extend out beyond 2008 under lease obligations and debtarrangements. Non-cancelable purchase commitments do not typically extendbeyond the normal lead-time of several weeks. Purchase orders beyond this timeframe are typically cancelable. We do not utilize off-balance sheet financingtechniques other than traditional operating leases and we have not guaranteedthe obligations of any entity that is not one of our wholly owned subsidiaries.The total contractual cash obligations in existence at December 31, 2007due pursuant to contractual commitments are:

 
| ** **                                                       | ** ** | **Payments due by period** | ** ** |
|------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                       | ** ** | ** **                                | ** ** | **Less than** | ** ** | **1-3** | ** ** | **3-5** | ** ** | **More than** | ** ** |
| **(in thousands)**                                          | ** ** | **Total**                                 | ** ** | **1 year** | ** ** | **years** | ** ** | **years** | ** ** | **5 years** | ** ** |
|                                                             |       |                                      |       |   |   |   |   |   |   |   |   |
| Operating lease  obligations                                     |       | $                                         | 47,862     |   | $ | 11,658 |   | $ | 16,521 |   | $ | 6,487 |   | $ | 13,196 |   |
| Long-term debt  and capital lease obligations                    |       | 12,526                                    |       | 430 |   | 561 |   | 795 |   | 10,740 |   |
| Future interest  on long-term debt and capital lease obligations |       | 12,814                                    |       | 1,241 |   | 2,384 |   | 2,255 |   | 6,934 |   |
|                                                             |       |                                      |       |   |   |   |   |   |   |   |   |
| Total  obligations                                               |       | $                                         | 73,202     |   | $ | 13,329 |   | $ | 19,466 |   | $ | 9,537 |   | $ | 30,870 |   |

 

Weadopted FASB Interpretation No. 48, “Accounting for Uncertainty in IncomeTaxes, an interpretation of FASB Statement No. 109” (FIN 48) on January 1,2007. The amount of unrecognized tax benefits as of December 31, 2007 was$31.1 million. We have not provided a detailed estimate of the timing offuture cash outflows associated with the liabilities recognized in this balancedue to the uncertainty of when the related tax settlements will become due. SeeNote 1 (q) to the Consolidated Financial Statements in Item 8 of thisreport.

 

**OFF-BALANCE SHEET ARRANGEMENTS**

** **

As of December 31, 2007, we didnot have any significant off-balance sheet arrangements. See Note 11 to theConsolidated Financial Statements in Item 8 of this report.

 

38

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**Item 7A.**  ***Quantitative andQualitative Disclosures About Market Risk***

 

Ourinternational sales are a significant portion of our net sales; we are exposedto risks associated with operating internationally, including the following:

 

·                  Foreigncurrency exchange risk;

·                  Import andexport duties, taxes and regulatory changes;

·                  Inflationaryeconomies or currencies; and

·                  Economic andpolitical instability.

 

We do not use derivative financial instruments forspeculative purposes. As of December 31, 2007, we did not have any foreigncurrency hedges. In the future, significant transactions involving ourinternational operations may cause us to consider engaging in hedgingtransactions to attempt to mitigate our exposure to fluctuations in foreignexchange rates. These exposures areprimarily, but not limited to, vendor payments and inter-company balances incurrencies other than the currency in which our foreign operations primarilygenerate and expend cash. Our international operations in some instancesoperate in a natural hedge because both operating expenses and a portion ofsales are denominated in local currency.  Our sales are substantially denominated in U.S. dollars. Our foreigncurrency cash flows are generated in certain Asian and European countries,Mexico and Brazil. With the acquisition of Pemstar, our foreign currency cashflows have increased.

 

Weare also exposed to market risk for changes in interest rates, a portion ofwhich relates to our short-term investment portfolio. We do not use derivativefinancial instruments in our investment portfolio. We place cash and cashequivalents and investments with various major financial institutions. Weprotect our invested principal funds by limiting default risk, market risk andreinvestment risk. We mitigate default risk by generally investing ininvestment grade securities. As of December 31, 2007, the outstandingamount in the short-term investment portfolio was $182.8 million ofauction rate securities with an average return of approximately 4.7%.

 

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** **

**Item8.  *Financial Statements andSupplementary Data***

 

**BENCHMARK ELECTRONICS, INC. ANDSUBSIDIARIES**

**Consolidated Balance Sheets**

 
| ** **                                                                                      | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| **(in thousands, except for par value)**                               | ** ** | **2007**              | ** ** | **2006** | ** ** |
|                                                                                            |       |                  |       |   |   |
| Assets                                                                                          |       |                  |       |   |   |
| Current assets:                                                                                 |       |                  |       |   |   |
| Cash and cash  equivalents                                                                      |       | $                     | 199,198    |   | $ | 123,872 |   |
| Short-term  investments                                                                         |       | 182,825               |       | 100,460 |   |
| Accounts receivable,  net of allowance for doubtful accounts of $1,406 and $1,430, respectively |       | 485,907               |       | 462,953 |   |
| Inventories, net                                                                                |       | 361,952               |       | 420,347 |   |
| Prepaid expenses  and other assets                                                              |       | 60,847                |       | 56,444 |   |
| Deferred income  taxes                                                                          |       | 14,562                |       | 6,534 |   |
|                                                                                            |       |                  |       |   |   |
| Total current  assets                                                                           |       | 1,305,291             |       | 1,170,610 |   |
|                                                                                            |       |                  |       |   |   |
| Property, plant  and equipment, net                                                             |       | 144,182               |       | 110,912 |   |
| Goodwill, net                                                                                   |       | 283,725               |       | 112,999 |   |
| Other, net                                                                                      |       | 29,650                |       | 11,599 |   |
|                                                                                            |       |                  |       |   |   |
|                                                                                            |       | $                     | 1,762,848  |   | $ | 1,406,120 |   |
|                                                                                            |       |                  |       |   |   |
| Liabilities and  Shareholders’ Equity                                                      |       |                  |       |   |   |
| Current  liabilities:                                                                           |       |                  |       |   |   |
| Current  installments of long-term debt and capital lease obligations                           |       | $                     | 430        |   | $ | — |   |
| Accounts payable                                                                                |       | 359,422               |       | 335,470 |   |
| Income taxes  payable                                                                           |       | 1,699                 |       | 31,300 |   |
| Accrued  liabilities                                                                            |       | 59,509                |       | 42,948 |   |
|                                                                                            |       |                  |       |   |   |
| Total current liabilities                                                                       |       | 421,060               |       | 409,718 |   |
|                                                                                            |       |                  |       |   |   |
| Long-term debt  and capital lease obligations, less current installments                        |       | 12,096                |       | — |   |
| Other long-term  liabilities                                                                    |       | 31,762                |       | 2,306 |   |
| Deferred income  taxes                                                                          |       | 9,408                 |       | 9,074 |   |
| Shareholders’  equity:                                                                     |       |                  |       |   |   |
| Preferred shares,  $0.10 par value; 5,000 shares authorized, none issued                        |       | —                |       | — |   |
| Common shares,  $0.10 par value; 145,000 shares authorized;                                     |       |                  |       |   |   |
| issued - 70,687  and 64,862, respectively; outstanding - 70,576 and 64,751, respectively        |       | 7,058                 |       | 6,475 |   |
| Additional paid-in  capital                                                                     |       | 793,272               |       | 586,349 |   |
| Retained  earnings                                                                              |       | 486,848               |       | 398,949 |   |
| Accumulated  other comprehensive income (loss)                                                  |       | 1,616                 |       | (6,479 | ) |
| Less treasury  shares, at cost; 111 shares                                                      |       | (272                  | )          | (272 | ) |
|                                                                                            |       |                  |       |   |   |
| Total  shareholders’ equity                                                                |       | 1,288,522             |       | 985,022 |   |
| Commitments and  contingencies                                                                  |       |                  |       |   |   |
|                                                                                            |       |                  |       |   |   |
|                                                                                            |       | $                     | 1,762,848  |   | $ | 1,406,120 |   |

 

See accompanying notes toconsolidated financial statements.

 

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**BENCHMARKELECTRONICS, INC. AND SUBSIDIARIES**

**ConsolidatedStatements of Income**

 
| ** **                                                         | ** ** | **Year ended December 31,** | ** ** |
|--------------------------------------------------------------------|------------|--------------------------------------------|------------|
| **(in thousands, except per share data)** | ** ** | **2007**                                   | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                                               |       |                                       |       |   |   |   |   |
| Sales                                                              |       | $                                          | 2,915,919  |   | $ | 2,907,304 |   | $ | 2,257,225 |   |
| Cost of sales                                                      |       | 2,716,985                                  |       | 2,707,781 |   | 2,095,623 |   |
|                                                               |       |                                       |       |   |   |   |   |
| Gross profit                                                       |       | 198,934                                    |       | 199,523 |   | 161,602 |   |
| Selling, general  and administrative expenses                      |       | 93,932                                     |       | 69,299 |   | 62,322 |   |
| Amortization of  intangibles                                       |       | 1,788                                      |       | — |   | — |   |
| Restructuring  charges and integration costs                       |       | 11,581                                     |       | 4,723 |   | — |   |
|                                                               |       |                                       |       |   |   |   |   |
| Income from  operations                                            |       | 91,633                                     |       | 125,501 |   | 99,280 |   |
| Interest expense                                                   |       | (2,183                                     | )          | (354 | ) | (330 | ) |
| Interest income                                                    |       | 11,217                                     |       | 8,824 |   | 7,786 |   |
| Other income  (expense)                                            |       | 693                                        |       | (2,214 | ) | (922 | ) |
|                                                               |       |                                       |       |   |   |   |   |
| Income before  income taxes                                        |       | 101,360                                    |       | 131,757 |   | 105,814 |   |
| Income tax  expense                                                |       | (8,078                                     | )          | (20,080 | ) | (25,225 | ) |
|                                                               |       |                                       |       |   |   |   |   |
| Net income                                                         |       | $                                          | 93,282     |   | $ | 111,677 |   | $ | 80,589 |   |
|                                                               |       |                                       |       |   |   |   |   |
| Earnings per  share:                                               |       |                                       |       |   |   |   |   |
| Basic                                                              |       | $                                          | 1.29       |   | $ | 1.74 |   | $ | 1.29 |   |
| Diluted                                                            |       | $                                          | 1.28       |   | $ | 1.71 |   | $ | 1.25 |   |
|                                                               |       |                                       |       |   |   |   |   |
| Weighted-average  number of shares outstanding:                    |       |                                       |       |   |   |   |   |
| Basic                                                              |       | 72,061                                     |       | 64,306 |   | 62,682 |   |
| Diluted                                                            |       | 72,829                                     |       | 65,121 |   | 64,279 |   |

 

See accompanyingnotes to consolidated financial statements.

 

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**BENCHMARKELECTRONICS, INC. AND SUBSIDIARIES**

**ConsolidatedStatements of Comprehensive Income**

 
| ** **                                | ** ** | **Year ended December 31,** | ** ** |
|-------------------------------------------|------------|--------------------------------------------|------------|
| **(in thousands)**                   | ** ** | **2007**                                   | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                      |       |                                       |       |   |   |   |   |
| Net income                                |       | $                                          | 93,282     |   | $ | 111,677 |   | $ | 80,589 |   |
| Other  comprehensive income:              |       |                                       |       |   |   |   |   |
| Foreign currency  translation adjustments |       | 8,019                                      |       | 1,772 |   | 3,473 |   |
| Other                                     |       | 76                                         |       | (76 | ) | — |   |
|                                      |       |                                       |       |   |   |   |   |
| Comprehensive  income                     |       | $                                          | 101,377    |   | $ | 113,373 |   | $ | 84,062 |   |

 

Accumulated unrealized foreigncurrency translation gains (losses) were $1.6 million, ($6.4) million and($8.2) million at December 31, 2007, 2006 and 2005, respectively. Foreigncurrency translation adjustments consist of adjustments to consolidatesubsidiaries that use the local currency as their functional currency andtransaction gains and losses related to intercompany dollar-denominated debtthat is not expected to be repaid in the foreseeable future.

 

See accompanying notes to consolidated financialstatements.

 

42

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**BENCHMARKELECTRONICS, INC. AND SUBSIDIARIES**

**ConsolidatedStatements of Shareholders’ Equity**

 
| ** **                                               | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** | ** **   | ** ** | **Accumulated**        | ** ** | ** **   | ** ** | ** **             | ** ** |
|----------------------------------------------------------|------------|------------|------------|------------|------------|----------------|------------|--------------|------------|------------------------|------------|--------------|------------|------------------------|------------|
| ** **                                               | ** ** | ** ** | ** ** | ** ** | ** ** | **Additional** | ** ** | ** **   | ** ** | **other**              | ** ** | ** **   | ** ** | **Total**              | ** ** |
| ** **                                               | ** ** | ** ** | ** ** | **Common** | ** ** | **paid-in**    | ** ** | **Retained** | ** ** | **comprehensive**      | ** ** | **Treasury** | ** ** | **shareholders’** | ** ** |
| **(in thousands)**                                  | ** ** | **Shares** | ** ** | **shares** | ** ** | **capital**    | ** ** | **earnings** | ** ** | **income (loss)** | ** ** | **shares**   | ** ** | **equity**             | ** ** |
| ** **                                               | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** | ** **   | ** ** | ** **             | ** ** | ** **   | ** ** | ** **             | ** ** |
| Balances,  December 31, 2004                        |       | 62,403     |       | $          | 6,240      |           | $          | 550,514      |       | $                      | 206,683    |         | $          | (11,648                | )          | $ | (272 | ) | $ | 751,517 |   |
| Stock options  exercised                                 |       | 729        |       | 73         |       | 5,995          |       | —       |       | —                 |       | —       |       | 6,068                  |       |
| Federal tax  benefit of stock options exercised          |       | —     |       | —     |       | 2,375          |       | —       |       | —                 |       | —       |       | 2,375                  |       |
| Common shares  issued under Employee Stock Purchase Plan |       | 117        |       | 12         |       | 2,003          |       | —       |       | —                 |       | —       |       | 2,015                  |       |
| Federal tax  benefit of Employee Stock Purchase Plan     |       | —     |       | —     |       | 82             |       | —       |       | —                 |       | —       |       | 82                     |       |
| Comprehensive  income                                    |       | —     |       | —     |       | —         |       | 80,589       |       | 3,473                  |       | —       |       | 84,062                 |       |
|                                                     |       |       |       |       |       |           |       |         |       |                   |       |         |       |                   |       |
| Balances,  December 31, 2005                        |       | 63,249     |       | 6,325      |       | 560,969        |       | 287,272      |       | (8,175                 | )          | (272         | )          | 846,119                |       |
| Stock-based  compensation expense                        |       | —     |       | —     |       | 2,952          |       | —       |       | —                 |       | —       |       | 2,952                  |       |
| Stock split                                              |       | (1         | )          | —     |       | (66            | )          | —       |       | —                 |       | —       |       | (66                    | )          |
| Stock options  exercised                                 |       | 1,503      |       | 150        |       | 15,920         |       | —       |       | —                 |       | —       |       | 16,070                 |       |
| Federal tax  benefit of stock options exercised          |       | —     |       | —     |       | 6,512          |       | —       |       | —                 |       | —       |       | 6,512                  |       |
| Federal tax  benefit of Employee Stock Purchase Plan     |       | —     |       | —     |       | 62             |       | —       |       | —                 |       | —       |       | 62                     |       |
| Comprehensive  income                                    |       | —     |       | —     |       | —         |       | 111,677      |       | 1,696                  |       | —       |       | 113,373                |       |
|                                                     |       |       |       |       |       |           |       |         |       |                   |       |         |       |                   |       |
| Balances,  December 31, 2006                        |       | 64,751     |       | 6,475      |       | 586,349        |       | 398,949      |       | (6,479                 | )          | (272         | )          | 985,022                |       |
| Adoption of FIN  48                                      |       | —     |       | —     |       | —         |       | 19,335       |       | —                 |       | —       |       | 19,335                 |       |
| Stock-based  compensation expense                        |       | —     |       | —     |       | 3,120          |       | —       |       | —                 |       | —       |       | 3,120                  |       |
| Merger                                                   |       | 7,302      |       | 730        |       | 215,240        |       | —       |       | —                 |       | —       |       | 215,970                |       |
| Conversion of  debt                                      |       | 351        |       | 35         |       | 4,965          |       | —       |       | —                 |       | —       |       | 5,000                  |       |
| Shares  repurchased and retired                          |       | (2,602     | )          | (260       | )          | (27,991        | )          | (24,718      | )          | —                 |       | —       |       | (52,969                | )          |
| Stock options  exercised                                 |       | 774        |       | 78         |       | 9,134          |       | —       |       | —                 |       | —       |       | 9,212                  |       |
| Federal tax  benefit of stock options exercised          |       | —     |       | —     |       | 2,455          |       | —       |       | —                 |       | —       |       | 2,455                  |       |
| Comprehensive  income                                    |       | —     |       | —     |       | —         |       | 93,282       |       | 8,095                  |       | —       |       | 101,377                |       |
|                                                     |       |       |       |       |       |           |       |         |       |                   |       |         |       |                   |       |
| Balances,  December 31, 2007                        |       | 70,576     |       | $          | 7,058      |           | $          | 793,272      |       | $                      | 486,848    |         | $          | 1,616                  |       | $ | (272 | ) | $ | 1,288,522 |   |

 

See accompanying notes to consolidated financialstatements.

 

43

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**BENCHMARK ELECTRONICS, INC. AND SUBSIDIARIES**

**Consolidated Statements of Cash Flows**

 
| ** **                                                                                   | ** ** | **Year Ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| **(in thousands)**                                                                      | ** ** | **2007**                                   | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                                                                         |       |                                       |       |   |   |   |   |
| Cash flows from  operating activities:                                                       |       |                                       |       |   |   |   |   |
| Net income                                                                                   |       | $                                          | 93,282     |   | $ | 111,677 |   | $ | 80,589 |   |
| Adjustments to  reconcile net income to net cash provided by (used in) operating activities: |       |                                       |       |   |   |   |   |
| Depreciation and  amortization                                                               |       | 43,132                                     |       | 27,378 |   | 26,168 |   |
| Deferred income  taxes                                                                       |       | 6,562                                      |       | (819 | ) | 7,381 |   |
| Asset  impairments                                                                           |       | 1,453                                      |       | — |   | — |   |
| (Gain) loss on  the sale of property, plant and equipment                                    |       | (409                                       | )          | (67 | ) | 15 |   |
| Stock-based  compensation expense                                                            |       | 3,120                                      |       | 2,952 |   | — |   |
| Federal tax  benefit of disqualified dispositions                                            |       | 813                                        |       | 1,311 |   | 2,457 |   |
| Other, net                                                                                   |       | —                                     |       | — |   | 643 |   |
| Changes in  operating assets and liabilities, net of effects from acquisitions:              |       |                                       |       |   |   |   |   |
| Accounts  receivable                                                                         |       | 111,613                                    |       | (106,032 | ) | (101,770 | ) |
| Inventories                                                                                  |       | 134,781                                    |       | (58,406 | ) | (104,313 | ) |
| Prepaid expenses  and other assets                                                           |       | 23,512                                     |       | (25,214 | ) | (16,437 | ) |
| Accounts payable                                                                             |       | (109,250                                   | )          | (36,919 | ) | 114,715 |   |
| Accrued  liabilities                                                                         |       | (23,906                                    | )          | 1,868 |   | (12,813 | ) |
| Income taxes                                                                                 |       | (2,597                                     | )          | 1,772 |   | 1,636 |   |
|                                                                                         |       |                                       |       |   |   |   |   |
| Net cash  provided by (used in) operations                                                   |       | 282,106                                    |       | (80,499 | ) | (1,729 | ) |
| Cash flows from  investing activities:                                                       |       |                                       |       |   |   |   |   |
| Purchases of  short-term investments                                                         |       | (551,050                                   | )          | (520,380 | ) | (303,320 | ) |
| Proceeds from  sale of short-term investments                                                |       | 468,685                                    |       | 635,880 |   | 329,866 |   |
| Additions to  property, plant and equipment                                                  |       | (17,003                                    | )          | (42,276 | ) | (46,404 | ) |
| Proceeds from  the sale of property, plant and equipment                                     |       | 2,056                                      |       | 586 |   | 278 |   |
| Additions to  purchased software                                                             |       | (3,569                                     | )          | (2,342 | ) | (2,011 | ) |
| Other                                                                                        |       | 400                                        |       | (132 | ) | — |   |
| Net cash  acquired in acquisitions                                                           |       | 3,415                                      |       | — |   | — |   |
|                                                                                         |       |                                       |       |   |   |   |   |
| Net cash  provided by (used in) investing activities                                         |       | (97,066                                    | )          | 71,336 |   | (21,591 | ) |
| Cash flows from  financing activities:                                                       |       |                                       |       |   |   |   |   |
| Proceeds from  stock options exercised                                                       |       | 9,212                                      |       | 16,070 |   | 6,068 |   |
| Proceeds from  employee stock purchase plan                                                  |       | —                                     |       | — |   | 2,015 |   |
| Federal tax  benefit of disqualified dispositions                                            |       | 1,642                                      |       | 5,263 |   | — |   |
| Debt issuance  cost                                                                          |       | (228                                       | )          | — |   | (412 | ) |
| Principal  payments on long-term debt and capital lease obligations                          |       | (88,910                                    | )          | — |   | — |   |
| Proceeds from  long-term debt                                                                |       | 16,760                                     |       | — |   | — |   |
| Share  repurchases                                                                           |       | (52,969                                    | )          | — |   | — |   |
| Stock split  costs                                                                           |       | —                                     |       | (66 | ) | — |   |
|                                                                                         |       |                                       |       |   |   |   |   |
| Net cash  provided by (used in) financing activities                                         |       | (114,493                                   | )          | 21,267 |   | 7,671 |   |
| Effect of  exchange rate changes                                                             |       | 4,779                                      |       | 923 |   | 1,632 |   |
|                                                                                         |       |                                       |       |   |   |   |   |
| Net increase  (decrease) in cash and cash equivalents                                        |       | 75,326                                     |       | 13,027 |   | (14,017 | ) |
| Cash and cash  equivalents at beginning of year                                              |       | 123,872                                    |       | 110,845 |   | 124,862 |   |
|                                                                                         |       |                                       |       |   |   |   |   |
| Cash and cash  equivalents at end of year                                                    |       | $                                          | 199,198    |   | $ | 123,872 |   | $ | 110,845 |   |

 

See accompanying notes toconsolidated financial statements.

 

44

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**Notes toConsolidated Financial Statements**

**(amounts in thousands, except per share data,unless otherwise noted)**

 

**Note 1—Summary of SignificantAccounting Policies**

 

**(a) Business**

BenchmarkElectronics, Inc. (the Company) is a Texas corporation in the business ofmanufacturing electronics and provides services to original equipmentmanufacturers (OEMs) of computers and related products for businessenterprises, medical devices, industrial control equipment, testing andinstrumentation products and telecommunication equipment. The Company hasmanufacturing operations located in the Americas, Asia and Europe.

 

**(b) Principlesof Consolidation**

Theconsolidated financial statements include the financial statements of BenchmarkElectronics, Inc. and its wholly owned subsidiaries. All significantintercompany balances and transactions have been eliminated in consolidation.

 

**(c) Cashand Cash Equivalents**

The Company considers all highlyliquid debt instruments with an original maturity of three months or less to becash equivalents. Cash equivalents of $75.1 million and $68.3 million at December 31,2007 and 2006, respectively, consist primarily of money-market funds and timedeposits with an initial term of less than three months.

 

**(d) Short-termInvestments**

The Company’s short-term investmentsare reported at fair value. At December 31, 2007 and 2006, the Company’sshort-term investments consist of $182.8 million and $100.5 million,respectively, of auction rate securities classified as available-for-sale inconformity with Statement of Financial Accounting Standards (SFAS) No. 115.Although the Company’s auction rate securities generally have originalcontractual maturities greater than 10 years, the underlying interest rates onsuch securities reset at intervals ranging from 7 to 35 days. Therefore, theseauction rate securities are priced and subsequently trade as short-term investmentsbecause of the interest rate reset feature. As a result, the Company hasclassified its auction rate securities as short-term investments in theaccompanying consolidated balance sheet. These securities are recorded at cost,which approximates fair value due to their variable interest rates. The Companyreviews all of its short-term investments to determine if any decline in valueis other than temporary. The Company’s investments had no impairments as of December 31,2007. All income generated from these investments is recorded as interestincome.

 

**(e) Inventories**

Inventories include material, laborand overhead and are stated at the lower of cost (principally first-in,first-out method) or market.

 

**(f) Property,Plant and Equipment**

Property,plant and equipment are stated at cost. Depreciation is calculated on thestraight-line method over the useful lives of the assets - 5 to 40 years forbuildings and building improvements, 2 to 10 years for machinery and equipment,2 to 10 years for furniture and fixtures, 2 to 5 years for vehicles. Leaseholdimprovements are amortized on the straight-line method over the shorter of theuseful life of the improvement or the remainder of the lease term.

 

**(g) Goodwilland Other Intangible Assets**

Goodwillrepresents the excess of purchase price over fair value of net assets acquired.In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,”goodwill and intangible assets acquired in a purchase business combination anddetermined to have an indefinite useful life are not amortized, but insteadtested for impairment at least annually. SFAS No. 142 also requires thatintangible assets with estimable useful lives be amortized over theirrespective estimated useful lives to their estimated residual values, and reviewedfor impairment in accordance with SFAS No. 144, “Accounting for Impairmentor Disposal of Long-Lived Assets.”

 

45

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**(h) OtherAssets**

Other assets consist primarily ofacquired intangible assets, which are amortized on a straight-line basis overtheir estimated useful life of 10 years, and capitalized purchased softwarecosts, which are amortized straight-line over the estimated useful life of therelated software, which ranges from 3 to 7 years. Acquired intangible assetstotaling $17.9 million consist of customer relationships acquired in 2007. SeeNote 2. The amortization of acquired intangible assets for 2007 totaled $1.8million. Amortization of these intangible assets for 2008 through 2017 will be approximately$1.8 million per year. During 2007, 2006 and 2005, $3.6 million, $2.3 millionand $2.0 million, respectively, of purchased software costs were capitalized.The accumulated amortization of purchased software costs at December 31,2007 and 2006 was $16.8 million and $12.3 million, respectively.

 

**(i) Impairment of Long-Lived Assets**

Inaccordance with SFAS No. 144, long-lived assets, such as property, plant,and equipment, and purchased intangibles subject to amortization, are reviewedfor impairment whenever events or changes in circumstances indicate that thecarrying amount of an asset may not be recoverable. Recoverability of assets tobe held and used is evaluated by a comparison of the carrying amount of anasset to estimated undiscounted future cash flows expected to be generated bythe asset. If the carrying amount of an asset exceeds its estimatedundiscounted future cash flows, an impairment charge is recognized by theamount by which the carrying amount of the asset exceeds the estimated fairvalue of the asset. Assets to be disposed of would be separately presented inthe balance sheet and reported at the lower of the carrying amount or estimatedfair value less costs to sell, and are no longer depreciated. The assets andliabilities of a disposed group classified as held for sale would be presentedseparately in the appropriate asset and liability sections of the balancesheet.

 

Goodwill and intangible assets thathave indefinite useful lives are tested annually for impairment, and are testedfor impairment more frequently if events and circumstances indicate that theasset might be impaired. An impairment loss is recognized to the extent thatthe carrying amount exceeds the asset’s fair value. For goodwill, theimpairment determination is made at the reporting unit level and consists oftwo steps. First, the Company determines the fair value of a reporting unit,which the Company has determined to be consistent with its operating segmentsas defined in Note 13 — “Segment and Geographic Information,” and compares itto its carrying amount. Second, if the carrying amount of a reporting unitexceeds its estimated fair value, an impairment loss is recognized for anyexcess of the carrying amount of the reporting unit’s goodwill over the impliedfair value of that goodwill. The implied fair value of goodwill is determinedby allocating the fair value of the reporting unit in a manner similar to apurchase price allocation, in accordance with Financial Accounting StandardsBoard (FASB) Statement No. 141, “Business Combinations”. The residual fairvalue after this allocation is the implied fair value of the reporting unitgoodwill. This impairment analysis is based on significant assumptions offuture results made by management, including revenue and cash flow projections.Circumstances that may lead to impairment of goodwill include unforeseendecreases in future performance or industry demand and the restructuring of ouroperations as a result of a change in our business strategy. The Company completedits annual impairment test during the fourth quarter of 2007 and determinedthat no impairment existed. To date, the Company has not recognized anyimpairment of its goodwill in accordance with SFAS No. 142. However, noassurances can be given that future evaluations of goodwill will not result incharges to earnings because of future impairments.

 

**(j) Earnings Per Share**

Basicearnings per share is computed using the weighted-average number of sharesoutstanding. Diluted earnings per share is computed using the weighted-averagenumber of shares outstanding adjusted for the incremental shares attributed tooutstanding stock equivalents during the years ended December 31, 2007,2006 and 2005. Stock equivalents include common shares issuable upon theexercise of stock options and other equity instruments, and are computed usingthe treasury stock method of SFAS No. 128, “Earnings Per Share”. Under thetreasury stock method, the exercise price of a share, the amount ofcompensation cost, if any, for future service that the Company has not yetrecognized, and the amount of estimated tax benefits that would be recorded inpaid-in-capital, if any, when the share is exercised are assumed to be used torepurchase shares in the current period.

 

46

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Thefollowing table sets forth the calculation of basic and diluted earnings pershare.

 
| ** **                                                                                                               | ** ** | **Year ended December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                                               | ** ** | **2007**                                   | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                                                                                                     |       |                                       |       |   |   |   |   |
| Numerator for  basic earnings per share – net income                                                                |       | $                                          | 93,282     |   | $ | 111,677 |   | $ | 80,589 |   |
| Interest expense  on convertible debt, net of tax                                                                        |       | 147                                        |       | — |   | — |   |
|                                                                                                                     |       |                                       |       |   |   |   |   |
| Numerator for  diluted earnings per share                                                                                |       | $                                          | 93,429     |   | $ | 111,677 |   | $ | 80,589 |   |
|                                                                                                                     |       |                                       |       |   |   |   |   |
| Denominator for  basic earnings per share – weighted-average number of common shares outstanding  during the period |       | 72,061                                     |       | 64,306 |   | 62,682 |   |
| Incremental  common shares attributable to exercise of outstanding dilutive options                                      |       | 593                                        |       | 815 |   | 1,597 |   |
| Incremental  common shares attributable to conversion of 6.5% convertible debt                                           |       | 42                                         |       | — |   | — |   |
| Incremental  common shares attributable to exercise of warrants                                                          |       | 133                                        |       | — |   | — |   |
|                                                                                                                     |       |                                       |       |   |   |   |   |
| Denominator for  diluted earnings per share                                                                              |       | 72,829                                     |       | 65,121 |   | 64,279 |   |
|                                                                                                                     |       |                                       |       |   |   |   |   |
| Basic earnings  per share                                                                                                |       | $                                          | 1.29       |   | $ | 1.74 |   | $ | 1.29 |   |
|                                                                                                                     |       |                                       |       |   |   |   |   |
| Diluted earnings  per share                                                                                              |       | $                                          | 1.28       |   | $ | 1.71 |   | $ | 1.25 |   |

 

Options to purchase 3.0 million, 0.8million, and 1.0 million common shares in 2007, 2006 and 2005, respectively,were not included in the computation of diluted earnings per share because theoption exercise price was greater than the average market price of the commonshares.

 

Asof December 31, 2007, the Company has outstanding warrants to purchasecommon shares as follows:

 
| **Shares** | ** ** | **Exercise Price** | ** ** | **Expiration Date** | ** **         |
|------------|------------|-------------------------|------------|--------------------------|--------------------|
|       |       |                    |       |                     |               |
| 126        |       | $                       | 14.25      |                     | May 1, 2009   |   |
|       |       |                    |       |                     |               |
| 160        |       | $                       | 12.50      |                     | May 1, 2009   |   |
|       |       |                    |       |                     |               |
| 40         |       | $                       | 10.125     |                     | July 18, 2009 |   |

 

These warrants were assumed on January 8,2007 in connection with an acquisition. See Note 2.

 

47

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**(k) RevenueRecognition**

Revenue is primarily derived from thesale of circuit boards and systems. Revenue from the sale of circuit boardassemblies, systems and excess inventory is recognized when the goods areshipped, title and risk of ownership have passed, the price to the buyer isfixed and determinable and recoverability is reasonably assured. To a lesserextent, the Company also derives revenue from non-manufacturing services, suchas product design, circuit board layout, and test development. Revenue fromdesign, development and engineering services is recognized when the servicesare performed and collectibility is reasonably certain. Such services providedunder fixed price contracts are accounted for using the percentage ofcompletion method. Costs related to these services are expensed as incurred.The Company assumes no significant obligations after shipment as the Companytypically warrants workmanship only, which renders the warranty provisionsinsignificant.

 

**(l) IncomeTaxes**

Income taxes are accounted for underthe asset and liability method. Deferred income taxes are recognized for thefuture tax consequences attributable to differences between the financialstatement carrying amounts of existing assets and liabilities and theirrespective tax bases. Deferred tax assets and liabilities are measured usingenacted tax rates expected to apply to taxable income in the years in whichthose temporary differences are expected to be recovered or settled. The effecton deferred taxes of a change in tax rates is recognized in income in theperiod that includes the enactment date.

 

**(m) Stock-BasedCompensation**

TheCompany’s stock awards plan permits the grant of a variety of types of awards,including stock options, restricted stock awards, stock appreciation rights,performance awards, and phantom stock awards, or any combination thereof, tokey employees of the Company. Stock options are granted to employees with anexercise price equal to the market price of the Company’s stock on the date ofgrant. These options vest over a four-year period from the date of grant andhave a term of ten years. Members of the Board of Directors of the Company whoare not employees of the Company participate in a separate stock option planthat provides for the granting of stock options upon the occurrence of the non-employeedirector’s election or re-election to the Board of Directors. All awards underthe non-employee director stock option plan are fully vested upon the date ofgrant and have a term of ten years. As of December 31, 2007, 4.9 millionadditional options or other equity awards may be granted under the Company’sexisting plans. See Note 8.

 

SFASNo. 123 (revised 2004), “Share-Based Payment” (SFAS No. 123R)requires all share-based payments to employees, including grants of employeestock options, to be recognized in the financial statements based on their fairvalues. The total compensation cost recognized for stock-option awards was $3.1million and $3.0 million for 2007 and 2006. The compensation expense forstock-based awards includes an estimate for forfeitures and is recognized overthe vesting period of the options using the straight-line method. SFAS No. 123Rrequires that cash flows from the tax benefits resulting from tax deductions inexcess of the compensation cost recognized for stock-based awards (excess taxbenefits) be classified as cash flows from financing activities. Prior to theadoption of SFAS No. 123R, such excess tax benefits were presented as cashflows from operating activities.

 

Priorto January 1, 2006, the Company applied the intrinsic-value-based methodof accounting prescribed by Accounting Principles Board (APB) Opinion No. 25,“Accounting for Stock Issued to Employees”, and related interpretationsincluding FASB Interpretation No. 44, “Accounting for Certain Transactionsinvolving Stock Compensation, an interpretation of APB Opinion No. 25”,issued in March 2000, to account for its stock option plans and itsEmployee Stock Purchase Plan. Under this method, compensation expense for fixedawards was recorded on the date of grant only if the current market price ofthe underlying stock exceeded the exercise price.

 

48

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On May 11, 2005, in response toSFAS 123R, the Company’s Board of Directors approved accelerating the vestingof out-of-the-money, unvested stock options held by current employees,including executive officers, and the Chairman of the Board of Directors. Nooptions held by non-employee directors were subject to acceleration. An optionwas considered out-of-the-money if the stated option exercise price was greaterthan the closing price, $18.87, of the Company’s common shares on the day theBoard of Directors approved the acceleration. The accelerated vesting waseffective as of May 11, 2005.

 

The decision to accelerate vesting ofthese options was made to avoid recognizing compensation cost in the statementof income in future financial statements upon the effectiveness of SFAS No. 123R.It is estimated that the maximum future compensation expense that will beavoided, based on the Company’s implementation date for SFAS No. 123R of January 1,2006, is approximately $6.8 million, of which approximately $2.5 million isrelated to options held by executive officers and the Chairman of the Board ofthe Company. The vesting acceleration did not result in the recognition ofcompensation expense in net income for the year ended December 31, 2005.The pro-forma results presented in the table below include approximately $8.3million ($5.0 million, net of tax) of compensation expense for the year ended December 31,2005 resulting from the vesting acceleration.

 

Thefollowing table illustrates the effect on net income for the year ended December 31,2005 if the fair-value-based method had been applied to all outstanding andunvested awards on January 1, 2005.

 
| Net income, as  reported                                                                                                                     |   | $      | 80,589 |   |
|----------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| Deduct total  stock-based employee compensation expense determined under fair value based  method for all awards, net of related tax effects |   | (7,462 | )      |
|                                                                                                                                         |   |   |   |
| Net income, as  adjusted                                                                                                                     |   | $      | 73,127 |   |
|                                                                                                                                         |   |   |   |
| Earnings per  share:                                                                                                                         |   |   |   |
| Basic, as  reported                                                                                                                          |   | $      | 1.29   |   |
| Basic, as  adjusted                                                                                                                          |   | $      | 1.17   |   |
|                                                                                                                                         |   |   |   |
| Diluted, as  reported                                                                                                                        |   | $      | 1.25   |   |
| Diluted, as  adjusted                                                                                                                        |   | $      | 1.14   |   |

 

Asof December 31, 2007, there was approximately $8.3 million of totalunrecognized compensation cost related to nonvested stock options. That cost isexpected to be recognized over a weighted-average period of 2.8 years.

 

49

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During the years ended December 31, 2007, 2006 and 2005, theCompany issued 0.8 million, 1.8 million and 0.1 million options,respectively. In connection with the Merger, all outstanding Pemstar optionswere converted into 0.4 million options of the Company at the 0.160 exchangeratio on January 8, 2007. The fair value of each option grant and EmployeeStock Purchase Plan purchase right is estimated on the date of grant using theBlack-Scholes option-pricing model. The Employee Stock Purchase Plan wasterminated as of December 31, 2005 and no purchase rights were grantedduring 2006 and 2007. The weighted-average assumptions used to value theoptions converted from Pemstar, the option grants and purchase rights duringthe years ended December 31, 2007, 2006 and 2005 were as follows:

 
| ** **                       | ** ** | **Year ended December 31,** | ** ** |
|----------------------------------|------------|--------------------------------------------|------------|
| ** **                       | ** ** | **2007**                                   | ** ** | **2006** | ** ** | **2005** | ** ** |
|                             |       |                                       |       |   |   |   |   |
| Stock Options                    |       |                                       |       |   |   |   |   |
| Expected term of  options        |       | 3.8 years                                  |       | 4.5 years |   | 4.9 years |   |
| Expected  volatility             |       | 32                                         | %          | 43 | % | 58 | % |
| Risk-free  interest rate         |       | 3.82                                       | %          | 4.48 | % | 3.81 | % |
| Dividend yield                   |       | zero                                       |       | zero |   | zero |   |
|                             |       |                                       |       |   |   |   |   |
| Employee Stock  Purchase Plan    |       |                                       |       |   |   |   |   |
| Expected life of  purchase right |       |                                       |       |   |   | 6 months |   |
| Volatility                       |       |                                       |       |   |   | 37.5 | % |
| Risk-free  interest rate         |       |                                       |       |   |   | 2.87 | % |
| Dividend yield                   |       |                                       |       |   |   | zero |   |

 

Theexpected term of the options represents the estimated period of time untilexercise and is based on historical experience, giving consideration to thecontractual terms, vesting schedules and expectations of future employeebehavior. Separate groups of employees that have similar historical exercisebehavior are considered separately for valuation purposes. Expected stock pricevolatility is based on the historical volatility of the Company’s stock. Therisk-free interest rate is based on the U.S. Treasury zero-coupon rates ineffect at the time of grant with an equivalent remaining term. The dividendyield reflects that the Company has not paid any cash dividends sinceinception.

 

Theweighted-average fair value per option granted during the years ended December 31,2007, 2006 and 2005 was $5.29, $6.01 and $9.37, respectively. Theweighted-average fair value of the purchase rights granted during 2005 was$5.03. The total cash received as a result of stock option exercises for yearended December 31, 2007, 2006 and 2005 was approximately $9.2 million,$16.1 million and $6.1 million, respectively. The tax benefit realized as aresult of the stock option exercises during 2007, 2006 and 2005 was $2.5million, $6.5 million and $2.4 million, respectively. For the year ended December 31,2007, 2006 and 2005, the total intrinsic value of stock options exercised was $8.0 million,$21.1 million and $8.7 million, respectively.

 

**(n) Useof Estimates**

Management of the Company has made anumber of estimates and assumptions relating to the reporting of assets andliabilities and the disclosure of contingent assets and liabilities to preparethese financial statements in accordance with generally accepted accountingprinciples. Actual results could differ from those estimates.

 

**(o) FairValues of Financial Instruments**

The Company’s financial instrumentsconsist of cash equivalents, short-term investments, accounts receivable,accrued liabilities, accounts payable and long-term debt. The Company believesthat the carrying value of these instruments approximate their fair value. SeeNote 11.

 

50

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**(p) Foreign Currency**

 

For foreign subsidiaries using thelocal currency as their functional currency, assets and liabilities aretranslated at exchange rates in effect at the balance sheet date and income andexpenses are translated at average exchange rates. The effects of thesetranslation adjustments are reported in other comprehensive income. Exchangelosses arising from transactions denominated in a currency other than thefunctional currency of the entity involved are included in other expense and totaledapproximately $0.2 million, $3.2 million and $1.4 million in 2007, 2006 and2005, respectively.

 

**(q) Recently EnactedAccounting Principles**

 

OnJanuary 1, 2007, we adopted FASB Interpretation No. 48, “Accountingfor Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109”(FIN 48). FIN 48 prescribes a recognition threshold and measurement attributefor the financial statement recognition and measurement of a tax position takenin a tax return. Under FIN 48, the Company must determine whether it is “more-likely-than-not”that a tax position will be sustained upon examination, including resolution ofany related appeals or litigation processes, based on the technical merits ofthe position. Once it is determined that a position meets themore-likely-than-not recognition threshold, the position is measured todetermine the amount of benefit to recognize in the financial statements. FIN48 applies to all tax positions related to income taxes subject to SFAS No. 109,“Accounting for Income Taxes”. The cumulative effect of adopting FIN 48 was a$19.3 million decrease to income taxes payable with a correspondingincrease to the January 1, 2007 balance of retained earnings for taxbenefits not previously recognized. Areconciliation of the beginning and ending amount of unrecognized tax benefits,excluding interest and penalties, is as follows:

 
| Balance as of  January 1, 2007                                                        |   | $      | 16,510 |   |
|--------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| Additions  related to prior year tax positions                                             |   | 600    |   |
| Decreases  related to prior year tax positions                                             |   | (200   | )      |
| Increase from  entities acquired in the current year                                       |   | 16,224 |   |
| Additions  related to current period tax positions                                         |   | 825    |   |
| Decreases as a  result of a lapse of the applicable statute of limitations in current year |   | (6,481 | )      |
| Balance as of  December 31, 2007                                                      |   | $      | 27,478 |   |

 

Theincrease in the total amount of unrecognized tax benefits reserve from the dateof adoption is primarily the result of the addition of $16.2 million ofuncertain tax benefits acquired in 2007. See Note 2. The analysis of theuncertain tax positions related to an acquisition in 2007 for both U.S. andforeign jurisdictions under FIN 48 was performed as of the acquisition datepursuant to SFAS No. 141 without any adjustment to income tax expense.

 

Thereserve is classified as a current or long-term liability in the consolidatedbalance sheet based on the Company’s expectation of when the items will besettled. The Company records interest expense and penalties accrued in relationto uncertain income tax benefits as a component of current income tax expense.The total amount of interest and penalties included in income tax expenseduring the year ended December 31, 2007 was $0.3 million. The total amountof accrued potential interest and penalties on unrecognized tax benefits as of December 31,2007 is $2.3 million and $1.7 million, respectively.

 

Duringthe next twelve months, it is reasonably possible that the reserve foruncertain tax benefits will decrease by approximately $5.2 million due to theexpiration of the statute of limitations for worthless stock deductions oncertain unrecognized tax benefits and final audit settlements in respectivecountries. The Company’s business locations in China, Ireland, Luxembourg,Malaysia, Mexico, the Netherlands, Singapore, Thailand and the United States remainopen to examination by the various local taxing authorities, in total or inpart, for fiscal years 2001 to 2007.

 

51

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InSeptember 2006, the FASB issued SFAS No. 157, “Fair ValueMeasurements” (SFAS No. 157), which defines fair value, establishes aframework for measuring fair value under generally accepted accountingprinciples, and expands the requisite disclosures for fair value measurements.SFAS No. 157 is effective in fiscal years beginning after November 15,2007. The Company is currently assessing the impact of adopting SFAS No. 157on its consolidated results of operations and financial condition.

 

In September 2006, the FASB issued SFAS No. 158, “Employers’Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87,88, 106, and 132R” (SFAS No. 158), whichrequires an employer to recognize the overfunded or underfunded status of adefined benefit postretirement plan as an asset or liability in its statementof financial position and to recognize changes in that funded status in theyear in which the changes occur through comprehensive income. This statementalso requires an employer to measure the funded status of a plan as of the dateof its year-end statement of financial position.

 

The requirement to recognize the funded status of adefined benefit postretirement plan was effective as of the end of the fiscalperiod ending after December 15, 2006. The Company has adopted thisrequirement and the effects are reflected in the financial statements as of December 31,2007. The adoption of SFAS No. 158 did not have a materialimpact on the Company’s consolidated results of operations and financialcondition. The requirement to measure planassets and benefit obligations as of the date of the employer’s fiscal year-endstatement of financial position is effective for fiscal years ending after December 15,2008. The Company will be required to adopt this requirementas of January 1, 2008. TheCompany does not anticipate that the adoption of the measurement requirementsof this standard will have a material impact on its financial position, resultsof operations or cash flows.

 

InFebruary 2007, the FASB issued SFAS No. 159, “The Fair Value Optionfor Financial Assets and Financial Liabilities—Including anamendment of FASB Statement No. 115” (SFAS No. 159). SFAS No. 159permits entities to choose to measure many financial assets and financialliabilities at fair value. Unrealized gains and losses on items for which thefair value option has been elected are reported in earnings. SFAS No. 159is effective for fiscal years beginning after November 15, 2007. TheCompany is currently assessing the impact of SFAS No. 159 on itsconsolidated financial position and results of operations.

 

In December 2007, the FASB issued SFAS No. 141R,“Business Combinations” (SFAS No. 141R).SFAS No. 141R states that all business combinations (whether full, partialor step acquisitions resulting in control of the acquired business) will resultin all assets and liabilities of an acquired business being recorded at theirfair values. Certain forms of contingent consideration and certain acquiredcontingencies will be recorded at fair value at the acquisition date. SFAS No. 141Ralso states acquisition costs will generally be expensed as incurred andrestructuring costs will be expensed in periods after the acquisition date. Thisstatement is effective for business combinations for which the acquisition dateis on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The impact ofadopting SFAS No. 141R will be dependent on the future businesscombinations that the Company may pursue after its effective date.

 

52

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In December 2007, the FASB issued SFAS No. 160,“Noncontrolling Interests in Consolidated Financial Statements—an amendment ofARB No. 51” (SFAS No. 160). SFAS No. 160 requires a parentcompany to clearly identify and present ownership interests in subsidiariesheld by parties other than the parent company in the consolidated financialstatements within the equity section but separate from the parent company’sequity. It also requires the amount of consolidated net income attributable tothe parent and to the noncontrolling interest be clearly identified andpresented on the face of the consolidated statement of income. Moreover,changes in ownership interest must be accounted as equity transactions, andwhen a subsidiary is deconsolidated, any retained noncontrolling equityinvestment in the former subsidiary and the gain or loss on the deconsolidationof the subsidiary must be measured at fair value. This statement is effectivefor fiscal years, and interim periods within those fiscal years, beginning onor after December 15, 2008. SFAS No. 160 currently would not impactthe Company as the Company has full controlling interest in all of itssubsidiaries.

 

**(r) Reclassifications**

 

Certain reclassifications of priorperiod amounts have been made to conform to the current year presentation. Suchreclassifications had no effect on net income, total assets or totalshareholders’ equity as previously reported.

 

**Note 2—Acquisitions**

** **

EffectiveJanuary 8, 2007, the Company acquired Pemstar Inc. (Pemstar), a publiclytraded electronics manufacturing services (EMS) company headquartered inRochester, Minnesota (the Merger). Pursuant to the Agreement and Plan of Mergeramong the Company and Pemstar dated October 16, 2006 (the MergerAgreement), each issued and outstanding share of common stock, par value $0.01per share, of Pemstar was converted into the right to receive 0.160 of a commonshare, par value $0.10 per share, of the Company. With the closing of theMerger, Pemstar became a wholly owned subsidiary of the Company. Thisacquisition expanded the Company’s customer base and deepened its engineeringand systems integration capabilities.

 

Theaggregate purchase price was $221.5 million, including common shares valued at$202.5 million, stock options and warrants valued at $9.0 million,conversion feature of debt valued at $4.8 million and acquisition costs of $5.2million. The value of the 7.3 million common shares issued was based onthe average market price of the Company’s common shares over the 2-day periodbefore and after the terms of the acquisition were agreed to and announced.

 

Asa direct result of the Merger, the Company assumed approximately $89.4 millionof indebtedness, including $5 million in convertible senior subordinated notes.Subsequent to the Merger, the Company reduced the assumed debt by $72.2million. The convertible senior subordinated notes matured on May 1, 2007and were converted into 0.4 million common shares at the request of thenoteholders. Prior to the Merger, the Company had no outstanding debt.

 

TheCompany is accounting for the Merger utilizing the accounting principlespromulgated by SFAS Nos. 141 and 142. Therefore, the results of operations ofthe Pemstar operations since January 8, 2007 have been included in theaccompanying consolidated statement of income. The allocation of the netpurchase price of the Merger resulted in goodwill of $165.9 million.

 

53

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Thepurchase price paid in the Merger has been allocated as follows:

 
| Acquisition  of the 45.6 million shares of outstanding common stock of Pemstar at $4.44 per share |   | $       | 202,475 |
|---------------------------------------------------------------------------------------------------|--------|---------|---------|
| Estimated fair value of Pemstar stock options and  warrants                                       |   | 9,028   |
| Estimated fair value of the conversion feature of  debt                                           |   | 4,773   |
| Acquisition costs                                                                                 |   | 5,179   |
|                                                                                              |   |    |
| Total purchase price                                                                              |   | $       | 221,455 |
|                                                                                              |   |    |    |
| Current assets                                                                                    |   | $       | 241,539 |
| Property, plant and equipment                                                                     |   | 52,542  |
| Deferred taxes                                                                                    |   | 14,256  |
| Goodwill                                                                                          |   | 165,878 |
| Intangible assets                                                                                 |   | 18,277  |
| Other assets                                                                                      |   | 4,386   |
|                                                                                              |   |    |
| Total assets acquired                                                                             |   | 496,878 |
|                                                                                              |   |    |
| Current liabilities                                                                               |   | 182,806 |
| Long-term debt, capital lease obligations and other  long-term liabilities                        |   | 92,617  |
|                                                                                              |   |    |
| Total liabilities assumed                                                                         |   | 275,423 |
| Net assets acquired                                                                               |   | $       | 221,455 |

 

OnMarch 1, 2007, we terminated a joint venture agreement and acquired for$5.3 million the remaining 40% minority interest in the Company’s Romaniansubsidiary. We acquired the other 60% interest in the Merger discussed above.The purchase price in excess of the 40% minority interest liability resulted ingoodwill of $4.7 million.

 

Thefollowing summary pro forma condensed consolidated financial informationreflects the acquisition of Pemstar as if it had occurred on January 1,2005 for purposes of the statements of income. The summary pro formainformation is not necessarily representative of what the Company’s results ofoperations would have been had the acquisition of Pemstar in fact occurred on January 1,2005 and is not intended to project the Company’s results of operations for anyfuture period or date. Pro forma results of operations for the year ended December 31,2007 related to the Merger have not been presented since the operating resultsfor Pemstar for the period during 2007 up to the date of acquisition areimmaterial.

 
| ** **                                      | ** ** | **Year ended December 31,** | ** ** |
|-------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                      | ** ** | **2006**                                   | ** ** | **2005** | ** ** |
| Net sales                                       |       | $                                          | 3,479,732  |   | $ | 2,779,264 |   |
| Gross profit                                    |       | $                                          | 250,812    |   | $ | 189,436 |   |
| Income from  operations                         |       | $                                          | 112,465    |   | $ | 71,169 |   |
| Net income                                      |       | $                                          | 86,729     |   | $ | 45,818 |   |
| Earnings per  share:                            |       |                                       |       |   |   |
| Basic                                           |       | $                                          | 1.21       |   | $ | 0.65 |   |
| Diluted                                         |       | $                                          | 1.20       |   | $ | 0.65 |   |
| Weighted-average  number of shares outstanding: |       |                                       |       |   |   |
| Basic                                           |       | 71,608                                     |       | 69,984 |   |
| Diluted                                         |       | 73,050                                     |       | 72,156 |   |

 

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**Note 3—Inventories**

 

Inventory costs are summarized asfollows:

 
| ** **      | ** ** | **December 31,** | ** ** |
|-----------------|------------|-----------------------|------------|
| ** **      | ** ** | **2007**              | ** ** | **2006** | ** ** |
| Raw materials   |       | $                     | 262,765    |   | $ | 296,814 |   |
| Work in process |       | 75,560                |       | 90,787 |   |
| Finished goods  |       | 23,627                |       | 32,746 |   |
|            |       | $                     | 361,952    |   | $ | 420,347 |   |

 

**Note 4—Property, Plant and Equipment**

** **

Property, plant and equipmentconsists of the following:

 
| ** **                           | ** ** | **December 31,** | ** ** |
|--------------------------------------|------------|-----------------------|------------|
| ** **                           | ** ** | **2007**              | ** ** | **2006** | ** ** |
| Land                                 |       | $                     | 6,223      |   | $ | 5,412 |   |
| Buildings and  building improvements |       | 56,654                |       | 29,113 |   |
| Machinery and  equipment             |       | 288,776               |       | 265,357 |   |
| Furniture and  fixtures              |       | 6,437                 |       | 4,282 |   |
| Vehicles                             |       | 700                   |       | 551 |   |
| Leasehold  improvements              |       | 17,717                |       | 16,865 |   |
| Construction in  progress            |       | 1,114                 |       | — |   |
|                                 |       |                  |       |   |   |
|                                 |       | 377,621               |       | 321,580 |   |
| Less accumulated  depreciation       |       | (233,439              | )          | (210,668 | ) |
|                                 |       |                  |       |   |   |
|                                 |       | $                     | 144,182    |   | $ | 110,912 |   |

 

**Note 5—Goodwill**

** **

Goodwill associated with each of theCompany’s business segments and changes in those amounts each year were as follows:

 
| ** **                        | ** ** | **Americas** | ** ** | **Asia** | ** ** | **Europe** | ** ** | **Total** | ** ** |
|-----------------------------------|------------|--------------|------------|----------|------------|------------|------------|-----------|------------|
| Goodwill,  December 31, 2004 |       | $            | 106,785    |     | $          | 6,068      |       | $         | —     |   | $ | 112,853 |   |
| Currency  translation adjustment  |       | 125          |       | —   |       | —     |       | 125       |       |
|                              |       |         |       |     |       |       |       |      |       |
| Goodwill,  December 31, 2005 |       | 106,910      |       | 6,068    |       | —     |       | 112,978   |       |
| Currency  translation adjustment  |       | 21           |       | —   |       | —     |       | 21        |       |
|                              |       |         |       |     |       |       |       |      |       |
| Goodwill,  December 31, 2006 |       | 106,931      |       | 6,068    |       | —     |       | 112,999   |       |
| Acquisitions                      |       | 119,138      |       | 31,844   |       | 19,691     |       | 170,673   |       |
| Currency  translation adjustment  |       | 53           |       | —   |       | —     |       | 53        |       |
|                              |       |         |       |     |       |       |       |      |       |
| Goodwill, December 31,  2007 |       | $            | 226,122    |     | $          | 37,912     |       | $         | 19,691     |   | $ | 283,725 |   |

 

The additions to goodwillduring 2007 were a result of the acquisitions completed during the year. SeeNote 2.

 

55

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** **

**Note 6—Borrowing Facilities**

** **

Long-termdebt and capital lease obligations outstanding as of December 31, 2007consists of the following:

 
| Long-term debt                                                           |   | $      | 192    |   |
|--------------------------------------------------------------------------|--------|--------|--------|--------|
| Capital lease  obligations                                               |   | 12,334 |   |
|                                                                     |   |   |   |
| Total                                                                    |   | 12,526 |   |
| Less current  installments                                               |   | 430    |   |
|                                                                     |   |   |   |
| Long-term debt  and capital lease obligations, less current installments |   | $      | 12,096 |   |

 

Inconnection with the Merger, the Company assumed approximately $89.4 million ofdebt, including $5 million in convertible senior subordinated notes. Subsequentto the Merger, the Company reduced the assumed debt by $72.2 million. Theconvertible senior subordinated notes matured on May 1, 2007 and wereconverted into 0.4 million common shares at the request of the noteholders.Prior to the Merger, the Company had no outstanding debt.

 

Underthe terms of a Credit Agreement (the Credit Agreement), the Company has a$100.0 million five-year revolving credit facility for general corporatepurposes with a maturity date of December 21, 2012. The Credit Agreementincludes an accordion feature under which total commitments under the facilitymay be increased by an additional $100 million, subject to satisfaction ofcertain conditions.

 

Intereston outstanding borrowings under the Credit Agreement is payable quarterly, atthe Company’s option, at either the bank’s Eurodollar rate plus 0.75% to 1.75%or its prime rate plus 0.00% to 0.25%, based upon the Company’s debt ratio asspecified in the Credit Agreement. A commitment fee of 0.15% to 0.35% per annum(based upon our debt ratio) on the unused portion of the revolving credit lineis payable quarterly in arrears. As of December 31, 2007, the Company hadno borrowings outstanding under the Credit Agreement, $0.3 million inoutstanding letters of credit and $99.7 million was available for futureborrowings.

 

TheCredit Agreement is secured by the Company’s domestic inventory and accountsreceivable, 100% of the stock of the Company’s domestic subsidiaries, 65% ofthe voting capital stock of each direct foreign subsidiary and substantiallyall of the other tangible and intangible assets of the Company and its domesticsubsidiaries. The Credit Agreement contains customary financial covenants as toworking capital, debt leverage, fixed charges, and consolidated net worth, andrestricts the ability of the Company to incur additional debt, pay dividends,sell assets, and to merge or consolidate with other persons, without theconsent of the banks. As of December 31, 2007, the Company was incompliance with all such covenants and restrictions.

 

TheCompany’s Thailand subsidiary has a credit agreement with Kasikornbank PublicCompany Limited (the Thai Credit Agreement). The Thai Credit Agreement providesthat the lender will make available to the Company’s Thailand subsidiary up toapproximately $16 million in revolving loans and machinery loans. The ThaiCredit Agreement is secured by land, buildings and machinery in Thailand. Inaddition, the Thai Credit Agreement provides for approximately $2.0 million (62million Thai baht) in working capital availability in the form of workingcapital loans (10 million Thai baht) and bank guarantees (52 million Thaibaht). Availability of funds under the Thai Credit Agreement is reviewedannually and is currently accessible through September 2008. As of December 31,2007, the Company’s Thailand subsidiary had no working capital borrowingsoutstanding.

 

Theaggregate maturities of long-term debt and capital lease obligations for eachof the five years subsequent to December 31, 2007 are as follows: 2008,$0.4 million; 2009, $0.3 million; 2010, $0.3 million; 2011, $0.4 million; and2012, $0.4 million.

 

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**Note 7—Commitments**

** **

The Company leases certainmanufacturing equipment, office equipment, vehicles and office, warehouse andmanufacturing facilities under operating leases. Some of the leases provide forescalation of the lease payments as maintenance costs and taxes increase. Theleases expire at various times through 2020. Leases for office space andmanufacturing facilities generally contain renewal options. Rental expense forthe years ended December 31, 2007, 2006 and 2005 was $12.3 million, $9.3million and $10.9 million, respectively.

 

The Company is obligated undercapital leases, assumed in the Merger, that expire on various dates through2023. As of December 31, 2007, property, plant and equipment includes thefollowing amounts under capital leases:

 
| Buildings and  building improvements |   | $      | 12,207 |   |
|--------------------------------------|--------|--------|--------|--------|
| Machinery and  equipment             |   | 479    |   |
| Vehicles                             |   | 84     |   |
|                                 |   | 12,770 |   |
| Accumulated  depreciation            |   | 894    |   |
|                                 |   | $      | 11,876 |   |

 

Future minimum lease payments undernoncancelable operating leases and future minimum capital lease payments are asfollows:

 
| **Year ending December 31,**                     | ** ** | **Capital  Leases** | ** ** | **Operating  Leases** | ** ** |
|-------------------------------------------------------|------------|---------------------|------------|-----------------------|------------|
| 2008                                                  |       | $                   | 1,650      |                  | $          | 11,658 |   |
| 2009                                                  |       | 1,443               |       | 9,491                 |       |
| 2010                                                  |       | 1,461               |       | 7,030                 |       |
| 2011                                                  |       | 1,490               |       | 3,607                 |       |
| 2012                                                  |       | 1,520               |       | 2,880                 |       |
| Thereafter                                            |       | 17,440              |       | 13,196                |       |
| Total minimum  lease payments                         |       | $                   | 25,004     |                  | $          | 47,862 |   |
| Less: amount  representing interest                   |       | 12,670              |       |                  |       |
|                                                  |       |                |       |                  |       |
| Present value of  minimum lease payments              |       | 12,334              |       |                  |       |
| Less: current  installments                           |       | 421                 |       |                  |       |
|                                                  |       |                |       |                  |       |
| Capital lease  obligations, less current installments |       | $                   | 11,913     |                  |       |   |

 

The Company enters into contractualcommitments to deliver products and services in the ordinary course ofbusiness. The Company believes that all such contractual commitments will bemet or renegotiated such that no material adverse financial impact on theCompany’s financial position, results of operations or liquidity will resultfrom these commitments.

 

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**Note 8—Common Shares and Stock Option Plans**

** **

On March 15, 2006, the Board ofDirectors declared a three-for-two stock split effected in the form of a stockdividend paid on April 3, 2006, to shareholders of record as of March 31,2006. Shareholders’ equity has been restated to give retroactive recognition tothe stock split in prior periods by reclassifying from additional paid-incapital to common stock the par value of the additional shares arising from thesplit. All share and per share data appearing in these consolidated financialstatements and notes thereto have been retroactively adjusted for the stocksplit.

 

OnJuly 25, 2007, the Board of Directors of the Company approved therepurchase of up to $125 million of the Company’s outstanding commonshares. During the period from July 25, 2007 to December 31, 2007,the Company repurchased a total of 2.6 million common shares for $53.0 millionat an average price of $20.33 per share.

 

In 1990, the Board of Directors ofthe Company adopted and its shareholders approved a Stock Option Plan (the 1990Plan) for the benefit of its employees, including executive officers. The 1990Plan, as amended, authorized the Company, upon recommendation of thecompensation committee of the Board of Directors, to grant options to purchasea total of 7.2 million common shares of the Company to key employees of theCompany. As of December 31, 2007, the Company has outstanding options withrespect to 0.7 million common shares under the 1990 Plan. The 1990 Plan expiredin May 2000, and no additional grants may be made under that plan.

 

The 1990 Plan provided for thediscretionary granting by the Company of “incentive stock options” within themeaning of Section 422A of the Internal Revenue Code of 1986, as amended,as well as non qualified stock options. The exercise price of any incentivestock option must not be less than the fair market value of the common shareson the date of grant. The stock options will terminate no later than 10 yearsafter the date of grant. Although options may vest in increments over time,they historically have become 20% vested two years after the options aregranted and 100% vested after 5 years.

 

On February 16, 2000, the Boardof Directors of the Company adopted and subsequently its shareholders approvedthe Benchmark Electronics, Inc. 2000 Stock Awards Plan (the 2000 Plan).The 2000 Plan authorizes the Company, upon recommendation of the compensationcommittee of the Board of Directors, to grant a variety of types of awards,including stock options, restricted stock awards, stock appreciation rights,performance awards, and phantom stock awards, or any combination thereof, tokey employees of the Company. The maximum number of common shares that may besubject to outstanding awards determined immediately after the grant of anyaward, and the maximum number of shares which may be issued under the 2000Plan, as amended, pursuant to all awards, may not exceed 11.25 million shares(subject to antidilutive adjustment).

 

The 2000 Plan provides for thediscretionary granting by the Company of incentive stock options as well as nonqualified stock options. Incentive stock options may only be granted toemployees of the Company or its subsidiaries. The exercise price of any incentivestock option must not be less than the fair market value of the common shareson the date of grant. The exercise price of any incentive stock option grantedto 10% shareholders (employees who possess more than 10% of the total combinedvoting power of all classes of shares of the Company) must be at least 110% ofthe fair market value of the common shares at the time such option is granted.The stock options will terminate 5 years after the grant date for 10%shareholders and 10 years after the date of grant for all other optionees.Options granted under the 2000 Plan vest over 4 years. As of December 31,2007, the Company has outstanding options with respect to 4.9 million commonshares and 4.6 million additional options or other equity awards may be grantedunder the 2000 Plan.

 

58

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In December of 1994, the Boardof Directors of the Company adopted the Benchmark Electronics, Inc. 1994Stock Option Plan for Non-Employee Directors (the 1994 Plan) for the benefit ofmembers of the Board of Directors of the Company or its affiliates who were notemployees of the Company or its affiliates (as defined in the 1994 Plan). Theaggregate number of common shares for which options may be granted under the1994 Plan was 450 thousand. Under the terms of the 1994 Plan, as amended, eachmember of the Board of Directors of the Company or its affiliates who was notan employee of the Company or any of its affiliates on the date of the grant (aNon-Employee Director) received a grant of an option to purchase 13.5 thousandcommon shares of the Company upon the date of his election or re-election tothe Board of Directors. The 1994 Plan was replaced in 2002, and no additionalgrants may be made under that plan. As of December 31, 2007, the Companyhas outstanding options with respect to 33.8 thousand common shares under the1994 Plan.

 

In May 2002, the shareholders ofthe Company adopted the Benchmark Electronics, Inc. 2002 Stock Option Planfor Non-Employee Directors (the 2002 Plan). The 2002 Plan replaced the 1994Plan. The 2002 Plan, as amended, provides for the granting of a stock option topurchase up to 15.75 thousand common shares upon the occurrence of thenon-employee director’s election or re-election to the Board. The maximumnumber of common shares for which options may be granted under the 2002 Plan is675 thousand. No awards may be granted under the 2002 Plan after the expirationof ten years from February 26, 2002, the date of its adoption by the Boardof Directors. The 2002 Plan remains in effect as to awards made prior to theexpiration of ten years until such awards have been satisfied or have expired.All awards under the 2002 Plan are fully vested upon the date of grant. Theexercise price per common share of options granted under the 2002 Plan will bethe fair market value of a common share on the date such option is granted. In2007, 2006 and 2005, pursuant to the 2002 Plan, 50.5 thousand, 60.5 thousandand 75.8 thousand options, respectively, were granted to Non-Employee Directorsto purchase common shares at a weighted-average exercise price of $21.35,$26.56 and $18.87 per share, respectively. As of December 31, 2007, theCompany has outstanding options with respect to 213.8 thousand common sharesand 331.5 thousand additional options may be granted under the 2002 Plan.

 

In April 1999, the Board ofDirectors of the Company adopted and subsequently its shareholders approved theBenchmark Electronics, Inc. Employee Stock Purchase Plan (the PurchasePlan). Under the Purchase Plan, employees meeting specific employmentqualifications were eligible to participate and could purchase sharessemi-annually through payroll deductions at the lower of 85% of the fair marketvalue of the common shares at the commencement or end of the offering period.On November 30, 2005, the Board of Directors of the Company approved thetermination of the Purchase Plan as of December 31, 2005.

 

59

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The following table summarizes theactivities relating to the Company’s stock option plans:

 
| ** **                             | ** ** | ** **         | ** ** | ** **    | ** ** | **Weighted-**         | ** ** | ** **    | ** ** |
|----------------------------------------|------------|--------------------|------------|---------------|------------|-----------------------|------------|---------------|------------|
| ** **                             | ** ** | ** **         | ** ** | **Weighted-** | ** ** | **Average**           | ** ** | ** **    | ** ** |
| ** **                             | ** ** | ** **         | ** ** | **Average**   | ** ** | **Remaining**         | ** ** | **Aggregate** | ** ** |
| ** **                             | ** ** | **Number of** | ** ** | **Exercise**  | ** ** | **Contractual**       | ** ** | **Intrinsic** | ** ** |
| ** **                             | ** ** | **Options**        | ** ** | **Price**     | ** ** | **Term (Years)** | ** ** | **Value**     | ** ** |
| Outstanding at  December 31, 2004 |       | 6,433              |       | $             | 13.83      |                  |       |          |       |   |
| Granted                                |       | 86                 |       | $             | 19.22      |                  |       |          |       |   |
| Exercised                              |       | (729               | )          | $             | 8.32       |                  |       |          |       |   |
| Canceled                               |       | (203               | )          | $             | 17.79      |                  |       |          |       |   |
|                                   |       |               |       |          |       |                  |       |          |       |   |
| Outstanding at  December 31, 2005 |       | 5,587              |       | $             | 14.49      |                  |       |          |       |   |
| Granted                                |       | 1,812              |       | $             | 24.85      |                  |       |          |       |   |
| Exercised                              |       | (1,503             | )          | $             | 10.69      |                  |       |          |       |   |
| Canceled                               |       | (180               | )          | $             | 21.76      |                  |       |          |       |   |
|                                   |       |               |       |          |       |                  |       |          |       |   |
| Outstanding at  December 31, 2006 |       | 5,716              |       | $             | 18.54      |                  |       |          |       |   |
| Granted                                |       | 846                |       | $             | 17.47      |                  |       |          |       |   |
| Converted from  Merger                 |       | 369                |       | $             | 25.47      |                  |       |          |       |   |
| Exercised                              |       | (774               | )          | $             | 11.89      |                  |       |          |       |   |
| Canceled                               |       | (282               | )          | $             | 30.08      |                  |       |          |       |   |
|                                   |       |               |       |          |       |                  |       |          |       |   |
| Outstanding at  December 31, 2007 |       | 5,875              |       | $             | 19.15      |                  | 6.32       |          | $          | 13,224 |   |
|                                   |       |               |       |          |       |                  |       |          |       |   |   |
| Exercisable at  December 31, 2007 |       | 3,551              |       | $             | 17.11      |                  | 4.61       |          | $          | 12,819 |   |

 

Theaggregate intrinsic value in the table above is before income taxes and iscalculated as the difference between the exercise price of the underlyingoptions and the Company’s closing stock price of $17.73 as of the last businessday of the year ended December 31, 2007 for options that had exerciseprices that were below the closing price.

 

At December 31, 2007, 2006 and2005, the number of options exercisable was 3.6 million, 3.9 million and 4.8million, respectively, and the weighted-average exercise price of those optionswas $17.11, $15.96 and $14.91, respectively.

 

60

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** **

**Note 9—Income Taxes**

** **

Income tax expense (benefit) based onincome before income taxes consists of:

 
| ** **                            | ** ** | **Year ended December 31,** | ** ** |
|---------------------------------------|------------|--------------------------------------------|------------|
| ** **                            | ** ** | **2007**                                   | ** ** | **2006** | ** ** | **2005** | ** ** |
| Current:                              |       |                                       |       |   |   |   |   |
| U.S. Federal                          |       | $                                          | (5,816     | ) | $ | 6,845 |   | $ | 13,080 |   |
| State and local                       |       | 1,253                                      |       | 3,135 |   | 202 |   |
| Foreign                               |       | 3,624                                      |       | 4,345 |   | 2,105 |   |
|                                  |       | (939)                                      |       | 14,325 |   | 15,387 |   |
| Deferred:                             |       |                                       |       |   |   |   |   |
| U.S. Federal                          |       | 6,758                                      |       | 714 |   | 2,848 |   |
| State and local                       |       | (321                                       | )          | 54 |   | 643 |   |
| Foreign                               |       | 125                                        |       | (1,587 | ) | 3,890 |   |
|                                  |       | 6,562                                      |       | (819 | ) | 7,381 |   |
| Charges in lieu  of taxes:            |       |                                       |       |   |   |   |   |
| Attributable to  employee stock plans |       | 2,455                                      |       | 6,574 |   | 2,457 |   |
|                                  |       | $                                          | 8,078      |   | $ | 20,080 |   | $ | 25,225 |   |

 

Worldwide income before income taxesconsisted of the following:

 
| ** **    | ** ** | **Year ended December 31,** | ** ** |
|---------------|------------|--------------------------------------------|------------|
| ** **    | ** ** | **2007**                                   | ** ** | **2006** | ** ** | **2005** | ** ** |
| United States |       | $                                          | 28,863     |   | $ | 60,897 |   | $ | 64,943 |   |
| Foreign       |       | 72,497                                     |       | 70,860 |   | 40,871 |   |
|          |       | $                                          | 101,360    |   | $ | 131,757 |   | $ | 105,814 |   |

 

Income tax expense differed from theamounts computed by applying the U.S. federal statutory income tax rate toincome before income taxes as a result of the following:

 
| ** **                                                              | ** ** | **Year ended December 31,** | ** ** |
|-------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                              | ** ** | **2007**                                   | ** ** | **2006** | ** ** | **2005** | ** ** |
| Tax at statutory  rate                                                  |       | $                                          | 35,476     |   | $ | 46,115 |   | $ | 37,035 |   |
| State taxes, net  of federal benefit                                    |       | 605                                        |       | 2,073 |   | 549 |   |
| Tax exempt  interest                                                    |       | (2,147                                     | )          | (1,965 | ) | (2,005 | ) |
| U.S. tax benefit  on export sales                                       |       | —                                     |       | (738 | ) | (831 | ) |
| Effect of  foreign operations and tax incentives                        |       | (22,200                                    | )          | (24,590 | ) | (5,976 | ) |
| Valuation  allowance                                                    |       | (434                                       | )          | 100 |   | (2,404 | ) |
| Write-off of  investment in inactive foreign owned subsidiary           |       | (6,481                                     | )          | (4,760 | ) | — |   |
| Losses in  foreign jurisdictions for which no benefit has been provided |       | 382                                        |       | 1,426 |   | 130 |   |
| Other                                                                   |       | 2,877                                      |       | 2,419 |   | (1,273 | ) |
|                                                                    |       |                                       |       |   |   |   |   |
| Total income tax  expense                                               |       | $                                          | 8,078      |   | $ | 20,080 |   | $ | 25,225 |   |

 

61

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The tax effects of temporarydifferences that give rise to significant portions of the deferred tax assetsand deferred tax liabilities are presented below:

 
| ** **                                                                      | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                      | ** ** | **2007**              | ** ** | **2006** | ** ** |
| Deferred tax  assets:                                                           |       |                  |       |   |   |
| Carrying value  of inventories                                                  |       | $                     | 5,754      |   | $ | 4,159 |   |
| Accrued  liabilities and allowances deductible for tax purposes on a cash basis |       | 7,262                 |       | 5,592 |   |
| Goodwill                                                                        |       | 7,311                 |       | — |   |
| Stock-based  compensation                                                       |       | 1,974                 |       | 891 |   |
| Net operating  loss carryforwards                                               |       | 59,776                |       | 3,931 |   |
| Tax credit  carryforwards                                                       |       | 2,083                 |       | — |   |
| Other                                                                           |       | 4,588                 |       | — |   |
|                                                                            |       | 88,748                |       | 14,573 |   |
| Less: valuation  allowance                                                      |       | (64,113               | )          | (4,156 | ) |
|                                                                            |       |                  |       |   |   |
| Net deferred tax  assets                                                        |       | 24,635                |       | 10,417 |   |
|                                                                            |       |                  |       |   |   |
| Deferred tax  liabilities:                                                      |       |                  |       |   |   |
| Plant and  equipment, due to differences in depreciation                        |       | (4,485                | )          | (4,218 | ) |
| Goodwill                                                                        |       | (13,807               | )          | (7,098 | ) |
| Other                                                                           |       | (1,189                | )          | (1,641 | ) |
|                                                                            |       |                  |       |   |   |
| Gross deferred  tax liability                                                   |       | (19,481               | )          | (12,957 | ) |
| Net deferred tax  asset (liability)                                             |       | $                     | 5,154      |   | $ | (2,540 | ) |
|                                                                            |       |                  |       |   |   |
| Recorded as:                                                                    |       |                  |       |   |   |
| Current deferred  tax assets                                                    |       | $                     | 14,562     |   | $ | 6,534 |   |
| Non-current  deferred tax liabilities                                           |       | (9,408                | )          | (9,074 | ) |
|                                                                            |       |                  |       |   |   |
| Net deferred tax  asset (liability)                                             |       | $                     | 5,154      |   | $ | (2,540 | ) |

 

Thenet change in the total valuation allowance for the years ended December 31,2007, 2006 and 2005 was an increase (decrease) of $60.0 million, $1.8 millionand $(9.3) million, respectively. The increase in the valuation allowance forthe year ended December 31, 2007 was primarily a result of $60.2 millionthat was recorded in connection with the Merger for which subsequentlyrecognized tax benefits will be applied to reduce goodwill. In assessing therealizability of deferred tax assets, management considers whether it is morelikely than not that some portion or all of the deferred tax assets will not berealized. The ultimate realization of deferred tax assets is dependent upon thegeneration of future taxable income during the periods in which those temporarydifferences become deductible. Management considers the scheduled reversal ofdeferred tax liabilities, projected future taxable income, and tax planningstrategies in making this assessment. Based upon the level of historicaltaxable income and projections for future taxable income over the periods whichthe deferred tax assets are deductible, management believes it is more likelythan not the Company will realize the benefits of these deductible differences,net of the existing valuation allowances as of December 31, 2007.

 

62

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Asof December 31, 2007, the Company had $131.6 million in domestic operatingloss carryforwards which will expire from 2022 to 2026, foreign operating losscarryforwards of approximately $25.1 million with indefinite carryforwardperiods, and foreign operating loss carryforwards of approximately $3.5 millionwhich will expire at varying dates through 2017. The utilization of these netoperating loss carryforwards is limited to the future operations of the Companyin the tax jurisdictions in which such carryforwards arose. The Company hasstate tax credit carryforwards of $2.1 million which will expire at varyingdates through 2027.

 

Cumulativeundistributed earnings of certain foreign subsidiaries amounted toapproximately $263.9 million as of December 31, 2007. The Companyconsiders earnings from foreign subsidiaries to be indefinitely reinvested and,accordingly, no provision for U.S. federal and state income taxes has been madefor these earnings. Upon distribution of foreign subsidiary earnings in theform of dividends or otherwise, such distributed earnings would be reportablefor U.S. income tax purposes (subject to adjustment for foreign tax credits).Determination of the amount of any unrecognized deferred tax liability on theseundistributed earnings is not practical.

 

TheCompany has been granted certain tax incentives, including tax holidays, for itssubsidiaries in China, Ireland, Malaysia and Thailand. These tax incentives,including tax holidays, expire on various dates through 2012, andare subject tocertain conditions with which the Company expects to comply. The netimpact of these tax incentives was to lower income tax expense for the yearsended December 31, 2007, 2006, and 2005 by approximately $15.7 million(approximately $0.22 per diluted share), $19.4 million (approximately $0.30 perdiluted share) and $5.9 million (approximately $0.09 per diluted share),respectively.

 

63

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**Note 10—Major Customers**

** **

The Company’s customers operate inindustries that are, to a varying extent, subject to rapid technologicalchange, vigorous competition and short product life cycles. Developmentsadverse to the electronics industry, the Company’s customers or their productscould impact the Company’s overall credit risk.

 

The Company extends credit based onevaluation of its customers’ financial condition and generally does not requirecollateral or other security from its customers and would incur a loss equal tothe carrying value of the accounts receivable if its customer failed to performaccording to the terms of the credit arrangement.

 

Sales to major customers were asfollows for the indicated periods:

 
| ** ** | ** ** | **Year ended December 31,** | ** ** |
|------------|------------|--------------------------------------------|------------|
| ** ** | ** ** | **2007**                                   | ** ** | **2006** | ** ** | **2005** | ** ** |
| Customer A |       | $                                          | 643,868    |   | $ | 1,118,790 |   | $ | 670,062 |   |
| Customer B |       |                                       | *          |   | * | 327,736 |   |
|            |            |                                            |            |  |  |  |  |  |  |  |

 

----

* not a major customer in 2007 and 2006.

 

**Note 11—Financial Instruments and Concentration of CreditRisk**

** **

The carrying amounts of cashequivalents, short-term investments, accounts receivable, accrued liabilities,accounts payable and long-term debt approximate fair value. As of December 31,2007, the Company had no significant off-balance sheet concentrations of creditrisk such as foreign currency exchange contracts or other hedging arrangements.Financial instruments that subject the Company to credit risk consist of cashand cash equivalents, short-term investments and trade accounts receivable.Management maintains the majority of the Company’s cash and cash equivalentswith financial institutions. Due to the high credit quality of the Company’sshort-term investments, the Company has not experienced any losses on theseinvestments to date. One of the most significant credit risks is the ultimaterealization of accounts receivable. This risk is mitigated by (i) sales towell established companies, (ii) ongoing credit evaluation of customers,and (iii) frequent contact with customers, especially the most significantcustomers, thus enabling management to monitor current changes in businessoperations and to respond accordingly. Management considers theseconcentrations of credit risks in establishing our allowance for doubtful accountsand believes these allowances are adequate. Our largest customer representedapproximately 21% and 42% of our gross accounts receivable as of December 31,2007 and 2006, respectively.

 

**Note 12—Concentrations of Business Risk**

** **

Substantially all of the Company’ssales are derived from electronics manufacturing services in which the Companypurchases components specified by its customers. The Company uses numeroussuppliers of electronic components and other materials for its operations. Somecomponents used by the Company have been subject to industry-wide shortages,and suppliers have been forced to allocate available quantities among theircustomers. The Company’s inability to obtain any needed components duringperiods of allocation could cause delays in manufacturing and could adverselyaffect results of operations.

 

64

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**Note 13—Segment and Geographic Information**

** **

TheCompany has manufacturing facilities in the Americas, Asia and Europe to serveits customers. The Company is operated and managed geographically. The Company’smanagement evaluates performance and allocates the Company’s resources on ageographic basis. Intersegment sales are generally recorded at prices thatapproximate arm’s length transactions. Operating segments’ measure ofprofitability is based on income from operations. The accounting policies forthe reportable operating segments are the same as for the Company taken as awhole. The Company has three reportable operating segments: the Americas, Asia,and Europe. Information about operating segments was as follows:

 
| ** **                               | ** ** | **Year ended December 31,** | ** ** |
|------------------------------------------|------------|--------------------------------------------|------------|
| ** **                               | ** ** | **2007**                                   | ** ** | **2006** | ** ** | **2005** | ** ** |
| Net sales:                               |       |                                       |       |   |   |   |   |
| Americas                                 |       | $                                          | 2,100,431  |   | $ | 2,514,536 |   | $ | 1,981,914 |   |
| Asia                                     |       | 965,268                                    |       | 896,024 |   | 592,781 |   |
| Europe                                   |       | 354,489                                    |       | 358,245 |   | 211,474 |   |
| Elimination of  intersegment sales       |       | (504,269                                   | )          | (861,501 | ) | (528,944 | ) |
|                                     |       |                                       |       |   |   |   |   |
|                                     |       | $                                          | 2,915,919  |   | $ | 2,907,304 |   | $ | 2,257,225 |   |
|                                     |       |                                       |       |   |   |   |   |
| Depreciation and  amortization:          |       |                                       |       |   |   |   |   |
| Americas                                 |       | $                                          | 21,306     |   | $ | 13,923 |   | $ | 13,910 |   |
| Asia                                     |       | 16,791                                     |       | 10,196 |   | 8,076 |   |
| Europe                                   |       | 2,598                                      |       | 657 |   | 1,321 |   |
| Corporate                                |       | 2,437                                      |       | 2,602 |   | 2,861 |   |
|                                     |       |                                       |       |   |   |   |   |
|                                     |       | $                                          | 43,132     |   | $ | 27,378 |   | $ | 26,168 |   |
|                                     |       |                                       |       |   |   |   |   |
| Income from  operations:                 |       |                                       |       |   |   |   |   |
| Americas                                 |       | $                                          | 47,296     |   | $ | 78,711 |   | $ | 77,411 |   |
| Asia                                     |       | 64,536                                     |       | 72,863 |   | 47,687 |   |
| Europe                                   |       | 3,888                                      |       | 304 |   | (1,486 | ) |
| Corporate and  intersegment eliminations |       | (24,087                                    | )          | (26,377 | ) | (24,332 | ) |
|                                     |       |                                       |       |   |   |   |   |
|                                     |       | $                                          | 91,633     |   | $ | 125,501 |   | $ | 99,280 |   |
|                                     |       |                                       |       |   |   |   |   |
| Capital  expenditures:                   |       |                                       |       |   |   |   |   |
| Americas                                 |       | $                                          | 5,509      |   | $ | 23,214 |   | $ | 31,888 |   |
| Asia                                     |       | 9,600                                      |       | 17,921 |   | 15,990 |   |
| Europe                                   |       | 1,221                                      |       | 867 |   | 208 |   |
| Corporate                                |       | 4,242                                      |       | 2,616 |   | 329 |   |
|                                     |       |                                       |       |   |   |   |   |
|                                     |       | $                                          | 20,572     |   | $ | 44,618 |   | $ | 48,415 |   |
|                                     |       |                                       |       |   |   |   |   |
| Total assets:                            |       |                                       |       |   |   |   |   |
| Americas                                 |       | $                                          | 1,089,937  |   | $ | 976,337 |   | $ | 998,637 |   |
| Asia                                     |       | 514,078                                    |       | 333,945 |   | 230,938 |   |
| Europe                                   |       | 140,948                                    |       | 89,003 |   | 61,425 |   |
| Corporate and  other                     |       | 17,885                                     |       | 6,835 |   | 7,408 |   |
|                                     |       |                                       |       |   |   |   |   |
|                                     |       | $                                          | 1,762,848  |   | $ | 1,406,120 |   | $ | 1,298,408 |   |

 

65

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The following enterprise-wideinformation is provided in accordance with SFAS No. 131.  Geographic net sales information reflects thedestination of the product shipped. Long-lived assets information is based on the physical location of theasset.

 
| ** **             | ** ** | **Year ended December 31,** | ** ** |
|------------------------|------------|--------------------------------------------|------------|
| ** **             | ** ** | **2007**                                   | ** ** | **2006** | ** ** | **2005** | ** ** |
| Geographic net  sales: |       |                                       |       |   |   |   |   |
| United States          |       | $                                          | 2,241,403  |   | $ | 2,221,435 |   | $ | 1,776,605 |   |
| Asia                   |       | 178,888                                    |       | 112,055 |   | 67,483 |   |
| Europe                 |       | 462,693                                    |       | 549,803 |   | 395,585 |   |
| Other                  |       | 32,935                                     |       | 24,011 |   | 17,552 |   |
|                   |       |                                       |       |   |   |   |   |
|                   |       | $                                          | 2,915,919  |   | $ | 2,907,304 |   | $ | 2,257,225 |   |
|                   |       |                                       |       |   |   |   |   |
| Long-lived  assets:    |       |                                       |       |   |   |   |   |
| United States          |       | $                                          | 86,602     |   | $ | 66,491 |   | $ | 53,868 |   |
| Asia                   |       | 69,062                                     |       | 45,287 |   | 37,468 |   |
| Europe                 |       | 10,147                                     |       | 1,419 |   | 1,172 |   |
| Other                  |       | 8,021                                      |       | 9,314 |   | 8,416 |   |
|                   |       |                                       |       |   |   |   |   |
|                   |       | $                                          | 173,832    |   | $ | 122,511 |   | $ | 100,924 |   |

 

66

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**Note 14—Employee Benefit Plans**

** **

The Company has defined contributionplans qualified under Section 401(k) of the Internal Revenue Code forthe benefit of its U.S. employees. The plans cover all U.S. employees with atleast one year of service. Under the provisions of the plans, the Company willmatch a portion of each participant’s contribution. The Company may also makediscretionary contributions to the plans. During 2007, 2006 and 2005, theCompany made contributions to the plans of approximately $3.5 million, $2.8 millionand $2.6 million, respectively. The Company also has defined contributionbenefit plans for certain of its international employees primarily dictated bythe custom of the regions in which it operates. During 2007, 2006 and 2005, theCompany made contributions to the international plans of approximately $0.5million, $0.3 million and $0.4 million, respectively.

 

**Note 15—Contingencies**

** **

TheCompany is involved in various legal actions arising in the ordinary course ofbusiness. In the opinion of management, the ultimate disposition of thesematters will not have a material adverse effect on the Company’s consolidatedfinancial position or results of operations.

 

Thefollowing legal proceeding was acquired in the Merger and is considered outsidethe ordinary course of business. On June 16, 2005 a putative class actionwas filed by an individual shareholder against Pemstar and certain of itsofficers and directors. The lawsuit was brought in the United States DistrictCourt for the District Court of Minnesota and is captioned: In re PEMSTAR INC.Securities Litigation, Civil Action No. 05-CV-01182 — JMR/FLN. The lawsuitalleged violations of Section 10(b) and Section 20(a) ofthe Securities Exchange Act of 1934 and Section 11 of the Securities Actof 1933. The plaintiff alleged, in essence, that the defendants defraudedPemstar’s shareholders by failing to timely disclose the circumstances aroundthe discrepancies in the accounting of the Mexico facility that generated arestatement. The lawsuit also alleged that the registration statement filed byPemstar in connection with a secondary offering contained false, materialmisrepresentations. The plaintiff sought to represent a class of persons whopurchased Pemstar stock from January 30, 2003 through and including January 12,2005. The parties reached a settlement which was approved by the court on November 15,2007. The settlement amount, less the Company’s retention, was paid fromPemstar’s director and officer insurance policy.

 

 The Company is subject to examination by taxauthorities for varying periods in various U.S. and foreign tax jurisdictions.During the course of such examinations disputes occur as to matters of factand/or law. Also, in most tax jurisdictions the passage of time withoutexamination will result in the expiration of applicable statutes of limitationsthereby precluding the taxing authority from conducting an examination of thetax period(s) for which such statute of limitation has expired. TheCompany believes that it has adequately provided for its tax liabilities.

 

**Note 16—Restructuring Charges and Integration Costs**

** **

The Company has undertakeninitiatives to restructure its business operations with the intention ofimproving utilization and realizing cost savings in the future. These initiativeshave included changing the number and location of production facilities,largely to align capacity and infrastructure with current and anticipatedcustomer demand. This alignment includes transferring programs from higher costgeographies to lower cost geographies. The process of restructuring entails,among other activities, moving production between facilities, reducing stafflevels, realigning our business processes and reorganizing our management.

 

67

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TheCompany recognized restructuring charges during 2006 related to reductions inworkforce and the re-sizing and closure of certain facilities. These chargeswere recorded pursuant to plans developed and approved by management. Restructuring charges associated with these realignmentefforts, primarily related to the closure of the Company’s Leicester, Englandand Loveland, Colorado facilities, were approximately $4.7 million ($4.0million net of tax) during the year ended December 31, 2006. The componentsof the restructuring charges during 2006 were as follows:

 
| ** **            | ** ** | **Americas** | ** ** | **Europe** | ** ** | **Total** | ** ** |
|-----------------------|------------|--------------|------------|------------|------------|-----------|------------|
| Severance costs       |       | $            | 861        |       | $          | 1,455     |       | $ | 2,316 |   |
| Facility lease  costs |       | 321          |       | 418        |       | 739       |       |
| Other exit costs      |       | 607          |       | 1,061      |       | 1,668     |       |
|                  |       |         |       |       |       |      |       |
|                  |       | $            | 1,789      |       | $          | 2,934     |       | $ | 4,723 |   |

 

During2006, the Company recorded approximately $2.3 million of employee terminationcosts associated with the involuntary terminations of 266 identified employeesin connection with the various facility closures and consolidations. Theidentified involuntary employee terminations by reportable geographic regionamounted to approximately 166 and 100 for the Americas and Europe,respectively.

 

During2006, the Company recorded approximately $0.7 million for facility leasecosts, including $0.4 million for facility lease obligations and $0.3 millionfor facility abandonment and refurbishment costs. The restructuring chargesrecorded during 2006 also included approximately $1.7 million for otherexit costs.

 

Thefollowing table summarizes the provisions, the respective payments, and theremaining accrued balance as of December 31, 2007 for estimatedrestructuring charges incurred in 2006:

 
| ** **                            | ** ** | **Severance** | ** ** | **Facility  Lease  Costs** | ** ** | **Other  Exit  Costs** | ** ** | **Total  Costs** | ** ** |
|---------------------------------------|------------|---------------|------------|----------------------------|------------|------------------------|------------|------------------|------------|
|                                  |       |          |       |                       |       |                   |       |             |       |   |   |   |   |
| Balance as of  December 31, 2005 |       | $             | —     |                       | $          | —                 |       | $                | —     |   | $ | — |   |
| Provision for  charges incurred       |       | 2,316         |       | 739                        |       | 1,668                  |       | 4,723            |       |
| Payments                              |       | (2,133        | )          | (724                       | )          | (904                   | )          | (3,761           | )          |
| Non-cash charges  incurred            |       | —        |       | —                     |       | (672                   | )          | (672             | )          |
| Foreign exchange  adjustments         |       | 17            |       | 42                         |       | 50                     |       | 109              |       |
|                                  |       |          |       |                       |       |                   |       |             |       |
| Balance as of  December 31, 2006 |       | 200           |       | 57                         |       | 142                    |       | 399              |       |
| Provision for  charges incurred       |       | (11           | )          | (40                        | )          | —                 |       | (51              | )          |
| Payments                              |       | (152          | )          | (17                        | )          | (142                   | )          | (311             | )          |
| Foreign exchange  adjustments         |       | 2             |       | —                     |       | —                 |       | 2                |       |
|                                  |       |          |       |                       |       |                   |       |             |       |
| Balance as of  December 31, 2007 |       | $             | 39         |                       | $          | —                 |       | $                | —     |   | $ | 39 |   |

 

Accrualsrelated to restructuring activities are recorded in accrued liabilities in theaccompanying consolidated balance sheets.

 

68

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TheCompany recognized restructuring charges during 2007 related to reductions inworkforce and the re-sizing of certain facilities. These charges were recordedpursuant to plans developed and approved by management. Restructuring charges associated with these realignmentefforts, primarily related to the transfer of the Company’s printed circuitboard assembly (PCBA) operations in Dublin, Ireland to Brasov, Romania and theconsolidation and resizing of certain other facilities, were approximately $4.7million ($3.2 million net of tax) during the year ended December 31, 2007.

 

Thefollowing table summarizes the provisions, the respective payments, and theremaining accrued balance as of December 31, 2007 for estimatedrestructuring charges incurred in 2007:

 
| ** **                            | ** ** | **Severance** | ** ** | **Facility  Lease  Costs** | ** ** | **Other  Exit  Costs** | ** ** | **Total  Costs** | ** ** |
|---------------------------------------|------------|---------------|------------|----------------------------|------------|------------------------|------------|------------------|------------|
|                                  |       |          |       |                       |       |                   |       |             |       |   |   |   |   |
| Balance as of  December 31, 2006 |       | $             | —     |                       | $          | —                 |       | $                | —     |   | $ | — |   |
| Provision for  charges incurred       |       | 1,375         |       | 1,211                      |       | 2,091                  |       | 4,677            |       |
| Payments                              |       | (1,205        | )          | (200                       | )          | (97                    | )          | (1,502           | )          |
| Non-cash charges  incurred            |       | —        |       | —                     |       | (1,453                 | )          | (1,453           | )          |
| Foreign exchange  adjustments         |       | 1             |       | —                     |       | —                 |       | 1                |       |
|                                  |       |          |       |                       |       |                   |       |             |       |
| Balance as of  December 31, 2007 |       | $             | 171        |                       | $          | 1,011                  |       | $                | 541        |   | $ | 1,723 |   |

 

Thecomponents of the restructuring charges during 2007 were as follows:

 
| ** **            | ** ** | **Americas** | ** ** | **Europe** | ** ** | **Asia** | ** ** | **Total** | ** ** |
|-----------------------|------------|--------------|------------|------------|------------|----------|------------|-----------|------------|
|                  |       |         |       |       |       |     |       |      |       |   |   |   |   |
| Severance costs       |       | $            | 759        |       | $          | 427      |       | $         | 189        |   | $ | 1,375 |   |
| Facility lease  costs |       | 1,211        |       | —     |       | —   |       | 1,211     |       |
| Other exit costs      |       | 1,846        |       | 245        |       | —   |       | 2,091     |       |
|                  |       |         |       |       |       |     |       |      |       |
|                  |       | $            | 3,816      |       | $          | 672      |       | $         | 189        |   | $ | 4,677 |   |

 

Duringthe year ended December 31, 2007, the Company recorded approximately $1.4million ($1.1 million net of tax) of employee termination costs associatedwith the involuntary terminations of 192 identified employees in connectionwith various facility closures, consolidations and resizing of certainfacilities. The identified involuntary employee terminations by reportablegeographic region amounted to approximately 138, 16 and 38 for the Americas,Asia and Europe, respectively.

 

Duringthe year ended December 31, 2007, the Company recorded approximately$1.2 million ($0.8 million net of tax) for facility leaseobligations. The restructuring charges recorded during 2007 also includedapproximately $2.1 million ($1.4 million net of tax) for other exit costs,including $1.5 million of asset impairments associated with the closure ofcertain leased facilities.

 

Inconnection with acquisitions in 2007, a total of $7.0 million ($5.1 million netof tax) in integration costs were incurred during the year ended December 31,2007. These costs include redundant operating costs that are expected to beeliminated in future periods.

 

69

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TheCompany also recorded an assumed liability for expected involuntary employeetermination costs and facility closures in connection with the Merger. Costsassociated with restructuring activities related to a purchase businesscombination are accounted for in accordance with Emerging Issue Task ForceIssue (EITF) No. 95-3, “Recognition of Liabilities in Connection with aPurchase Business Combination”. Accordingly, costs associated with such plansare recorded as a liability assumed as of the consummation date of the purchasebusiness combination and included in the cost of the acquired entity. Thefollowing table summarizes the activity related to restructuring costs recordedpursuant to EITF No. 95-3 during 2007:

 
| ** **                            | ** ** | ** **    | ** ** | **Facility** | ** ** | **Other** | ** ** | ** ** | ** ** |
|---------------------------------------|------------|---------------|------------|--------------|------------|-----------|------------|------------|------------|
| ** **                            | ** ** | ** **    | ** ** | **Lease**    | ** ** | **Exit**  | ** ** | **Total**  | ** ** |
| ** **                            | ** ** | **Severance** | ** ** | **Costs**    | ** ** | **Costs** | ** ** | **Costs**  | ** ** |
|                                  |       |          |       |         |       |      |       |       |       |   |   |   |   |
| Balance as of  December 31, 2006 |       | $             | —     |         | $          | —    |       | $          | —     |   | $ | — |   |
| Liability  assumed in the Merger      |       | 344           |       | 1,057        |       | 1,644     |       | 3,045      |       |
| Payments                              |       | (352          | )          | (325         | )          | (172      | )          | (849       | )          |
| Foreign exchange  adjustments         |       | 8             |       | 76           |       | 145       |       | 229        |       |
|                                  |       |          |       |         |       |      |       |       |       |
| Balance as of  December 31, 2007 |       | $             | —     |         | $          | 808       |       | $          | 1,617      |   | $ | 2,425 |   |

 

Thecomponents of the liabilities assumed during 2007 for estimated restructuring chargesincurred in connection with the Merger were as follows:

 
| ** **            | ** ** | **Americas** | ** ** | **Europe** | ** ** | **Asia** | ** ** | **Total** | ** ** |
|-----------------------|------------|--------------|------------|------------|------------|----------|------------|-----------|------------|
|                  |       |         |       |       |       |     |       |      |       |   |   |   |   |
| Severance costs       |       | $            | —     |       | $          | 235      |       | $         | 109        |   | $ | 344 |   |
| Facility lease  costs |       | —       |       | 722        |       | 335      |       | 1,057     |       |
| Other exit costs      |       | —       |       | 1,112      |       | 532      |       | 1,644     |       |
|                  |       |         |       |       |       |     |       |      |       |
|                  |       | $            | —     |       | $          | 2,069    |       | $         | 976        |   | $ | 3,045 |   |

 

70

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** **

**Note 17—Quarterly Financial Data (Unaudited)**

** **

The following table sets forthcertain unaudited quarterly information with respect to the Company’s resultsof operations for the years 2007, 2006 and 2005. Earnings per share arecomputed independently for each of the quarters presented. Therefore, the sumof the quarterly earnings per share may not equal the total earnings per shareamounts for the fiscal year.

 
| ** **                  | ** ** | **2007 Quarter** | ** ** |
|-----------------------------|------------|-----------------------|------------|
|                        |       | **1st**               | ** ** | **2nd** | ** ** | **3rd** | ** ** | **4th** |   |
|                        |       |                  |       |   |   |   |   |   |   |
| Sales                       |       | $                     | 752,482    |   | $ | 756,295 |   | $ | 672,595 |   | $ | 734,547 |   |
| Gross profit                |       | 54,488                |       | 54,495 |   | 38,777 |   | 51,174 |   |
| Net income                  |       | 24,476                |       | 25,921 |   | 22,009 |   | 20,876 |   |
| Earnings per  common share: |       |                  |       |   |   |   |   |   |   |
| Basic                       |       | 0.34                  |       | 0.36 |   | 0.30 |   | 0.29 |   |
| Diluted                     |       | 0.34                  |       | 0.35 |   | 0.30 |   | 0.29 |   |
|                             |            |                       |            |  |  |  |  |  |  |  |  |  |  |

 
| ** **                  |   | **2006 Quarter** |       |
|-----------------------------|--------|-----------------------|------------|
|                        |   | **1st**               | ** ** | **2nd** | ** ** | **3rd** | ** ** | **4th** |   |
|                        |   |                  |       |   |   |   |   |   |   |
| Sales                       |   | $                     | 651,244    |   | $ | 749,171 |   | $ | 769,549 |   | $ | 737,340 |   |
| Gross profit                |   | 45,366                |       | 52,300 |   | 52,259 |   | 49,598 |   |
| Net income                  |   | 26,522                |       | 27,524 |   | 29,336 |   | 28,295 |   |
| Earnings per  common share: |   |                  |       |   |   |   |   |   |   |
| Basic                       |   | 0.42                  |       | 0.43 |   | 0.45 |   | 0.44 |   |
| Diluted                     |   | 0.41                  |       | 0.42 |   | 0.45 |   | 0.43 |   |
|                             |        |                       |            |  |  |  |  |  |  |  |  |  |  |

 
| ** **                  | ** ** | **2005 Quarter** |
|-----------------------------|------------|-----------------------|
|                        |       | **1st**               | ** ** | **2nd** | ** ** | **3rd** | ** ** | **4th** |   |
|                        |       |                  |   |   |   |   |   |   |   |
| Sales                       |       | $                     | 509,582 |   | $ | 560,817 |   | $ | 561,452 |   | $ | 625,374 |   |
| Gross profit                |       | 37,485                |   | 38,746 |   | 40,304 |   | 45,067 |   |
| Net income                  |       | 16,929                |   | 18,698 |   | 20,307 |   | 24,655 |   |
| Earnings per  common share: |       |                  |   |   |   |   |   |   |   |
| Basic                       |       | 0.27                  |   | 0.30 |   | 0.32 |   | 0.39 |   |
| Diluted                     |       | 0.26                  |   | 0.29 |   | 0.32 |   | 0.38 |   |
|                             |            |                       |  |  |  |  |  |  |  |  |  |  |  |

 

**Note 18—Supplemental Cash Flow Information**

** **

The following is additionalinformation concerning supplemental disclosures of cash payments.

 
| ** **              | ** ** | **Year ended December 31,** | ** ** |
|-------------------------|------------|--------------------------------------------|------------|
|                    |       | **2007**                                   | ** ** | **2006** | ** ** | **2005** |   |
|                    |       |                                       |       |   |   |   |   |
| Income taxes  paid, net |       | $                                          | 1,414      |   | $ | 19,104 |   | $ | 13,463 |   |
| Interest paid           |       | $                                          | 1,744      |   | $ | 267 |   | $ | 303 |   |

** **

**71**

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** **

**Report of Independent Registered Public Accounting Firm**

** **

The Board of Directors andShareholders

Benchmark Electronics, Inc.:

 

We have audited the accompanyingconsolidated balance sheets of Benchmark Electronics, Inc. andsubsidiaries as of December 31, 2007 and 2006, and the relatedconsolidated statements of income, comprehensive income, shareholders’ equity,and cash flows for each of the years in the three-year period ended December 31,2007. These consolidated financial statements are the responsibility of theCompany’s management. Our responsibility is to express an opinion on theseconsolidated financial statements based on our audits.

 

We conducted our audits in accordancewith the standards of the Public Company Accounting Oversight Board (UnitedStates). Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements. An audit alsoincludes assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statementpresentation. We believe that our audits provide a reasonable basis for ouropinion.

 

In our opinion, the consolidatedfinancial statements referred to above present fairly, in all materialrespects, the financial position of Benchmark Electronics, Inc. andsubsidiaries as of December 31, 2007 and 2006, and the results of theiroperations and their cash flows for each of the years in the three-year periodended December 31, 2007, in conformity with U.S. generally acceptedaccounting principles.

 

We also have audited, in accordancewith the standards of the Public Company Accounting Oversight Board (UnitedStates), the effectiveness of Benchmark Electronics, Inc.’s internalcontrol over financial reporting as of December 31, 2007, based oncriteria established in “Internal Control—Integrated Framework” issued by theCommittee of Sponsoring Organizations of the Treadway Commission (COSO), andour report dated February 27, 2008, expressed an unqualified opinion onthe effectiveness of the Company’s internal control over financial reporting.

 

Asdiscussed in Note 1 to the consolidated financial statements, effective January 1,2007, the Company adopted the provisions of Financial Accounting StandardsBoard (FASB) Interpretation No. 48, “Accounting for Uncertainty in IncomeTaxes, an interpretation of FASB Statement No. 109”, and effective January 1,2006, the Company adopted the provisions of Statement of Financial AccountingStandards (SFAS) No. 123R, “Share-Based Payment”.

 
| (signed)  KPMG LLP      |
|-------------------------|
| Houston,  Texas         |
| February 27,  2008 |

** **

**72**

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** **

**Management’s Report**

** **

The management of BenchmarkElectronics, Inc. has prepared and is responsible for the consolidatedfinancial statements and related financial data contained in this report. Theconsolidated financial statements were prepared in accordance with U.S.generally accepted accounting principles and necessarily include certainamounts based upon management’s best estimates and judgments. The financialinformation contained elsewhere in this annual report is consistent with thatin the consolidated financial statements.

 

The Company maintains internalaccounting control systems that are adequate to prepare financial records andto provide reasonable assurance that the assets are safe-guarded from loss orunauthorized use. We believe these systems are effective, and the cost of the systemsdoes not exceed the benefits obtained.

 

The Audit Committee, composedexclusively of independent, outside directors, has reviewed all financial dataincluded in this report. The committee meets periodically with the Company’smanagement and independent registered public accountants on financial reportingmatters. The independent registered public accountants have complete access tothe Audit Committee and may meet with the committee, without managementpresent, to discuss their audit results and opinions on the quality offinancial reporting.

 

The role of independent registeredpublic accountants is to render a professional, independent opinion onmanagement’s financial statements to the extent required by the standards ofthe Public Company Accounting Oversight Board (United States). Benchmark’sresponsibility is to conduct its affairs according to the highest standards ofpersonal and corporate conduct.

 

73

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**Item9.  *Changes in andDisagreements With Accountants on Accounting and Financial Disclosure***

 

None.

 

**Item 9A.  *Controls And Procedures***

 

**Conclusion Regarding the Effectiveness of Disclosure Controlsand Procedures**

** **

As of the end of the period coveredby this report, the Company’s management (with the participation of its chiefexecutive officer and chief financial officer), conducted an evaluationpursuant to Rule 13a-15 promulgated under the Securities Exchange Act of1934, as amended (the Exchange Act), of the effectiveness of the design andoperation of the Company’s disclosure controls and procedures. Based on thisevaluation, the Company’s chief executive officer and chief financial officerconcluded that as of the end of the period covered by this report suchdisclosure controls and procedures were effective to provide reasonableassurance that information required to be disclosed by the Company in reportsit files or submits under the Exchange Act is recorded, processed, summarizedand reported within the time periods specified in the rules and forms ofthe Securities and Exchange Commission, and include controls and proceduresdesigned to ensure that information required to be disclosed by the Company insuch reports is accumulated and communicated to the Company’s management,including the Company’s chief executive officer and chief financial officer, asappropriate to allow timely decisions regarding required disclosure.

 

There has been no change in ourinternal control over financial reporting that occurred during the periodcovered by this Annual Report on Form 10-K that has materially affected,or is reasonably likely to materially affect, our internal control overfinancial reporting.

 

Our management, including our chiefexecutive officer and chief financial officer, does not expect that ourdisclosure controls and internal controls will prevent all errors and allfraud. A control system, no matter how well conceived and operated, can provideonly reasonable, not absolute, assurance that the objectives of the controlsystem are met. Further, the design of a control system must reflect the factthat there are resource constraints, and the benefits of controls must beconsidered relative to their costs. Because of the inherent limitations in allcontrol systems, no evaluation of controls can provide absolute assurance thatall control issues and instances of fraud, if any, within the company have beendetected. These inherent limitations include the realities that judgments indecision-making can be faulty, and that breakdowns can occur because of simpleerror or mistake. Additionally, controls can be circumvented by the individualacts of some persons, by collusion of two or more people, or by managementoverride of the control. The design of any system of controls also is based inpart upon certain assumptions about the likelihood of future events, and therecan be no assurance that any design will succeed in achieving its stated goalsunder all potential future conditions; over time, a control may becomeinadequate because of changes in conditions, or the degree of compliance withthe policies or procedures may deteriorate. Because of the inherent limitationsin a cost-effective control system, misstatements due to error or fraud mayoccur and not be detected.

** **

**74**

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** **

**Management’s Report on Internal Control over FinancialReporting**

** **

Our management is responsible forestablishing and maintaining adequate internal control over financialreporting, as such term is defined in Exchange Act Rule 13a-15(f). Underthe supervision and with the participation of our management, including ourprincipal executive officer and principal financial officer, we conducted anevaluation of the effectiveness of our internal control over financialreporting based on the framework in “Internal Control—Integrated Framework”issued by the Committee of Sponsoring Organizations of the Treadway Commission.Based on our evaluation under the framework in “Internal Control—IntegratedFramework”, our management concluded that our internal control over financialreporting was effective as of December 31, 2007.

 

The effectiveness of the Company’sinternal control over financial reporting as of December 31, 2007 has beenaudited by KPMG LLP, an independent registered public accounting firm, asstated in their attestation report which is included below.

 

**Report of Independent Registered Public Accounting Firm onInternal Control over Financial Reporting**

** **

The Board of Directors andShareholders

Benchmark Electronics, Inc.:

 

We have audited Benchmark Electronics, Inc.’sinternal control over financial reporting as of December 31, 2007, basedon criteria established in “Internal Control—Integrated Framework” issued bythe Committee of Sponsoring Organizations of the Treadway Commission (COSO). BenchmarkElectronics, Inc.’s management is responsible for maintaining effectiveinternal control over financial reporting and for its assessment of theeffectiveness of internal control over financial reporting, included in theaccompanying Management’s Report on Internal Control over Financial Reporting.Our responsibility is to express an opinion on the Company’s internal controlover financial reporting based on our audit.

 

We conducted our audit in accordancewith the standards of the Public Company Accounting Oversight Board (UnitedStates). Those standards require that we plan and perform the audit to obtainreasonable assurance about whether effective internal control over financialreporting was maintained in all material respects. Our audit included obtainingan understanding of internal control over financial reporting, assessing therisk that a material weakness exists, and testing and evaluating the design andoperating effectiveness of internal control on the assessed risk. Our auditalso included performing such other procedures as we considered necessary inthe circumstances. We believe that our audit provides a reasonable basis forour opinion.

 

A company’s internal control overfinancial reporting is a process designed to provide reasonable assuranceregarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generallyaccepted accounting principles. A company’s internal control over financialreporting includes those policies and procedures that (1) pertain to themaintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directorsof the company; and (3) provide reasonable assurance regarding preventionor timely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations,internal control over financial reporting may not prevent or detectmisstatements. Also, projections of any evaluation of effectiveness to futureperiods are subject to the risk that controls may become inadequate because ofchanges in conditions, or that the degree of compliance with the policies orprocedures may deteriorate.

 

75

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In our opinion, Benchmark Electronics, Inc.maintained, in all material respects, effective internal control over financialreporting as of December 31, 2007, based on criteria established in “InternalControl—Integrated Framework” issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO).

 

We also have audited, in accordancewith the standards of the Public Company Accounting Oversight Board (UnitedStates), the consolidated balance sheets of Benchmark Electronics, Inc.and subsidiaries as of December 31, 2007 and 2006, and the relatedconsolidated statements of income, comprehensive income, shareholders’ equity,and cash flows for each of the years in the three-year period ended December 31,2007, and our report dated February 27, 2008, expressed an unqualifiedopinion on those consolidated financial statements.

 

(signed) KPMG LLP

Houston, Texas

February 27, 2008

 

**Item 9B.  *Other Information***

 

Not applicable.

 

**PART III**

** **

**Item 10.  *Directors, ExecutiveOfficers and Corporate Governance***

 

The information under the captions “Electionof Directors,” “Executive Officers” and “Section 16(a) BeneficialOwnership Reporting Compliance” in the Company’s Proxy Statement for the 2008Annual Meeting of Shareholders (the 2008 Proxy Statement), to be filed notlater than 120 days after the close of the Company’s fiscal year, isincorporated herein by reference in response to this item.

 

**Item11.  *Executive Compensation***

 

The information under the captions “CompensationDiscussion and Analysis” and “Report of Compensation Committee” in the 2008Proxy Statement, to be filed not later than 120 days after the close of the Company’sfiscal year, is incorporated herein by reference in response to this item.

 

76

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**Item 12.  *Security Ownership of Certain Beneficial Owners and Management andRelated Shareholder Matters***

 

The information under the caption “CommonShare Ownership of Certain Beneficial Owners and Management” in the 2008 ProxyStatement, to be filed not later than 120 days after the close of the Company’sfiscal year, is incorporated herein by reference in response to this item.

 

The following table sets forthcertain information relating to our equity compensation plans as of December 31,2007.

 
| **Plan  Category**                                             | ** ** | **Number of  securities to be  issued upon  exercise of  outstanding  options, warrants  and rights** | ** ** | **Weighted-  average exercise  price of  outstanding  options, warrants  and rights** | ** ** | **Number  of  securities  remaining  available  for future  issuance** | ** ** |
|----------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------|------------|
| Equity  compensation plans approved by security holders        |       | 5,840,925                                                                                                  |       | $                                                                                     | 19.18      |                                                                   | 4,919,986  |   |
| Equity  compensation plans not approved by security holders(1) |       | 33,750                                                                                                     |       | $                                                                                     | 13.85      |                                                                   | —     |   |
| Total                                                          |       | 5,874,675                                                                                                  |       | $                                                                                     | 19.15      |                                                                   | 4,919,986  |   |

 

----

(1) In December of1994, the Board of Directors adopted the Benchmark Electronics, Inc. 1994Stock Option Plan for Non-Employee Directors (the 1994 Plan) for the benefit ofmembers of the Board of Directors of Benchmark or its affiliates who are notemployees of Benchmark or its affiliates (as defined in the 1994 Plan). The1994 Plan was not required to be approved by our shareholders. All awards underthe 1994 Plan were fully vested upon the date of grant. The exercise price percommon share of options granted under the 1994 Plan was the fair market valueof a Common Share on the date such option was granted. As of December 31,2007, the Company has outstanding options with respect to 33,750 Common Sharesunder the 1994 Plan. The 1994 Plan was replaced in 2002, and no additionalgrants may be made under that plan.

 

**Item 13.  *Certain Relationships andRelated Transactions, and Director Independence***

 

The information under the caption “Electionof Directors—Certain Transactions” in the 2008 Proxy Statement, to be filed notlater than 120 days after the close of the Company’s fiscal year, isincorporated herein by reference in response to this item.

 

**Item 14.  *Principal Accounting Feesand Services***

 

The information under the caption “AuditCommittee Report to Shareholders” in the 2008 Proxy Statement, to be filed notlater than 120 days after the close of the Company’s fiscal year, isincorporated herein by reference in response to this item.

 

77

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** **

**PART IV**

 

**Item15.  *Exhibits, FinancialStatement Schedules***

 

(a) (1)  Financialstatements of the Company filed as part of this report:

 

See Item 8 – Financial Statements andSupplementary Data.

 

(2)  Financialstatement schedule filed as part of this report:

 

**ScheduleII - Valuation Accounts**

 
|                                 |   | **Balance  at** | ** ** | **Additions**   | ** ** | ** ** | ** ** | **Balance  at** |       |
|--------------------------------------|--------|-----------------|------------|-----------------|------------|------------|------------|-----------------|------------|
|                                 |   | **Beginning**   | ** ** | **Charges  to** | ** ** | ** ** | ** ** | ** **      | ** ** | **End of** |   |
| **(in  thousands)**                  |   | **of  Period**  | ** ** | **Operations**  | ** ** | **Other**  | ** ** | **Deductions**  | ** ** | **Period** |   |
|                                 |   |            |       |            |       |       |       |            |       |   |   |
| Year ended  December 31, 2007:  |   |            |       |            |       |       |       |            |       |   |   |
| Allowance for  doubtful accounts (1) |   | $               | 1,430      |            | 91         |       | 5          |            | 120        |   | 1,406 |   |
| Inventory  obsolescence reserve (2)  |   | $               | 12,549     |            | 1,343      |       | —     |            | 3,061      |   | 10,831 |   |
|                                 |   |            |       |            |       |       |       |            |       |   |   |   |
| Year ended  December 31, 2006:  |   |            |       |            |       |       |       |            |       |   |   |
| Allowance for  doubtful accounts(1)  |   | $               | 5,318      |            | (837       | )          | 78         |            | 3,129      |   | 1,430 |   |
| Inventory  obsolescence reserve (2)  |   | $               | 12,524     |            | 2,476      |       | 33         |            | 2,484      |   | 12,549 |   |
|                                 |   |            |       |            |       |       |       |            |       |   |   |   |
| Year ended  December 31, 2005:  |   |            |       |            |       |       |       |            |       |   |   |
| Allowance for  doubtful accounts (1) |   | $               | 6,985      |            | (627       | )          | 70         |            | 1,110      |   | 5,318 |   |
| Inventory  obsolescence reserve(2)   |   | $               | 13,317     |            | 54         |       | (77        | )               | 770        |   | 12,524 |   |

 

----

(1) Deductions inthe allowance for doubtful accounts represent write--offs, net of recoveries,of amounts determined to be uncollectible.

(2) Deductions in the inventoryobsolescence reserve represent disposals of inventory determined to beobsolete.

 

**Report of Independent Registered Public Accounting Firm onSchedule**

** **

The Board of Directors andShareholders

Benchmark Electronics, Inc.:

 

Under date of February 27, 2008,we reported on the consolidated balance sheets of Benchmark Electronics, Inc.and subsidiaries as of December 31, 2007 and 2006, and the relatedconsolidated statements of income, comprehensive income, shareholders’ equity,and cash flows for each of the years in the three–year period ended December 31,2007, in this annual report on Form 10-K for the year 2007. In connectionwith the audits of the aforementioned consolidated financial statements, wealso have audited the related consolidated financial statement scheduleincluded in Item 15(a)2. This financial statement schedule is theresponsibility of the Company’s management. Our responsibility is to express anopinion on this financial statement schedule based on our audits.

 

In our opinion, such financialstatement schedule, when considered in relation to the basic consolidatedfinancial statements taken as a whole, presents fairly, in all materialrespects, the information set forth therein.

 
| (signed)  KPMG LLP      |
|-------------------------|
| Houston,  Texas         |
| February 27,  2008 |

 

78

----

 

(3)  Exhibits

 

                Each exhibit marked with anasterisk is filed with this Annual Report on Form 10--K.

 
| **Exhibit** | ** ** | ** **      | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                    |
|-------------|------------|-----------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Number**  | ** ** | **Description** |
| ** **  | ** ** | ** **      | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 2.1         |       | —          |       | Agreement and Plan of Merger dated  October 16, 2006 among the Company, Autobahn Acquisition Corp. and  Pemstar Inc. (incorporated by reference to Exhibit 2.1 to the Company’s  Form 8-K dated October 16, 2006 and filed on October 18, 2006  (Commission file number 1-10560)).                                                                                                              |
|        |       |            |       |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 3.1         |       | —          |       | Restated Articles of Incorporation of the  Company dated May 10, 1990 (incorporated by reference to  Exhibit 3.1 to the Company’s Registration Statement on Form S-1  (Registration Number 33-46316) (the “Registration Statement”)).                                                                                                                                                           |
|        |       |            |       |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 3.2         |       | —          |       | Amendment to the Restated Articles of  Incorporation of the Company adopted by the shareholders of the Company on  May 20, 1997 (incorporated by reference to Exhibit 3.3 to the  Company’s Annual Report on Form 10-K for the year ended  December 31, 1998 (Commission file number 1-10560)).                                                                                                      |
|        |       |            |       |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 3.3         |       | —          |       | Statement of Resolution Establishing  Series A Cumulative Junior Participating Preferred Stock of the Company  (incorporated by reference to Exhibit B of the Rights Agreement dated  December 11, 1998 between the Company and Harris Trust Savings Bank, as  Rights Agent, included as Exhibit 1 to the Company’s Form 8A12B  filed December 11, 1998 (Commission file number 1-10560)). |
|        |       |            |       |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 3.4         |       | —          |       | Amendment to the Restated Articles of  Incorporation of the Company approved by the shareholders of the Company on  August 13, 2002 (incorporated by reference to Exhibit 4.7 to the  Company’s Form S-8 (Registration Number 333-103183)).                                                                                                                                                               |
|        |       |            |       |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 3.5         |       | —          |       | Amended and Restated Bylaws of the  Company dated May 18, 2006 (incorporated by reference to  Exhibit 99.2 to the Company’s Form 8-K dated May 18, 2006 and  filed on May 19, 2006 (Commission file number 1-10560)).                                                                                                                                                                           |
|        |       |            |       |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 3.6         |       | —          |       | Amendment to the Restated Articles of  Incorporation of the Company approved by the shareholders of the Company on  May 10, 2006 (incorporated by reference to Exhibit 99.1 to the  Company’s Form 8-K dated October 16, 2006 and filed on  October 16, 2006 (Commission file number 1-10560)).                                                                                                 |
|        |       |            |       |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.1         |       | —          |       | Restated Articles of Incorporation of the  Company (incorporated by reference to Exhibit 3.1 to the Registration  Statement).                                                                                                                                                                                                                                                                                            |
|        |       |            |       |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.2         |       | —          |       | Amendment to the Restated Articles of  Incorporation of the Company adopted by the shareholders of the Company on  May 20, 1997 (incorporated by reference to Exhibit 3.3 to the  Company’s Annual Report on Form 10-K for the year ended  December 31, 1998 (Commission file number 1-10560)).                                                                                                      |
|        |       |            |       |                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.3         |       | —          |       | Specimen form of certificate evidencing  the Common Share (incorporated by reference to Exhibit 4.3 to the  Registration Statement).                                                                                                                                                                                                                                                                                     |

 

79

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| 4.4    |   | — |   | Rights Agreement dated December 11,  1998 between the Company and Harris Trust Savings Bank, as Rights Agent,  together with the following exhibits thereto: Exhibit A — Form of  Statement of Resolution Establishing Series A Cumulative Junior  Participating Preferred Stock of Benchmark Electronics, Inc.;  Exhibit B — Form of Right Certificate; and Exhibit C — Summary  of Rights to Purchase Preferred Stock of Benchmark Electronics, Inc.  (incorporated by reference to Exhibit 1 to the Company’s Form 8A12B  filed December 11, 1998 (Commission file number 1-10560)). |
|--------|--------|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.5    |   | — |   | Summary of Rights to Purchase Preferred  Stock of the Company (incorporated by reference to Exhibit 3 to the  Company’s Form 8A12B/A filed December 22, 1998 (Commission file  number 1-10560))                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.6    |   | — |   | Amendment to the Restated Articles of  Incorporation of the Company approved by the shareholders of the Company on  August 13, 2002 (incorporated by reference to Exhibit 4.7 to the  Company’s Form S-8 (Registration Number 333-103183)).                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.7    |   | — |   | Amended and Restated Bylaws of the  Company (incorporated by reference to Exhibit 99.2 to the Company’s  Form 8-K dated May 18, 2006 and filed on May 19, 2006  (Commission file number 1-10560)).                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.8    |   | — |   | Amendment to the Restated Articles of  Incorporation of the Company approved by the shareholders of the Company on  May 10, 2006 (incorporated by reference to Exhibit 99.1 to the  Company’s Form 8-K dated October 16, 2006 and filed on  October 16, 2006 (Commission file number 1-10560)).                                                                                                                                                                                                                                                                                                                                           |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.1   |   | — |   | Form of Indemnity Agreement between  the Company and its directors and executive officers (incorporated by  reference to Exhibit 10.1 to the Company’s Annual Report on Form 10-K  for the year ended December 31, 2003 (Commission file number 1-10560))                                                                                                                                                                                                                                                                                                                                                                                      |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.2   |   | — |   | Benchmark Electronics, Inc. Stock  Option Plan dated May 11, 1990 (incorporated by reference to  Exhibit 10.12 to the Registration Statement).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.3   |   | — |   | Benchmark Electronics, Inc.  Incentive Stock Option Agreement used under the 1990 Stock Option Plan  between the Company and the optionee (incorporated by reference to  Exhibit 10.13 to the Registration Statement).                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.4   |   | — |   | Form of Benchmark  Electronics, Inc. Nonqualified Stock Option Agreement used under the  1990 Stock Option Plan between the Company and the optionee (incorporated by  reference to Exhibit 10.14 to the Registration Statement).                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.5   |   | — |   | Benchmark Electronics, Inc. 1994  Stock Option Plan for Non-Employee Directors (incorporated by reference to  Exhibit 10.21 to the Company’s Annual Report on Form 10-K for the  year ended December 31, 1994 (Commission file number 1-10560)).                                                                                                                                                                                                                                                                                                                                                                                               |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.6   |   | — |   | First Amendment to the Benchmark  Electronics, Inc. 1994 Stock Option Plan for Non-Employee Directors  (incorporated by reference to Exhibit 99.2 to the Company’s Form S-8  (Registration Number 333-103183)).                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.7   |   | — |   | Benchmark Electronics, Inc. Employee  Stock Purchase Plan (incorporated by reference to Exhibit 99.1 to the  Company’s Registration Statement on Form S-8 (Registration Number 333-76207)).                                                                                                                                                                                                                                                                                                                                                                                                                                                         |

 

80

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| 10.8   |   | — |   | Benchmark Electronics, Inc. 2000  Stock Awards Plan (incorporated by reference to Exhibit 4.8 to the  Company’s Registration Statement on Form S-8 (Registration Number 333-54186)).                                                                                                                                 |
|--------|--------|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.9   |   | — |   | Form of incentive stock option  agreement for use under the 2000 Stock Awards Plan (incorporated by reference  to Exhibit 4.8 to the Company’s Registration Statement on Form S-8  (Registration Number 333-54186)).                                                                                                 |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.10  |   | — |   | First Amendment to the Benchmark  Electronics, Inc. Employee Stock Purchase Plan (incorporated by  reference to Exhibit 10.1 to the Company’s Quarterly Report on  Form 10-Q for the quarter ended September 30, 2000 (Commission file  number 1-10560)).                                                       |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.11  |   | — |   | Lease Agreement dated June 1, 2000  between Industrial Properties of the South and the Company (incorporated by  reference to Exhibit 10.12 to the Company’s Annual Report on  Form 10-K for the year ended December 31, 2000 (Commission file  number 1-10560)).                                               |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.12  |   | — |   | Lease Agreement dated February 29,  2000 between Millikan Properties, LLC and the Company (incorporated by  reference to Exhibit 10.12 to the Company’s Annual Report on  Form 10-K for the year ended December 31, 1999 (Commission file  number 1-10560)).                                                    |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.13  |   | — |   | Lease Agreement dated February 12,  2003 by and between the Company and BAE SYSTEMS Information and Electronic  Systems Integration Inc. (incorporate by reference to Exhibit 10.18 to  the Company’s Annual Report on Form 10-K for the year ended  December 31, 2002 (Commission file number 1-10560)).       |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.14  |   | — |   | Sublease Agreement dated  February 12, 2003 by and between the Company and BAE SYSTEMS Information  and Electronic Systems Integration Inc. (incorporate by reference to  Exhibit 10.19 to the Company’s Annual Report on Form 10-K for the  year ended December 31, 2002 (Commission file number 1-10560)).    |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.15  |   | — |   | Lease Agreement dated March 13, 2000  by and between Laguna South Exchange LLC and Advanced Digital Information  Corporation (incorporated by reference to Exhibit 10.22 to the Company’s  Annual Report on Form 10-K for the year ended December 31, 2003  (Commission file number 1-10560)).                  |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.16  |   | — |   | Assignment of Lease dated  October 31, 2003 by and between Advanced Digital Information  Corporation, Diversified Assets LLC and the Company (incorporated by  reference to Exhibit 10.23 to the Company’s Annual Report on  Form 10-K for the year ended December 31, 2003 (Commission file  number 1-10560)). |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.17  |   | — |   | Guarantee dated September 10, 1998  by the Company in favor of Kilmore Developments Limited (incorporated by  reference to Exhibit 10.14 to the Company’s Annual Report on  Form 10-K for the year ended December 31, 1998 (Commission file  number 1-10560)).                                                  |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                     |
| 10.18  |   | — |   | Lease Agreement dated March 9, 2001  by and between BEI Electronics Ireland Limited and Canada Life Assurance  (Ireland) Limited (incorporated by reference to Exhibit 10.24 to the  Company’s Annual Report on Form 10-K for the year ended  December 31, 2000 (Commission file number 1-10560)).              |

 

81

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| 10.19  |   | — |   | Third Amended and Restated Credit  Agreement dated as of December 21, 2007 among the Company; the borrowing  subsidiaries; the lenders party thereto; JPMorgan Chase Bank, N.A. as  administrative agent, collateral agent and issuing lender; Bank of America,  N.A., Wells Fargo Bank, N.A. and Comerica Bank as co-documentation agents;  and J.P. Morgan Securities Inc. as lead arranger (incorporated by reference  from Exhibit 10.1 to the Company’s Form 8-K dated December 21,  2007 and filed on December 27, 2007 (Commission file number 1-10560)). |
|--------|--------|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.20  |   | — |   | Registration Rights Agreement dated as of  August 24, 1999 by and between the Company and J. M. Huber Corporation  (incorporated by reference from Exhibit 99.2 to the Company’s  Form 8-K dated August 24, 1999 and filed on September 8, 1999  (Commission file number 1-10560)).                                                                                                                                                                                                                                                                              |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.21  |   | — |   | Employment Agreement  between the Company and its President and Chief Executive Officer effective  December 1, 2005 (incorporated by reference to Exhibit 10.1 to the  Company’s Form 8-K dated November 11, 2005 and filed on  November 15, 2005 (Commission file number 1-10560)).                                                                                                                                                                                                                                                                             |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.22  |   | — |   | Employment Agreement  between the Company and its Executive Vice President and Chief Financial  Officer effective December 1, 2005 (incorporated by reference to  Exhibit 10.1 to the Company’s Form 8-K dated November 11, 2005  and filed on November 15, 2005 (Commission file number 1-10560)).                                                                                                                                                                                                                                                              |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.23  |   | — |   | ACT Manufacturing (Thailand) Public Company  Limited Credit Facilities Agreement (incorporated by reference to  Exhibit 10.1 to the Company’s Form 10-Q dated September 30,  2002 and filed on November 14, 2002 (Commission file number 1-10560)).                                                                                                                                                                                                                                                                                                                   |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.24  |   | — |   | Benchmark Electronics, Inc. 2002  Stock Option Plan for Non-Employee Directors (incorporated by reference to  Appendix A to the Company’s Definitive Proxy Statement on Schedule 14A filed  April 15, 2002 (Commission file number 1-10560)).                                                                                                                                                                                                                                                                                                                                   |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.25  |   | — |   | Employment Agreement  between the Company and its Chairman of the Board of Directors effective  January 1, 2006 (incorporated by reference to Exhibit 10.1 to the  Company’s Form 8-K dated November 30, 2005 and filed on  December 2, 2005 (Commission file number 1-10560)).                                                                                                                                                                                                                                                                                  |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.26  |   | — |   | Employment Agreement  between the Company and its Executive Vice President effective  December 1, 2005 (incorporated by reference to Exhibit 10.1 to the  Company’s Form 8-K dated December 1, 2005 and filed on  December 2, 2005 (Commission file number 1-10560)).                                                                                                                                                                                                                                                                                            |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.27  |   | — |   | Code of Conduct  (incorporated by reference to Exhibit 10.28 to the Company’s Annual  Report on Form 10-K for the year ended December 31, 2005 (Commission file number 1-10560)).                                                                                                                                                                                                                                                                                                                                                                                          |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.28  |   | — |   | Amendment No. 1  to the Benchmark Electronics, Inc. 2002 Stock Option Plan for Non-Employee  Directors (incorporated by reference to Exhibit 99.3 to the Company’s  Form 8-K dated May 18, 2006 filed on May 19, 2006 (Commission file number 1-10560)).                                                                                                                                                                                                                                                                                                    |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.29  |   | — |   | Key Contributor Severance Agreement  between Benchmark Electronics, Inc. and Don Adam dated August 27,  2002 (incorporated by reference to Exhibit 10.1 to the Company’s  Form 8-K dated December 21, 2006 and filed on December 22,  2006 (Commission file number 1-10560)).                                                                                                                                                                                                                                                                               |

 

82

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| 11     |   | — |   | Statement regarding Computation of Per-Share  Earnings (incorporated by reference to “Notes to Consolidated Financial  Statements, Note 1(j) – Earnings Per Share” in Item 8 of this report).                                                                                                                                                                                                            |
|--------|--------|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 21*    |   | — |   | Subsidiaries of Benchmark Electronics, Inc.                                                                                                                                                                                                                                                                                                                                                                             |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 23*    |   | — |   | Consent of Independent Registered Public  Accounting Firm concerning incorporation by reference in the Company’s  Registration Statements on Form S-8 (Registration No. 33-61660,  No. 333-26805, No. 333-28997, No. 333-54186, No. 333-66889,  No. 333-76207, No. 333-103183, No. 333-101744 and No.  333-136798) and on Form S-3 (Registration No. 333-84488). |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 31.1*  |   | — |   | Section 302 Certification of Chief  Executive Officer                                                                                                                                                                                                                                                                                                                                                                   |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 31.2*  |   | — |   | Section 302 Certification of Chief  Financial Officer                                                                                                                                                                                                                                                                                                                                                                   |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 32.1*  |   | — |   | Section 1350 Certification of Chief  Executive Officer                                                                                                                                                                                                                                                                                                                                                                  |
|   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 32.2*  |   | — |   | Section 1350 Certification of Chief  Financial Officer                                                                                                                                                                                                                                                                                                                                                                  |

 

----

*  Filed herewith.

** **

**83**

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** **

**SIGNATURES**

** **

 Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the Registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.

 
|   | BENCHMARK  ELECTRONICS, INC. |
|--------|------------------------------|
|   |                         |
|   |                         |
|   | By:                          |  /s/ Cary T. Fu |
|   |                         | Cary T. Fu |
|   |                         | Chief Executive Officer |
|   |                         |
|   |                         | Date: February 27,  2008 |
|        |                              |  |  |  |  |

 

 Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the Registrant and inthe capacities indicated and on the dates indicated.

 
| **Name**                 | ** ** | **Position**                                 | ** ** | **Date**                |
|--------------------------|------------|----------------------------------------------|------------|-------------------------|
|                     |       |                                         |       |                    |
| /s/  Cary T. Fu          |       | Chief Executive  Officer                     |       | February 27,  2008 |
| Cary T. Fu               |       | (principal executive officer)                |       |                    |
|                     |       |                                         |       |                    |
| /s/  Donald F. Adam      |       | Chief Financial  Officer                     |       | February 27,  2008 |
| Donald F. Adam           |       | (principal financial and accounting officer) |       |                    |
|                     |       |                                         |       |                    |
| /s/  Donald E. Nigbor    |       | Chairman of the  Board                       |       | February 27,  2008 |
| Donald E. Nigbor         |       | of Directors                                 |       |                    |
|                     |       |                                         |       |                    |
| /s/  Steven A. Barton    |       | Director and  Executive                      |       | February 27,  2008 |
| Steven A. Barton         |       | Vice President                               |       |                    |
|                     |       |                                         |       |                    |
| /s/  Michael R. Dawson   |       | Director                                     |       | February 27,  2008 |
| Michael R. Dawson        |       |                                         |       |                    |
|                     |       |                                         |       |                    |
| /s/  Peter G. Dorflinger |       | Director                                     |       | February 27,  2008 |
| Peter G. Dorflinger      |       |                                         |       |                    |
|                     |       |                                         |       |                    |
| /s/  Douglas G. Duncan   |       | Director                                     |       | February 27,  2008 |
| Douglas G. Duncan        |       |                                         |       |                    |
|                     |       |                                         |       |                    |
| /s/  Laura W. Lang       |       | Director                                     |       | February 27,  2008 |
| Laura W. Lang            |       |                                         |       |                    |
|                     |       |                                         |       |                    |
| /s/  Bernee D.L. Strom   |       | Director                                     |       | February 27,  2008 |
| Bernee D.L. Strom        |       |                                         |       |                    |

 

84

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