BENCHMARK ELECTRONICS INC, 10-K, 1997-03-28

BENCHMARK ELECTRONICS INC
10-K, 1997-03-28
PRINTED CIRCUIT BOARDS

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UNITED STATES
SECURITIES AND 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, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 1-10560

BENCHMARK ELECTRONICS, INC.
(Exact name of registrant 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 77515
ANGLETON, TEXAS (Zip Code)
(Address of principal executive offices)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(409) 849-6550
---------------

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED

Common Stock, par value American Stock
$0.10 per share Exchange, Inc.

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
---------------

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

As of March 25, 1997, the number of outstanding shares of Common Stock was
5,742,384. As of such date, the aggregate market value of the shares of Common
Stock held by non-affiliates, based on the closing price of the Common Stock on
the American Stock Exchange on such date, was approximately $135.3 million.

DOCUMENTS INCORPORATED BY REFERENCE:

(1) Portions of the Company's Annual Report to Shareholders for the fiscal year
ended December 31, 1996 (Part II Items 5-8 and Part IV Item 14(a)(1)).

(2) Portions of the Company's Proxy Statement for the 1997 Annual Meeting of
Shareholders (Part III, Items 10-13).

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<PAGE>
TABLE OF CONTENTS

PAGE

PART I

ITEM 1. Business.............................................. 1
ITEM 2. Properties............................................ 7
ITEM 3. Legal Proceedings..................................... 8
ITEM 4. Submission of Matters to a Vote of Security Holders... 8

PART II

ITEM 5. Market for Registrant's Common Equity and Related
Shareholder Matters................................. 8
ITEM 6. Selected Financial Data............................... 8
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 8
ITEM 8. Financial Statements and Supplementary Data........... 8
ITEM 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.............. 8

PART III

ITEM 10. Directors and Executive Officers of the Registrant.... 8
ITEM 11. Executive Compensation................................ 9
ITEM 12. Security Ownership of Certain Beneficial Owners
and Management...................................... 9
ITEM 13. Certain Relationships and Related Transactions........ 9

PART IV

ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K9

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PART I

ITEM 1. BUSINESS

GENERAL

Benchmark Electronics, Inc. (the "Company") provides contract electronics
manufacturing and design services to original equipment manufacturers ("OEMs")
in select industries, including medical devices, communications equipment,
industrial and business computers, testing instrumentation and industrial
controls. The Company specializes in manufacturing high quality, technologically
complex printed circuit board assemblies with computer-automated equipment using
surface mount and pin-through-hole interconnection technologies for customers
requiring low to medium volume production runs. The Company frequently works
with customers from product design and prototype stages through ongoing
production and, in some cases, final assembly of the customers' products and
provides manufacturing services for successive product generations. As a result,
the Company believes that it is often an integral part of its customers'
operations.

Substantially all of the Company's manufacturing services are provided on
a turnkey basis, whereby the Company purchases customer-specified components
from its extensive network of suppliers, assembles the components on finished
printed circuit boards, performs post-production testing and provides the
customer with production process and testing documentation. The Company offers
its customers flexible, "just-in-time" delivery programs allowing product
shipments to be closely coordinated with the customers' inventory requirements.
In certain instances, the Company completes the assembly of its customers'
products at the Company's facilities by integrating printed circuit board
assemblies into other elements of the customers' products. The Company also
provides manufacturing services on a consignment basis, whereby the Company,
utilizing components provided by the customer, provides only assembly and
post-production testing services. The Company operates a total of 29 surface
mount production lines at its facilities in Angleton, Texas, Beaverton, Oregon
and Winona, Minnesota.

The Company, formerly named Electronics, Inc., began operations in 1979
and was incorporated under Texas law in 1981 as a wholly owned subsidiary of
Intermedics, Inc. ("Intermedics"), a medical implant manufacturer based in
Angleton, Texas. In 1986, Intermedics sold 90% of the outstanding shares of
common stock of the Company to Electronic Investors Corp. ("EIC"), a corporation
formed by Donald E. Nigbor, Steven A. Barton and Cary T. Fu, the Company's three
executive officers. In 1988, EIC was merged into the Company, and in 1990 the
Company completed the initial public offering of its common stock.

ACQUISITION OF EMD

On July 30, 1996, the Company completed its acquisition (the
"Acquisition") of EMD Technologies, Inc. ("EMD"), an independent provider of
contract manufacturing and product design services for OEMs in industries
comparable to those targeted by the Company. EMD's manufacturing services focus
on manufacturing complex printed circuit board assemblies, operating 15 surface
mount production lines at its Winona, Minnesota facilities. EMD's product design
services include the complete design and development of electronic products and
mechanical packages, from conceptual design of circuit boards to configuring
subsystems and enclosures.

The addition of EMD's manufacturing facility in Minnesota provided the
Company with access to markets in the Midwest and the Northeast, without any
overlap of customers. For this reason, the Acquisition has broadened
substantially the Company's customer base. The Company believes that the
Acquisition has allowed it to pursue larger contracts with its customers because
it provided the Company with additional production capacity and a broader base
of technical resources. As a result, the Company expects to be able to undertake
larger product programs without becoming dependent upon one industry or
customer. The Company also has begun to offer EMD's product design services to a
wide range of the Company's customers, combining the design engineering strength
of EMD with the

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component procurement and customer service strengths of the Company and the
manufacturing expertise of both entities.

The Acquisition was accomplished by means of the merger of EMD with and
into a wholly owned subsidiary of the Company, with the former shareholders of
EMD receiving from the Company approximately $30.4 million in cash and 674,964
shares of Common Stock and the Company paying $2.2 million in acquisition costs.
The Company is operating the business of EMD as a wholly owned subsidiary of the
Company and has not made major modifications to the manner in which EMD was
operated prior to the Acquisition. The Company believes, however, that
opportunities exist to consolidate certain overhead functions, reduce
duplicative expenditures and implement, on a combined basis, certain other cost
saving measures. The Company is in the process of developing a combined
procurement plan pursuant to which component and other purchases would be
negotiated on a Company-wide basis with a view to realizing cost savings
associated with the increased purchasing power of the combined entities. The
Company is currently transitioning to reduce EMD's reliance on distributors as
sources of components in favor of the Company's more cost-effective practice of
purchasing materials directly from component manufacturers. In addition, the
Company has expanded the EMD sales force to more aggressively market the
combined entities' services and products in EMD's historical markets. The
Company will also link its three locations with a wide-area computer network to
enhance management reporting and operational control.

THE CONTRACT ELECTRONICS MANUFACTURING INDUSTRY

The basis for the development of the contract manufacturing industry in
recent years has been the increasing reliance by OEMs on contract manufacturing
specialists such as the Company for the manufacture of printed circuit board
assemblies. As a result of outsourcing manufacturing services, the contract
manufacturing industry in the United States grew at a compound annual rate of
20% from 1990 through 1996, according to the Institute for Interconnecting and
Packaging Electronic Circuits ("IPC"). The IPC estimated the size of the United
States contract manufacturing industry for 1996 in terms of sales to be $13.5
billion. The Company expects the trend toward outsourcing to continue and to
result in continued growth in the contract manufacturing industry. A 1995 IPC
study forecast that the contract manufacturing industry would grow at an
approximate compound annual rate of 20% through 2000 as OEMs continue to
outsource their manufacturing requirements and look to contract manufacturers to
provide additional services. Some of the advantages OEMs receive as a result of
outsourcing are:

ACCELERATION OF TIME TO MARKET. Rapid technological advances in the
Company's targeted industries require OEMs to make their products
available to their customers quickly to remain competitive. Delays in
bringing a new product to market can result in obsolescence of the product
before it becomes available. Contract manufacturers who specialize in
printed circuit board assembly are often able to provide manufacturing
services in a more timely manner than OEMs, thus allowing OEMs to reduce
the time to market for their products.

REDUCTION OF PRODUCTION COSTS. Contract manufacturers generally are
able to manufacture printed circuit board assemblies at a lower cost than
OEMs because of the efficiencies associated with specialization and
greater production volumes. Additionally, the purchasing power of contract
manufacturers allows OEMs to save on costs of procurement of components.
OEMs also benefit from the inventory management services provided by
contract manufacturers in connection with turnkey manufacturing services.

ACCESS TO ADVANCED TECHNOLOGY. Using contract manufacturers affords
OEMs access to advanced technology in printed circuit board assembly
equipment and techniques that OEMs may consider too costly for in-house
investment. The increasing use of surface mount interconnection
technology, which requires significant investments in computer-automated
equipment and the expertise to operate such equipment, is an example. Many
OEMs have been unwilling to make such investments, relying instead on
contract manufacturers for surface mount assembly. More recent
technological advancements that contract manufacturers are now able to
offer to OEMs include ball grid array and chip on board assembly
processes.

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IMPROVED MANUFACTURING QUALITY. Because it is the focus of their
operations, contract manufacturers are consistently able to provide
contract manufacturing services of a higher quality than OEMs can provide
in-house. Printed circuit board assembly and other services provided by
contract manufacturers are typically a small part of the broader
operations of the OEMs.

OPPORTUNITY TO FOCUS RESOURCES. By outsourcing printed circuit board
assembly and other manufacturing services, OEMs are able to focus their
resources on their primary activities, such as research and development of
new products and marketing.

Other factors in the contract manufacturing industry may have a positive
impact on established contract manufacturers such as the Company. The increasing
cost of automated equipment used in the industry, the working capital
requirements relating to inventory and the additional services that contract
manufacturers are providing make it more difficult for smaller manufacturers and
start-up companies to compete with the services that are provided by larger,
well-capitalized companies. Furthermore, the Company believes that these factors
are driving consolidation in the industry and may provide opportunities for
growth through acquisition.

BUSINESS STRATEGY

The Company's business strategy is to provide high quality contract
electronics manufacturing services to OEMs in targeted industries. The Company
seeks to provide services that reduce OEM costs and time to market and increase
OEM product quality. The Company's strategy to achieve these objectives includes
the following key elements:

ESTABLISH AND MAINTAIN LONG-TERM RELATIONSHIPS. The Company pursues
opportunities to provide turnkey manufacturing services whereby the
Company becomes an integral part of its customers' manufacturing
operations. The Company seeks to work closely with its customers in all
phases of design and production. By aggressively marketing its services to
its targeted customers and involving design, marketing and senior
management personnel in the pursuit and maintenance of customer
relationships, the Company attempts to establish itself as the sole or
primary source for its customers' manufacturing requirements. The Company
believes that working to develop close, long-term relationships builds
customer loyalty that is difficult for competitors to overcome.

TARGET AND MAINTAIN BALANCE AMONG SELECT OEM INDUSTRIES AND
CUSTOMERS. The Company targets industries and customers that have strict
quality control standards for their products and that have
service-intensive manufacturing requirements. The Company focuses on
complex assemblies in low to medium volumes for commercial and industrial
customers. The Company has not been, and does not intend to become, a
manufacturer of high volume printed circuit board assemblies for personal
computers or consumer-oriented products, which typically have relatively
low margins. The Company targets customers in the medical devices,
communications equipment, industrial and business computers, testing
instrumentation and industrial controls industries and seeks to maintain a
balance of customers among these industries and within each industry. By
balancing its operations among industries and customers, the Company seeks
to avoid becoming dependent on any one industry or customer. In addition,
the Company believes that the industries and customers that it targets
produce products that generally have longer life cycles, more stable
demand and less price pressure as compared to consumer-oriented products.

PROVIDE COMPREHENSIVE DESIGN AND MANUFACTURING SERVICES. The Company
believes that OEMs increasingly expect a broad range of services from
contract manufacturers and that attracting and retaining customers depends
on the Company's ability to provide such services. The Company provides
its customers with services ranging from initial product design and
development and prototype production to the manufacture of printed circuit
board assemblies, post-production testing and final assembly of customers'
products. In support of this strategy, the Company made significant
capital investments during 1996 to expand its

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production capacity, adding two surface mount production lines at its
Angleton, Texas facility. In addition, the Acquisition added significant
design engineering capabilities and 15 surface mount production lines.

SUCCESSFULLY INTEGRATE EMD. The Company believes that the
Acquisition has provided opportunities to enhance the Company's operations
and pursue additional operating efficiencies. These opportunities include
taking advantage of the benefits of a combined component procurement
program, broader customer base, geographic expansion, the ability to
pursue larger contracts and the capability to provide high quality design
engineering services to current and potential customers.

PURSUE OPPORTUNITIES FOR GROWTH. The Company is committed to
pursuing opportunities to grow its operations through acquiring additional
facilities or businesses or achieving operating efficiencies in the
Company's existing operations.

MAINTAIN FLEXIBILITY. The Company believes that many of its
customers are leaders in their respective industries, and, as a result,
routinely re-engineer their products to incorporate new and more
competitive product features. Accordingly, the Company has organized its
manufacturing operations into flexible work centers, as opposed to
dedicated production lines, which allow the Company to incorporate complex
design specifications and to respond rapidly to design changes.

SERVICES PROVIDED BY THE COMPANY

The Company provides turnkey manufacturing services, including the
purchase of customer-specified components from its extensive network of
component suppliers, assembly of the components onto printed circuit boards and
performance of post-production testing. In certain instances, the Company
completes the assembly of its customers' products at the Company's facilities by
integrating printed circuit boards into other elements of the customers'
products.

The Company provides design-for-manufacturability engineering services for
products it manufactures, and the Acquisition significantly expanded the
Company's capabilities in this area. With respect to product design, the Company
provides the complete design and development of new electronic products and
mechanical packages, as well as the redesign, surface mount conversion and
printed circuit board layout of existing products. The Company also provides
test process design capabilities that include the design and development of test
fixtures and procedures and software for both in-circuit tests and functional
tests of circuit boards, components and products.

The Company's component procurement services for turnkey projects consist
of planning, purchasing, expediting, inspecting, warehousing and financing the
components required to manufacture printed circuit board assemblies. OEMs
increasingly have required manufacturers to purchase all or some components
directly from component manufacturers or distributors and to warehouse and
finance the components. See "-- Suppliers."

In its manufacturing services, the Company offers both surface mount and
pin-through-hole interconnection technologies. Surface mount technology is a
computer-automated process that allows the placement of a higher density of
components directly on both sides of a printed circuit board. The surface mount
process is a more recent advancement over the mature pin-through-hole
technology, which normally permits electronic components to be attached to only
one side of a printed circuit board by inserting the components into holes
drilled through the board. The surface mount process allows OEMs to use advanced
circuitry while permitting the placement of a greater number of components on a
printed circuit board without having to increase the size of the board. By
allowing increasingly complex circuits to be packaged with the components placed
in closer proximity to each other, surface mount technology greatly enhances
circuit processing speed and thus board and system performance. The surface
mount process allows a reduction in the number of printed circuit boards
required per system and allows the use of more fully automated production
processes. The Company performs pin-through-hole assembly both manually and with
computer-automated component insertion and soldering equipment. Although surface
mount technology is the leading interconnection technology, the Company intends
to continue providing pin-through-hole assembly services for its

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customers. Pin-through-hole technology is of continuing viability because most
printed circuit boards assembled using surface mount technology require some
pin-through-hole assembly. In addition, the Company believes that by continuing
to provide pin-through-hole assembly services, the Company appeals to current
and prospective customers that have not shifted, or do not wish to change, their
manufacturing process to utilize surface mount technology.

Because the Company may be the sole source or a major source of printed
circuit board assemblies for a customer, frequent communication between the
Company and the customer is necessary to ensure that the Company's manufacturing
services meet the customer's specifications. Accordingly, the Company maintains
a customer service department whose personnel work closely with the customer
throughout the manufacturing process. The Company's engineering and
manufacturing personnel coordinate the implementation of new and reengineered
products with the customer, thereby providing the customer with feedback on such
issues as the overall ease of manufacture of the printed circuit board assembly
and anticipated production lead times.

Component procurement begins after component specifications are verified
and approved sources are confirmed with the customer. Concurrently, the
Company's technical personnel establish complete documentation files on
components and the appropriate set-up, assembly and testing procedures. The
Company's personnel monitor all stages of the manufacturing process in order to
provide flexible and rapid responses to the customer's requirements, including
changes in design, order size and delivery schedules. In addition, the Company
utilizes an automated materials planning system which allows the customer to
monitor the status of an order on a real-time basis.

The Company also provides testing services for completed printed circuit
board assemblies in connection with the manufacturing process. In-circuit tests
verify that the components have been inserted properly and meet certain
functional standards and that the electrical circuits have been completed
properly. These tests are performed on industry standard testing equipment using
proprietary software developed either by the customer or test consultants on a
contractual basis. In-circuit tests normally are performed on all printed
circuit board assemblies for turnkey projects. In addition, using specialized
testing equipment designed and provided by the customer, the Company performs
customized functional tests designed to ensure that the printed circuit board
assembly will perform its intended functions. Because defective components
normally fail after a relatively short period of use, customers occasionally
request that certain printed circuit board assemblies be subjected by the
Company to controlled environmental stresses, typically thermal or electrical
stresses. These procedures accelerate the effects of operational use without
affecting the useful life of the component.

The Company also offers its customers flexible, just-in-time delivery
programs allowing product shipments to be closely coordinated with the
customers' inventory requirements. Several of the Company's larger customers
utilize a just-in-time inventory management system. The Company believes that
the attractiveness of just-in-time inventory management will lead other
customers to implement such systems and, accordingly, anticipates that a greater
percentage of the Company's business will be performed on this basis in the
future.

In establishing a turnkey relationship with a manufacturer, OEMs must
incur expense in qualifying the contract manufacturer and in some cases its
sources of component supply, refining product design and manufacturing
processes, and developing mutually compatible information and reporting systems.
The Company believes that once this relationship is established, OEMs typically
experience significant difficulty in expeditiously reassigning turnkey projects
to another manufacturer and, as a result, seek sources of turnkey manufacturing
services that they perceive will be able to meet their production requirements
over a long period of time and successive product generations. Accordingly, the
Company believes that its increasing turnkey business has resulted in greater
stability in its customer base.

MARKETING AND CUSTOMERS

To better implement its service-intensive business strategy, the Company
markets its services to existing and potential customers through its direct
sales force, independent marketing representatives and its executive officers.
The Company's sales force consists of seven in-house salesmen and two
independent marketing representatives, through

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which the Company is aggressively marketing the enhanced services capabilities
resulting from the Acquisition. Four of the seven in-house salesmen are based at
the Winona, Minnesota facility, with two based at the Angleton, Texas facility
and one based at the Beaverton, Oregon facility.

The Company seeks to serve a sufficiently large number of customers to
minimize dependence on any one customer or industry. This strategy was enhanced
by the Acquisition, as there was no customer overlap between the Company and
EMD. Although historically a substantial percentage of the Company's sales have
been to a small number of customers, by successfully undertaking the transition
to serving a much larger and more diversified customer base, the Company has
been able to reduce its dependence on certain significant customers and lessen
the impact of a substantial reduction in business from one such customer.
Nevertheless, during 1996, the Company's three largest customers accounted for
approximately 16%, 14% and 11%, respectively, of the Company's sales. Although
the loss of a major customer could have an adverse effect on the Company, the
Company does not believe that any such effect would be material unless the
Company were unable to replace such customer's business.

The Company targets customers in five industries and seeks to maintain a
balance in its sales to those industries. The following table sets forth the
percentages of the Company's sales to each of the five industries for 1994, 1995
and 1996.

1994 1995 1996
---- ---- ----
Medical Devices .................. 18% 14% 18%
Telecommunications ............... 8 18 26
Computer Systems ................. 51 29 25
Tests and Instrumentation ........ 7 22 15
Industrial Controls .............. 13 17 16
Other ............................ 3 -- --

SUPPLIERS

The Company maintains an extensive network of suppliers of components and
other materials used in assembling printed circuit boards. The Company procures
components only when a purchase order or forecast is received from a customer
and occasionally utilizes components or other materials for which a supplier is
the single source of supply. Although the Company experiences component
shortages and longer lead times of various components from time to time, the
Company has generally been able to reduce the impact of the component shortages
by working with customers to reschedule deliveries, by working with suppliers to
provide the needed components using just-in-time inventory programs, or by
purchasing components at somewhat higher prices from distributors, rather than
directly from manufacturers. These procedures reduce, but do not eliminate, the
Company's inventory risk. In addition, by developing long-term relationships
with suppliers, the Company has been better able to minimize the effects of
component shortages than manufacturers without such relationships. Because of
the continued increase in demand for surface mount components, the Company
anticipates continued component shortages with respect to certain components and
longer lead times for various components from time to time.

As part of the integration of EMD, the Company is in the process of
developing a combined procurement plan pursuant to which component and other
purchases would be negotiated on a Company-wide basis with a view to realizing
savings associated with the increased purchasing power of the combined entities.
The Company is currently transitioning to reduce EMD's reliance on distributors
as sources of components in favor of the Company's more cost-effective practice
of purchasing materials directly from component manufacturers.

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BACKLOG

The Company's backlog was approximately $230 million at December 31, 1996,
compared to $117 million at December 31, 1995 and $60 million at December 31,
1993. Backlog consists of customer orders that are expected to be filled within
twelve months. Because orders generally may be rescheduled or cancelled by the
payment of cancellation charges and because the Company's customers update their
orders at different intervals and provide orders to be filled over different
periods, the Company's backlog does not provide an accurate measure of the
timing or amount of future sales.

COMPETITION

The contract manufacturing services provided by the Company are available
from many independent sources as well as in-house manufacturing capabilities of
current and potential customers. The Company's competitors include Solectron
Corporation, SCI Systems, Inc., The DII Group, Inc., Avex Electronics, Inc.,
Jabil Circuit, Inc. and Plexus Corp., some of which are more established in the
industry and have substantially greater financial, manufacturing or marketing
resources than the Company. The Company believes that the principal competitive
factors in its targeted markets are product quality, flexibility and timeliness
in responding to design and schedule changes, reliability in meeting product
delivery schedules, pricing, technological sophistication and geographic
location. The Company believes that it competes favorably with respect to these
factors.

GOVERNMENTAL REGULATION

The Company's operations are subject to certain federal, state and local
regulatory requirements relating to environmental, waste management, health and
safety matters, and there can be no assurance that material costs and
liabilities will not be incurred or that past or future operations will not
result in exposure to injury or claims of injury by employees or the public.
Although some risk of costs and liabilities related to these matters is inherent
in the Company's business, as with many similar businesses, the Company believes
that its business is operated in substantial compliance with applicable
regulations. However, new, modified or more stringent requirements or
enforcement policies could be adopted, which could adversely affect the Company.

The Company periodically generates and temporarily handles limited amounts
of materials that are considered hazardous waste under applicable law. The
Company contracts for the off-site disposal of these materials and has
implemented a waste management program to address related regulatory issues.

EMPLOYEES

As of December 31, 1996, the Company had 1,445 employees, of whom 1,059
were engaged in manufacturing and operations, 197 in materials control and
procurement, 67 in design and development, 11 in marketing and sales, and 111 in
administration. None of the Company's employees is subject to a collective
bargaining agreement. Management believes that the Company's relationship with
its employees is satisfactory.

EXPORT SALES

In 1996, the Company had export sales of approximately $29 million to
Europe from the Company's United States operations. There were no export sales
in 1995 or 1994.

ITEM 2. PROPERTIES

The Company's executive offices and one of its manufacturing facilities
are located in an approximately 109,000 square foot facility on 18.9 acres of
land owned by the Company in Angleton, Texas, where the Company has

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12 surface mount manufacturing lines. The Company also leases an approximately
52,000 square foot facility in Beaverton, Oregon, where the Company has two
surface mount production lines. With the Acquisition, the Company added
facilities in Winona, Minnesota comprising four leased buildings with total
square footage of approximately 142,000 and an additional 64,000 square foot
building that the Company now owns. For the primary leased facilities in Winona,
the Company has long-term leases with three-year purchase options. The Winona
facilities include manufacturing facilities with 15 surface mount production
lines and warehouse facilities. The Company's Angleton and Beaverton facilities
are certified under ISO-9002, and the Winona facilities are certified under
ISO-9001. The Company believes that its properties are and will be sufficient to
conduct the Company's operations for the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

The Company is not currently a party to any material litigation.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth
quarter of 1996.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

The information on page 30 of the Company's Annual Report to Stockholders
for the fiscal year ended December 31, 1996 (the "1996 Annual Report") is
incorporated herein by reference in response to this item.

ITEM 6. SELECTED FINANCIAL DATA

The information on page 31 of the 1996 Annual Report is incorporated
herein by reference in response to this item.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The information on pages 9 to 14 of the 1996 Annual Report is incorporated
herein by reference in response to this item.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information on pages 15 to 29 of the 1996 Annual Report is
incorporated herein by reference in response to this item.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information under the captions "Election of Directors," "Executive
Officers" and "Section 16(A) Beneficial Ownership Reporting Compliance" in the
Company's Proxy Statement for the 1997 Annual Meeting of Shareholders (the "1997
Proxy Statement") is incorporated herein by reference in response to this item.

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ITEM 11. EXECUTIVE COMPENSATION

The information under the caption "Executive Compensation and Other
Matters" in the 1997 Proxy Statement is incorporated herein by reference in
response to this item.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information under the caption "Common Stock Ownership of Certain
Beneficial Owners and Management" in the 1997 Proxy Statement is incorporated
herein by reference in response to this item.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information under the caption "Certain Transactions" in the 1997 Proxy
Statement is incorporated herein by reference in response to this item.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) Financial Statements, Financial Statement Schedules, and Exhibits

1. FINANCIAL STATEMENTS OF THE COMPANY

Reference is made to the Financial Statements, the reports thereon, the
notes thereto and supplementary data commencing at page 15 of the 1996 Annual
Report, which financial statements, reports, notes and data are incorporated
herein by reference in response to this item. Set forth below is a list of such
Financial Statements:

Consolidated Financial Statements of the Company
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Income for the years ended December 31, 1996,
1995 and 1994
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements

2. FINANCIAL STATEMENT SCHEDULES

All schedules for which provision is made in Regulation S-X of the
Securities and Exchange Commission are not required under the related
instructions or are inapplicable and, therefore, have been omitted.

3. EXHIBITS

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

EXHIBIT
NUMBER DESCRIPTION

2.1 -- Agreement and Plan of Merger dated as of March 27, 1996 by and
among the Company, Electronics Acquisition, Inc., EMD
Technologies, Inc., David H. Arnold and Daniel M. Rukavina
(incorporated herein by reference to Exhibit 2 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1995).

-9-
<PAGE>
2.2 -- Amendment No. 1 to Agreement and Plan of Merger dated as of April
5, 1996 by and among the Company, Electronics Acquisition, Inc.,
EMD Technologies, Inc., David H. Arnold and Daniel M. Rukavina
(incorporated herein by reference to Exhibit 2.2 to the Company's
Registration Statement on Form S-4 (Registration No. 333-4230)).

3.1 -- Restated Articles of Incorporation of the Company (incorporated
herein by reference to Exhibit 3.1 to the Company's Registration
Statement on Form S-1 (Registration No. 33-46316) (the
"Registration Statement")).

3.2 -- Amended and Restated Bylaws of the Company (incorporated by
reference to Exhibit 3.2 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1992 ("1992 Form
10-K")).

4.1 -- Restated Articles of Incorporation of the Company (incorporated
herein by reference to Exhibit 3.1 to the Registration
Statement).

4.2 -- Amended and Restated Bylaws of the Company (incorporated herein
by reference to Exhibit 3.2 to the 1992 Form 10-K).

4.3 -- Specimen form of certificate evidencing the Common Stock
(incorporated herein by reference to Exhibit 4.3 to the
Registration Statement).

10.1 -- Form of Indemnity Agreement between the Company and each of its
directors and officers (incorporated herein by reference to
Exhibit 10.11 to the Registration Statement).

10.2 -- Benchmark Electronics, Inc. Stock Option Plan dated May 11, 1990
(incorporated herein by reference to Exhibit 10.12 to the
Registration Statement).

10.3 -- Form of Benchmark Electronics, Inc. Incentive Stock Option
Agreement between the Company and the optionee (incorporated
herein by reference to Exhibit 10.13 to the Registration
Statement).

10.4 -- Form of Benchmark Electronics, Inc. Nonqualified Stock Option
Agreement between the Company and the optionee (incorporated
herein by reference to Exhibit 10.14 to the Registration
Statement).

10.5 -- Lease Agreement dated October 12, 1990, between Tektronics, Inc.
and the Company, as amended by Lease Amendment No. 1 dated as of
August 19, 1991, Lease Amendment No. 2 dated January 31, 1992,
Lease Amendment No. 3 dated January 11, 1993, Lease Amendment No.
4 dated May 19, 1993 and Lease Amendment No. 5 dated September
13, 1993 (incorporated herein by reference to Exhibit 10.16 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993).

10.6 -- Registration Rights Agreement dated March 30, 1992 between Mason
& Hanger Corporation and the Company (incorporated herein by
reference to Exhibit 10.17 to the Registration Statement).

10.7 -- Benchmark Electronics, Inc. 1992 Incentive Bonus Plan
(incorporated herein by reference to Exhibit 10.20 to the 1992
Form 10-K).

10.8 -- Benchmark Electronics, Inc. 1994 Stock Option Plan for
Non-Employee Directors (incorporated herein by reference to
Exhibit 10.21 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994).

-10-

<PAGE>
10.9 -- Credit Agreement dated as of July 30, 1996 by and between the
Company and Texas Commerce Bank National Association
(incorporated herein by reference to Exhibit 99.2 to the
Company's Current Report on Form 8-K dated July 30, 1996).

10.10* -- Lease Agreement dated July 30, 1996 by and among David H. Arnold,
Muriel M. Arnold, Daniel M. Rukavina, Patricia A. Rukavina and
EMD Associates, Inc., as amended by Amendment to Lease dated July
30, 1996.

10.11* -- Lease Agreement dated December 15, 1992 by and among David H.
Arnold, Muriel M. Arnold, Daniel M. Rukavina, Patricia A.
Rukavina and EMD Associates, Inc., as amended by Amendment to
Lease dated January 1, 1994, Amendment to Lease dated December
15, 1995, and Amendment to Lease dated July 30, 1996.

13* -- Benchmark Electronics, Inc. Annual Report to Shareholders for the
fiscal year ended December 31, 1996.

21* -- Subsidiaries of Benchmark Electronics, Inc.

23* -- Consent of Independent Auditors concerning incorporation by
reference in the Company's Registration Statement on Form S-8
(Registration No. 33-61660).

27* -- Financial Data Schedule.

(b) Reports on Form 8-K

The Company did not file any Current Reports on Form 8-K during the fourth
quarter of 1996.

-11-

<PAGE>
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

BENCHMARK ELECTRONICS, INC.

By: /S/ DONALD E. NIGBOR
Donald E. Nigbor
PRESIDENT

Date: March 26, 1997

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated and on the dates indicated.

NAME POSITION DATE

_______________________ Chairman of the _____________________
John C. Custer Board of Directors

/S/ DONALD E. NIGBOR Director and President MARCH 26, 1997
Donald E. Nigbor (principal executive officer)

_______________________ Director and Executive _____________________
Steven A. Barton Vice President

/S/ CARY T. FU Director and Executive MARCH 26, 1997
Cary T. Fu Vice President (principal
financial and accounting officer)

/S/ PETER G. DORFLINGER Director MARCH 26, 1997
Peter G. Dorflinger

/S/ GERALD W. BODZY Director MARCH 26, 1997
Gerald W. Bodzy

_______________________ Director ____________________
David H. Arnold

-12-

<PAGE>
EXHIBIT INDEX

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

EXHIBIT
NUMBER DESCRIPTION

2.2 -- Amendment No. 1 to Agreement and Plan of Merger dated as of April
5, 1996 by and among the Company, Electronics Acquisition, Inc.,
EMD Technologies, Inc., David H. Arnold and Daniel M. Rukavina
(incorporated herein by reference to Exhibit 2.2 to the Company's
Registration Statement on Form S-4 (Registration No. 333-4230)).

4.1 -- Restated Articles of Incorporation of the Company (incorporated
herein by reference to Exhibit 3.1 to the Registration
Statement).

4.2 -- Amended and Restated Bylaws of the Company (incorporated herein
by reference to Exhibit 3.2 to the 1992 Form 10-K).

4.3 -- Specimen form of certificate evidencing the Common Stock
(incorporated herein by reference to Exhibit 4.3 to the
Registration Statement).

10.1 -- Form of Indemnity Agreement between the Company and each of its
directors and officers (incorporated herein by reference to
Exhibit 10.11 to the Registration Statement).

10.2 -- Benchmark Electronics, Inc. Stock Option Plan dated May 11, 1990
(incorporated herein by reference to Exhibit 10.12 to the
Registration Statement).

10.3 -- Form of Benchmark Electronics, Inc. Incentive Stock Option
Agreement between the Company and the optionee (incorporated
herein by reference to Exhibit 10.13 to the Registration
Statement).

10.4 -- Form of Benchmark Electronics, Inc. Nonqualified Stock Option
Agreement between the Company and the optionee (incorporated
herein by reference to Exhibit 10.14 to the Registration
Statement).

-13-

<PAGE>
10.6 -- Registration Rights Agreement dated March 30, 1992 between Mason
& Hanger Corporation and the Company (incorporated herein by
reference to Exhibit 10.17 to the Registration Statement).

10.7 -- Benchmark Electronics, Inc. 1992 Incentive Bonus Plan
(incorporated herein by reference to Exhibit 10.20 to the 1992
Form 10-K).

10.9 -- Credit Agreement dated as of July 30, 1996 by and between the
Company and Texas Commerce Bank National Association
(incorporated herein by reference to Exhibit 99.2 to the
Company's Current Report on Form 8-K dated July 30, 1996).

13* -- Benchmark Electronics, Inc. Annual Report to Shareholders for the
fiscal year ended December 31, 1996.

21* -- Subsidiaries of Benchmark Electronics, Inc.

23* -- Consent of Independent Auditors concerning incorporation by
reference in the Company's Registration Statement on Form S-8
(Registration No. 33-61660).

27* -- Financial Data Schedule.

-14-

EXHIBIT 10.10
LEASE

This agreement is made and entered into as of July 30, 1996, by and
between David H. Arnold and Muriel M. Arnold, husband and wife, and Daniel M.
Rukavina and Patricia A. Rukavina, husband and wife, parties of the first part,
Lessors, and EMD Associates, Inc., a Minnesota corporation, party of the second
part, Lessee;

WITNESSETH:

That the said parties of the first part, in consideration of the tents and
covenants hereinafter mentioned, do hereby demise, lease and let unto the said
party of the second part, and the said party of the second part does hereby hire
and take from the said parties of the first part the premises situated at 4155
Theurer Boulevard, Goodview, Minnesota, legally described as Lots Four (4) and
Five (5), Block One (1), Goodview Industrial Park.

TO HAVE AND TO HOLD the above rented premises unto the said Lessee, its
successors and assigns, just as they are, without any liability or obligation on
the part of said Lessors of making any alterations, improvements or repairs of
any kind on or about said premises, except as expressly provided herein, for and
during the full term of ten (10) years from and after September 1, 1996, and
thereafter from year to year until terminated by either party by providing the
other party with written notice of such party's election to terminate the lease
not less than 180 days prior to the expiration of the term (as the term may be
extended year to year as provided herein), for the following purposes, to-wit:
Offices and manufacturing or other similar lawful uses.

And the said Lessee agrees to and with the said Lessors to pay as rent for
the above mentioned premises the sum of Seventeen Thousand One Hundred Fifty and
no/100 ($17,150.00) Dollars per month during the full term of this lease.

Lessee shall be afforded reasonable access to the leased premises before
September 1, 1996, to make improvements and prepare the premises for its use,
provided Lessee shall not interfere with occupancy and use of the leased
premises by Lessors and their current tenant. If Lessors and their current
tenant vacate part of the leased premises before the commencement date of this
lease specified above, and Lessee elects to occupy and use such vacated part,
this lease shall commence with the date such use begins, and the rent specified
herein shall be equitably prorated for the period before the specified
commencement date.

The Lessee, for itself, its successors and assigns, hereby covenants with
the Lessors, their heirs, executors, administrators, and assigns:

(1) That it will promptly pay all gas, oil, electric, light, sewage, water
rates or charges which may become payable during the continuance of this lease
for gas, oil, electric, light and water used on said premises.

-1-
<PAGE>
(2) That it will keep all and singular the said building and premises,
including the plumbing and heating plant and all driveways, parking areas and
other appurtenances, in such repair as the same are at the commencement of the
said term or may be put in during the continuance thereof, reasonable wear and
tear and damage by fire or extended coverage perils only excepted, and will
promptly replace all glass thereof broken during the said term by other of the
same quality and size.

(3) That it will not injure, overload or deface or suffer to be injured,
overloaded or defaced the premises or any part thereof.

(4) That it will save harmless and indemnify the Lessors from and against
all loss, liability or expense that may be incurred by reason of any accident
with the machinery, pipes or from any damage or neglect arising from or in any
way growing out of the misuse or abuse of the city water or from the bursting of
any pipes or from any neglect in not removing snow and ice from the premises; or
from any accident or other occurrence on or about said premises.

(5) That it will not make or suffer any unlawful, improper or offensive
use of the premises or any use or occupancy thereof contrary to any law of the
State or any ordinance of the City now or hereafter made, or which shall be
injurious to any person or property or which shall be liable to endanger or
affect any insurance on the said building or to increase the premium thereof.

(6) That it will not make any alterations or additions in or to the
premises without the written consent of the Lessors; nor suffer any holes to be
made or drilled in the outside stone or brick work; nor to suffer any signs to
be placed upon the building except such as the Lessors shall in writing approve.

(7) Lessee shall not assign, underlet or part with the possession of the
whole or any part of the demised premises without first obtaining the written
consent of the Lessors.

(8) Lessors at all reasonable times may enter to view the premises and to
make repairs which Lessors may see fit to make, or to show the premises to
persons who may wish to buy or lease, and that during three (3) months next
preceding the expiration of the term Lessors will be permitted to place and keep
next to the sidewalk in the front of said premises a notice 24" x 24" that the
premises are for rent or sale.

(9) That at the expiration of said term Lessee will peaceably yield up to
Lessors or those having their estates therein the premises and all erections or
additions made upon the same in good repair in all respects, reasonable use and
wear and damage by fire and other unavoidable casualty excepted, as the same now
are or may be put in by Lessors.

(10) That all property of any kind that may be on the premises during the
continuance of this lease shall be at the sole risk of the Lessee, and that the
Lessors shall not be liable to the Lessee

-2-
<PAGE>
or any other persons for any injury, loss or damage to property or to any person
on the premises; and neither Lessee nor Lessors will make any claim against the
other for losses arising by reason of fire or extended coverage perils for which
full recovery has been made from any other person, corporation, or association.

(11) Lessee covenants and agrees to pay for the costs of procuring and
maintaining and keeping in full force during the term hereof the following
insurance which shall be procured and renewed from time to time by Lessee at
Lessee's cost and expense:

(a) Insurance upon all of the buildings and improvements located
on the demised premises against loss thereof, or damage
thereto, by fire and the risks included in what is commonly
known as an "all risk policy", for the replacement cost from
time to time of said buildings and improvements; and any loss
insured against shall be payable to Lessors and Lessee as
their respective interests may appear.

(b) Comprehensive general liability insurance insuring Lessors and
Lessee against liability for injury to and destruction of
property and for injury to or loss of life of persons, with a
combined single limit of at least One Million Dollars per
accident or occurrence.

(c) The policies or certificates evidencing the aforesaid
insurance shall be delivered to the Lessors and in turn may be
delivered by the Lessors to their mortgage.

(d) All policies shall provide that the same shall not be canceled
or altered except on ten (10) days' prior written notice to
Lessors and to the mortgagee.

(12) Lessee covenants and agrees that it will not use or permit any person
to use said demised premises or any part thereof for any use or purpose in
violation of the laws of the United States of America, the State of Minnesota or
ordinances or other regulations of any municipality in which said premises are
situated, or of any other lawful authorities, or use or permit, or suffer any
person or use of said premises or any buildings thereon for the manufacture or
sale of intoxicating liquor of any kind, character or description whatsoever;
that during said term it will keep said demised premises and every part thereof
and all buildings at any time situated thereon in a clean and wholesome
condition, and generally that it will in all respects and at all times fully
comply with all lawful health, police and fire regulations, and also that it
will keep the improvements at any time situated on the demised premises and all
sidewalks and areas adjacent thereto, as well as the area thereof, safe, secure
and comfortable to the lawful and valid requirements of any municipality in
which said premises may be situated, and of all other public authorities.

-3-
<PAGE>
(13) That no assent, express or implied by the Lessors, to any breach of
any of the Lessee's covenants shall be deemed to be a waiver of any succeeding
breach of the same covenant.

Provided always that these presents are upon this condition that if the
Lessee or its representatives, successors or assigns, shall neglect or fail to
perform and observe any covenant herein contained which on the Lessee's part is
to be performed, or if their leasehold estate shall be taken in execution, or if
the Lessee shall be declared bankrupt or insolvent according to law or shall
make an assignment for the benefit of their creditors, then and in any case the
Lessors or those having the estate of the Lessors in the premises, lawfully may
immediately or at any time thereafter and without notice or demand, enter into
and upon the demised premises or any part thereof and repossess the same as if
of their former estate and expel the Lessee and those claiming under it and
remove Lessee's effect forcibly if necessary without being taken or deemed to be
guilty of any manner of trespass. And thereupon this demise shall absolutely
determine but without prejudice to any remedies which might otherwise be used by
the Lessors for arrears of rent or any breach of the Lessee's covenants herein
contained.

Provided also that in case the demised premises or any part thereof shall
at any time during said term be destroyed or damaged by fire or other
unavoidable casualty so as to be unfit for occupancy and use and so the premises
cannot be rebuilt or restored by the Lessors within one (1) year thereafter,
then and in that case this demise shall terminate, but if the premises can be
rebuilt or restored within one (1) year, and if proceeds of insurance payable
for such casualty are sufficient therefor, the Lessors will at their own expense
and with due diligence so rebuild or restore the premises and Lessee shall
continue to pay the rents hereunder without abatement.

Provided also that in case the whole or any part of the premises hereby
demised shall be taken by the City or State or other public authority for any
use, then this demise shall terminate from the time when such possession of the
whole or any part so taken shall be required for such public use and the rents
properly apportioned shall be paid up to that time; and such taking shall not be
deemed a breach of the Lessors' covenant for quiet enjoyment hereinbefore
contained.

(14) Lessee covenants and agrees to pay all taxes due and payable and all
assessments hereafter levied during the term or extension thereof of this lease.

(15) Each party hereto hereby waives all claims for recovery from the
other party for any loss or damage to any of its property insured under valid
and collectible insurance policies to the extent of any recovery collectible
under such insurance, subject to the limitation that this waiver shall apply
only when the fire and extended coverage policies of both parties contain a
clause to the effect this waiver shall not affect said policies or the right of
both parties to recover thereunder. Both parties agree that such insurance
policies will include such clause as long as the same is includable without
extra cost.

-4-
<PAGE>
This lease shall be subject to and subordinate to the lien of any mortgage
or mortgages or deed or deeds of trust which at any time may be placed upon the
fee title to the premises above described; provided, however, that the rights of
the Lessee, its successors and assigns hereunder shall not be cut off or
affected by foreclosure of any such mortgage or mortgages or deed or deeds of
trust so long as the Lessee, its successors and assigns, shall not be in default
hereunder.

Lessor hereby grants to Lessee an option to purchase the Leased Premises
for a stipulated and agreed upon sum of $1,389,000. The term of said purchase
option shall commence on the date hereof and shall expire on July 31, 1999. In
the event Lessee desires to exercise its option to purchase the Leased Premises,
Lessee shall notify Lessor in writing of Lessee's exercise of such purchase
option on or before January 31, 1999; otherwise, the purchase option shall be
null and void and of no further force or effect. In the event Lessee timely
exercises its option to purchase the Leased Premises, Lessor and Lessee agree to
cooperate with each other in good faith to close the purchase of the Leased
Premises within thirty (30) days following the date that Lessee notifies Lessor
in writing that Lessee has exercised its purchase option. The purchase option
shall cover the entire Leased Premises, including all improvements, structures,
buildings and fixtures, located therein or thereon, and all of Lessor's right,
title and interest in and to all easements and other appurtenances thereto, and
the same shall be conveyed by Lessor to Lessee by warranty deed and bills of
sale and assignments, with covenants of general warranty, free and clear of all
liens and encumbrances.

Concurrently with the execution of this agreement, Lessor and Lessee agree
to execute and file of record in the appropriate public records of Winona
County, Minnesota, a Memorandum of Option specifying the leased premises and the
term of the option described in the preceding paragraph, in the form attached
hereto as "Exhibit A".

IN WITNESS WHEREOF, the parties hereto have executed this agreement,
effective the day and year first above written.

/S/ DAVID H. ARNOLD
David H. Arnold

/S/ MURIEL M. ARNOLD
Muriel M. Arnold

/S/ DANIEL M. RUKAVINA
Daniel M. Rukavina

/S/ PATRICIA A. RUKAVINA
Patricia A. Rukavina

-5-
<PAGE>
EMD ASSOCIATES, INC.

By: /S/ DAVID FRADIN
David Fradin, President

-6-
<PAGE>
AMENDMENT TO LEASE

This Amendment to Lease (this "Amendment") is made and entered into on
this 30th day of July, 1996, by and between David H. Arnold and Muriel M.
Arnold, husband and wife, and Daniel M. Rukavina and Patricia A. Rukavina,
husband and wife (collectively, "Lessor"), and EMD Associates, Inc., a Minnesota
corporation ("Lessee").

WHEREAS, Lessor and Lessee entered into a Lease Agreement dated July 30,
1996 (the "Lease"), whereby Lessor demised and let unto Lessee the premises
located at 4155 Theurer Boulevard, Goodview Minnesota, and legally described in
said Lease as Lots Four (4) and (5), Block One (1), record plat of Goodview
Industrial Park, for a term commencing September 1, 1996, and continuing until
August 31, 2006, and thereafter from year to year until terminated as provided
therein, for a net rent of $17,150 per month, subject to adjustment as provided
therein; and

WHEREAS, the Lease remains in full force and effect; and

WHEREAS, the parties have agreed that the legal description of the
premises was incorrectly described, and the parties desire to modify and amend
the Lease to correct the legal description of the premises covered by the Lease,
and to otherwise modify the Lease in other respects, all as more particularly
described herein;

NOW, THEREFORE, in consideration of the premises, the mutual covenants
herein contained and other good and valuable consideration, the receipt and
sufficiency of all of which is hereby acknowledged and confessed, the parties
hereto hereby agree as follows:

(16) The legal description of the premises described in the Lease was
incorrect and the parties hereby agree that the premises described in the Lease
shall be modified to be those certain premises located at 4155 Theurer
Boulevard, Goodview, Winona County, Minnesota, and legally described on Exhibit
A attached hereto and incorporated herein for all purposes.

(17) In the event Lessor is unable to deliver the premises to Lessee free
and clear of all other tenancies, and with all of the prior tenant's property
removed therefrom, on or before September 1, 1996, then the term of the Lease
(and Lessee's obligations thereunder, including, without limitation, the
obligation to pay rent) shall not commence until such premises are delivered to
Lessee in the aforementioned condition. Notwithstanding the foregoing, however,
in the event Lessor is able to deliver the entire manufacturing portion of the
premises to Lessee prior to delivering the office portion of the premises to
Lessee, then Lessor and Lessee agree that the Lease shall commence (and Lessee's
obligations under the Lease, including the payment of rent) only with respect to
the manufacturing portion of the premises on the date that the entire
manufacturing portion of the premises is delivered to Lessee in the
aforementioned conditioned; provided, however, until the remainder of the
premises is delivered to Lessee, all rent and other charges payable under the

-7-

<PAGE>
Lease shall be prorated such that Lessee shall only be obligated to pay a
percentage thereof based upon the ratio that the square footage of the
manufacturing portion of the premises bears to the total square footage of the
manufacturing portion and the office portion of the premises. Notwithstanding
any of the foregoing or anything in the Lease to the contrary, Lessor covenants
and agrees to deliver the entirety of the premises to Lessee in the
aforementioned condition not later than September 30, 1996.

(18) Except as amended herein, the said Lease shall be and remain in full
force and effect.

IN WITNESS WHEREOF, the paries hereto have executed this Amendment,
effective July 30, 1996.

/S/ DAVID H. ARNOLD
David H. Arnold

/S/ MURIEL M. ARNOLD
Muriel M. Arnold

/S/ DANIEL M. RUKAVINA
Daniel M. Rukavina

/S/ PATRICIA A. RUKAVINA
Patricia A. Rukavina

EMD ASSOCIATES, INC.

By:/S/ DAVID W. FRADIN
Name: DAVID W. FRADIN
Title: PRESIDENT

-8-

EXHIBIT 10.11
LEASE

This agreement is made and entered into as of December 15, 1992, by and
between David H. Arnold and Muriel M. Arnold, husband and wife, and Daniel M.
Rukavina and Patricia A. Rukavina, husband and wife parties of the first part,
Lessors, and EMD Associates, Inc., a Minnesota corporation, party of the second
part, Lessee;
WITNESSETH:
That the said parties of the first part, in consideration of the rents and
covenants hereinafter mentioned, do hereby demise, lease and let unto the said
party of the second part, and the said party of the second part does hereby hire
and take from the said parties of the first part the premises situated at
Theurer Boulevard and 41st Avenue, Goodview, Minnesota, legally described as
Lots One (1), Two (2), and Three (3), Block Two (2), Goodview Industrial Park.
TO HAVE AND TO HOLD the above rented premises unto the said Lessee, its
successors and assigns, just as they are, without any liability or obligations
on the part of said Lessors of making any alterations, improvements or repairs
of any kind on or about said premises, except as expressly provided herein, for
and during the full term of five (5) years from and after December 15, 1992, and
thereafter from year to year until terminated by either party by sixty (60) days
written notice, for the following purposes, to-wit: Offices and manufacturing or
other similar lawful uses.
And the said Lessee agrees to and with the said Lessors to pay as rent for
the above mentioned premises the sum of Fifty Thousand Three Hundred and no/100
($50,300.00) Dollars per

<PAGE>
month during the full term of this lease; subject to adjustment as follows: If,
during any lease year, the Average Prime Rate, as hereinafter defined, exceeds
13%, the rent for such lease year shall be adjusted by an amount equal to the
annual rent provided herein multiplied by a fraction, the numerator of which
shall be the difference between the Average Prime Rate and 11 1/2 , and the
denominator of which shall be 11 1/2. The amount of any such adjustment shall be
determined by Lessors at the end of the lease year, and shall be due and payable
within thirty (30) days after written notice to Lessee, showing the amount and
basis for the adjustment. The Prime Rate shall be the rate of interest
established by Chase Manhattan Bank of New York as its "base" or "prime" rate,
as published from time to time. The Average Prime Rate shall be the weighted
average of the Prime Rates in effect during the lease year, calculated by
multiplying each Prime Rate in effect during the lease year by the number of
days such rate was in effect, then adding all of the products so determined, and
then dividing that sum by the number of days in the lease year.
The Lessee, for itself, its successors and assigns, hereby covenants with
the Lessors, their heirs, executors, administrators, and assigns:
(1) That it will promptly pay all gas, oil, electric, light, sewage, water
rates or charges which may become payable during the continuance of this lease
for gas, oil, electric, light and water used on said premises.
(2) That it will keep all and singular the said building and premises,
including the plumbing and heating plant and all driveways, parking areas and
other appurtenances, in such repair as the same are at the commencement of the
said term or may be put in during the continuance

-2-

<PAGE>
thereof, reasonable wear and tear and damage by fire or extended coverage perils
only excepted, and will promptly replace all glass thereof broken during the
said term by other of the same quality and size.
(3) That it will not injure, overload or deface or suffer to be injured,
overloaded or defaced the premises or any part thereof.
(4) That it will save harmless and indemnify the Lessors from and against
all loss, liability or expense that may be incurred by reason of any accident
with the machinery, pipes or from any damage or neglect arising from or in any
way growing out of the misuse or abuse of the city water or from the bursting of
any pipes or from any neglect in not removing snow and ice from the premises; or
from any accident or other occurrence on or about said premises.
(5) That it will not make or suffer any unlawful, improper or offensive
use of the premises or any use or occupancy thereof contrary to any law of the
State or any ordinance of the City now or hereafter made, or which shall be
injurious to any person or property or which shall be liable to endanger or
affect any insurance on the said building or to increase the premium thereof.
(6) That it will not make any alterations or additions in or to the
premises without the written consent of the Lessors; nor suffer any holes to be
made or drilled in the outside stone or brick work; not to suffer any signs to
be placed upon the building except such as the Lessors shall in writing approve.
(7) Lessee shall not assign, underlet or part with the possession of the
whole or any part of the demised premises without first obtaining the written
consent of the Lessors.

-3-

<PAGE>
(8) Lessors at all reasonable times may enter to view the premises and to
make repairs which Lessors may see fit to make, or to show the premises to
persons who may wish to buy or lease, and that during three (3) months next
preceding the expiration of the term Lessors will be permitted to place and keep
next to the sidewalk in the front of said premises a notice 24" x 24" that the
premises are for rent or sale.
(9) That at the expiration of said term Lessee will peaceably yield up to
Lessors or those having their estates therein the premises and all erections or
additions made upon the same in good repair in all respects, reasonable use and
wear and damage by fire and other unavoidable casualty excepted, as the same now
are or may be put in by Lessors.
(10) That all property of any kind that may be on the premises during the
continuance of this lease shall be at the sole risk of the Lessee, and that the
Lessors shall not be liable to the Lessee or any other persons for any injury,
loss or damage to property or to any person on the premises; and neither Lessee
nor Lessors will make any claim against the other for losses arising by reason
of fire or extended coverage perils for which full recovery has been made from
any other person, corporation, or association.
(11) Lessee covenants and agrees to pay for the costs of procuring and
maintaining and keeping in full force during the term hereof the following
insurance which shall be procured and renewed from time to time by Lessee at
Lessee's cost and expense:
(a) Insurance upon all of the buildings and improvements located
on the demised premises against loss thereof, or damage
thereto, by fire and the risks included in what is commonly
known as an "all risk policy", for the replacement cost from
time to time of said buildings and improvements; and

-4-

<PAGE>
any loss insured against shall be payable to Lessors and
Lessee as their respective interests may appear.

(c) The policies or certificates evidencing the aforesaid
insurance shall be delivered to the Lessors and in turn may be
delivered by the Lessors to their mortgagee.

(d) All policies shall provide that the same shall not be
cancelled or altered except on ten (10) days' prior written
notice to Lessors and to the mortgagee.

(12) Lessee covenants and agrees that it will not use or permit any person
to use said demised premises or any part thereof for any use or purpose in
violation of the laws of the United States of America, the State of Minnesota or
ordinances or other regulations of any municipality in which said premises are
situated, or of any other lawful authorities, or use or permit, or suffer any
person or use of said premises or any buildings thereof for the manufacture or
sale of intoxicating liquor of any kind, character or description whatsoever;
that during said term it will keep said demised premises and every part thereof
and all buildings at any time situated thereon in a clean and wholesome
condition, and generally that it will in all respects and at all times fully
comply with all lawful health, police and fire regulations, and also that it
will keep the improvements at any time situated on the demised premises and all
sidewalks and areas adjacent thereto, as well as the area thereof, safe, secure
and comfortable to the lawful and valid requirements of any municipality in
which said premises may be situated, and of all other public authorities.

-5-

<PAGE>
(13) That no assent, express or implied by the Lessors, to any breach of
any of the Lessee's covenants shall be deemed to be a waiver of any succeeding
breach of the same covenant.
Provided always that these presents are upon this condition that if the
Lessee or its representatives, successors or assigns, shall neglect or fail to
perform and observe any covenant herein contained which on the Lessee's part is
to be performed, or if their leasehold estate shall be taken in execution, or if
the Lessee shall be declared bankrupt or insolvent according to law or shall
make assignment for the benefit of their creditors, then and in any case the
Lessors or those having the estate of the Lessors in the premises, lawfully may
immediately or at any time thereafter and without notice or demand, enter into
and upon the demised premises or any part thereof and repossess the same as if
of their former estate and expel the Lessee and those claiming under it and
remove Lessee's effects forcibly if necessary without being taken or deemed to
be guilty of any manner of trespass. And thereupon this demise shall absolutely
determine but without prejudice to any remedies which might otherwise be used by
the Lessors for arrears of rent or any breach of the Lessee's covenants herein
contained.
Provided also that in case the demised premises or any part thereof shall
at any time during said term be destroyed or damaged by fire or other
unavoidable casualty so as to be unfit for occupancy and use and so the premises
cannot be rebuilt or restored by the Lessors within one (1) year thereafter,
then and in that case this demise shall terminate, but if the premises can be
rebuilt or restored within one (1) year, and if proceeds of insurance payable
for such casualty are sufficient

-6-

<PAGE>
therefor, the Lessors will at their own expense and with due diligence so
rebuild or restore the premises and Lessee shall continue to pay the rents
hereunder without abatement.
Provided also that in case the whole or any part of the premises hereby
demised shall be taken by the City or State or other public authority for any
use, then this demise shall terminate from the time when such possession of the
whole or any part so taken shall be required for such public use and the rents
properly apportioned shall be paid up to that time; and such taking shall not be
deemed a breach of the Lessors' covenant for quiet enjoyment hereinbefore
contained.
(14) Lessee covenants and agrees to pay all taxes due and payable and all
assessments hereafter levied during the term or extension thereof of this lease.
(15) Each party hereto hereby waives all claims for recovery from the
other party for any loss or damage to any of its property insured under valid
and collectible insurance policies to the extent of any recovery collectible
under such insurance, subject to the limitation that this waiver shall apply
only when the fire and extended coverage policies of both parties contain a
clause to the effect this waiver shall not affect said policies or the right of
both parties to recover thereunder. Both parties agree that such insurance
policies will include such clause as long as the same is includable without
extra cost.
This lease shall be subject to and subordinate to the lien of any mortgage
or mortgages or deed or deeds of trust which at any time may be placed upon the
fee title to the premises above described; provided, however, that the rights of
the Lessee, its successors and assigns hereunder shall

-7-

<PAGE>
not be cut off or affected by foreclosure of any such mortgage or mortgages or
deed or deeds of trust so long as the Lessee, its successors and assigns, shall
not be in default hereunder.
This lease amends and supersedes a Lease Agreement between the parties
dated July 1, 1988, as previously amended.
IN WITNESS WHEREOF, the parties hereto have executed this agreement,
effective the day and year first above written.

/S/ DAVID H. ARNOLD
David H. Arnold

/S/ MURIEL M. ARNOLD
Muriel M. Arnold

/S/ DANIEL M. RUKAVINA
Daniel M. Rukavina

/S/ PATRICIA A. RUKAVINA
Patricia A. Rukavina

EMD ASSOCIATES, INC.

By /S/ DANIEL M. RUKAVINA
Daniel M. Rukavina, President

By /S/ DAVID H. ARNOLD
David H. Arnold, Secretary

-8-

<PAGE>
AMENDMENT TO LEASE

This agreement is made and entered into as of January 1, 1994, by and
between David H. Arnold and Muriel M. Arnold, husband and wife, and Daniel M.
Rukavina and Patricia A. Rukavina, husband and wife, Lessors, and EMD
Associates, Inc., a Minnesota corporation, Lessee.
WHEREAS, the parties hereto entered into a Lease Agreement dated December
15, 1992, whereby Lessors demised and let unto Lessee certain premises situated
at Theurer Boulevard and 41st Avenue, Goodview, Minnesota, legally described as
Lots One (1), Two (2), and Three (3), Block Two (2), Goodview Industrial Park,
upon which was then situated a manufacturing and office building, for a term of
five (5) years from and after December 15, 1992, and thereafter from year to
year until terminated as provided therein, for a net rent of $50,300.00 per
month, subject to adjustment as provided therein; and
WHEREAS, the said Lease remains in effect; and
WHEREAS, at the request and direction of Lessee, Lessors acquired an
adjacent parcel of real estate, legally described in Exhibit A attached hereto,
for improvement and use by Lessee for vehicle parking (the "Parking Area");
NOW THEREFORE, the parties hereto agree as follows:
1. From and after January 1, 1994, the leased premises shall include
the Parking Area.

-9-

<PAGE>
2. From and after January 1, 1994, Lessee shall pay to Lessors as rent for
the leased premises the sum of $50,932.00 per month during the full remaining
term of the Lease, subject to adjustment as provided therein.
3. Except as amended herein, the said Lease Agreement shall be and
remain in full fore and effect.
IN WITNESS WHEREOF, the parties hereto have executed this agreement,
effective the day and year first above written.
/S/ DAVID H. ARNOLD
David H. Arnold

/S/ MURIEL M. ARNOLD
Muriel M. Arnold

/S/ DANIEL M. RUKAVINA
Daniel M. Rukavina

/S/ PATRICIA A. RUKAVINA
Patricia A. Rukavina

EMD ASSOCIATES, INC.

By /S/ DAVID FRADIN
David Fradin, President and CEO

-10-

<PAGE>
EXHIBIT A

That part of the Southeast Quarter of the Southwest Quarter (SE 1/4 of SW 1/4)
of Section Seventeen (17), Township One Hundred Seven (107) North, of Range
Seven (7), West of the Fifth Principal Meridian, Winona County, Minnesota,
described as follows:

Commencing at the Southeast corner of said SE 1/4 of the SW 1/4, thence on
an assumed bearing of North along the East line of said SE1/4 of the SW1/4, a
distance of 1.20 feet to the Northerly right of way line of the Soo Line
Railroad Company; thence North 61(degree)57'00" West way line distant 134.60
feet Southeasterly of the most Southerly corner of Lot 1, Block 2, record plat
of Goodview Industrial Park, Winona County, Minnesota, and the point of
beginning of the land to be described; thence continue North 61(degree)57'00"
West, along said right of way line, 134.60 feet to said most Southerly corner of
Lot 1; thence North 27(degree)55' East, along the Southeasterly line of said Lot
1, a distance of 240.00 feet to the most Easterly corner of said Lot 1; then
South 61(degree)57'00" East, along the Southwesterly line of Lot 3, said Block
2, a distance of 134.60 feet to the most Southerly corner of said Lot 3; thence
South 27(degree)55' West, 240.00 feet to the point of beginning.

Excepting therefrom and reserving to Lessors the metal storage building situated
thereon, and the right of ingress thereto and egreiss therefrom.

-11-

<PAGE>
AMENDMENT TO LEASE

This agreement is made and entered into as of December 15, 1995, by and
between David H. Arnold and Muriel M. Arnold, husband and wife, and Daniel M.
Rukavina and Patricia A. Rukavina, husband and wife, Lessors, and EMD
Associates, Inc., a Minnesota corporation, Lessee.
WHEREAS, the parties hereto entered into a Lease Agreement dated December
15, 1992, whereby Lessors demised and let unto Lessee certain premises situated
at Theurer Boulevard and 41st Avenue, Goodview, Minnesota, legally described as
Lots One (1), Two (2), and Three (3), Block Two (2), Goodview Industrial Park,
upon which was then situated a manufacturing and office building, for a term of
five (5) years from and after December 15, 1992, and thereafter from year to
year until terminated as provided therein, for a net rent of $50,300.00 per
month, subject to adjustment as provided therein; and
WHEREAS, the said Lease was amended by an Amendment to Lease dated as of
January 1, 1994, to include an adjacent parking area, and to increase the rent
for the leased premises to the sum of $50,932.00 per month for the remaining
term of the lease; and
WHEREAS, the said Lease, as so amended, remains in effect; and WHEREAS,
the parties have agreed to extend the said lease as provided herein; NOW
THEREFORE, the parties hereto agree as follows:

-12-

<PAGE>
4. The term of the said lease shall be extended for a period of ten (10)
years from and after December 15, 1995, and shall continue until December 15,
2005, and thereafter from year to year until terminated by either party by sixty
(60) days written notice.

5. Except as amended herein, the said Lease Agreement shall be and remain
in full force and effect. /S/ DAVID H. ARNOLD David H. Arnold

/S/ MURIEL M. ARNOLD
Muriel M. Arnold

/S/ DANIEL M. RUKAVINA
Daniel M. Rukavina

/S/ PATRICIA A. RUKAVINA
Patricia A. Rukavina

EMD ASSOCIATES, INC.

By /S/ DAVID FRADIN
David Fradin, President and CEO

-13-

<PAGE>
AMENDMENT TO LEASE

WHEREAS, the Lessor and Lessee entered into a Lease Agreement dated
December 15, 1992 (the "Original Lease"), whereby Lessor demised and let unto
Lessee certain premises situated at Theurer Boulevard and 41st Avenue, Goodview,
Minnesota, legally described as Lots One (1), Two (2) and Three (3), Block Two
(2), Goodview Industrial Park, upon which is situated a manufacturing and office
building, for a term of five (5) years from and after December 15, 1992, and
thereafter from year to year until terminated as provided therein, for a net
rent of $50,300 per month, subject to adjustments as provided therein; and

WHEREAS, the Original Lease was amended by (i) an Amendment to Lease dated
as of January 1, 1994, to include an adjacent parking area within the leased
premises, and to increase the rent for the leased premises to the sum of $50,932
per month for the remaining term of the Lease, and (ii) an Amendment to Lease
dated as of December 15, 1995, to extend the term of the Lease for a period of
ten (10) years from and after December 15, 1995 and continuing until December
15, 2005, and thereafter from year to year until terminated by either party by
sixty (60) days written notice (the "Original Lease, as so amended, being herein
referred to as the "Lease"); and

WHEREAS, the Lease remains in full force and effect; and

WHEREAS, the parties have agreed to further modify and amend the Lease,
and to provide for a purchase option in favor of Lessee covering the leased
premises covered by the Lease (the "Leased Premises"), as more particularly
described herein;

6. The term of the Lease is hereby amended such that the term of the Lease
shall continue for a period of ten (10) years from and after July 30, 1996, and
shall continue until July 31, 2006, and thereafter from year to year until
terminated by either party by providing the other party with written notice of
such party's election to terminate the Lease not less than one hundred eighty

-14-

<PAGE>
(180) days prior to the expiration of the term (as the term may be extended year
to year as provided herein).

7. From and after August 1, 1996, the rent for the Leased Premises shall
be the sum of $50,932.00 per month for the remaining term of the Lease. The rent
shall not be subject to adjustment provided in the Lease (and such adjustment
provision is hereby deleted and of no further force and effect).

8. Lessor hereby grants to Lessee an option to purchase the Leased
Premises for a stipulated and agreed upon sum of $4,711,000.00. The term of said
purchase option shall commence on the date hereof and shall expire on July 31,
1999. In the event Lessee desires to exercise its option to purchase the Leased
Premises, Lessee shall notify Lessor in writing of Lessee's exercise of such
purchase option on or before July 31, 1999; otherwise, the purchase option shall
be null and void and of no further force or effect. In the event Lessee timely
exercises its option to purchase the Leased Premises, Lessor and Lessee agree to
cooperate with each other in good faith to close the purchase of the Leased
Premises within thirty (30) days following the date that Lessee notifies Lessor
in writing that Lessee has exercised its purchase option. The purchase option
shall cover the entire Leased Premises, including all improvements, structures
and buildings thereon, all fixtures, located therein or thereon, and all of
Lessor's right, title and interest in and to all easements and other
appurtenances thereto, and the same shall be conveyed by Lessor to Lessee by
warranty deed and bills of sale and assignments, with covenants of general
warranty, free and clear of all liens and encumbrances.

9. In each instance in the Lease where consent or approval is required to
be obtained from a party to the Lease, such consent or approval shall not be
unreasonably withheld, delayed or conditioned.

10. Concurrently with the execution of this agreement, Lessor and Lessee
agree to execute and file of record in the appropriate public records of Winona
County, Minnesota, a Memorandum of Option specifying the leased premises and the
term of the option described in Paragraph 3 above, in the form attached hereto
as EXHIBIT "A"/

11. Except as amended herein, the said Lease shall be and remain in full
force and effect.

-15-

<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment,
effective July 30, 1996.

EMD ASSOCIATES, INC. /S/ DAVID H. ARNOLD
David H. Arnold

By:/S/DAVID W. FRADIN /S/ MURIEL M. ARNOLD
Name: DAVID W. FRADIN Muriel M. Arnold

Title: PRESIDENT /S/ DANIEL M. RUKAVINA
Daniel M. Rukavina

/S/ PATRICIA A. RUKAVINA
Patricia A. Rukavina

-16-

<PAGE>

Benchmark Electronics, Inc. 1996 Annual Report
3000 Technology Drive
Angleton, Texas 77515
(409) 849-6550
www.bench.com

Table of Contents
The Company at a Glance 1
Financial Highlights 1
President's Letter 2
Outsourcing Solutions 5
Management's Discussion and Analysis 9
Financial Statements 15
Notes to Financial Statements 19
Independent Auditors' Report 27
Management's Report 28
Quarterly Financial Data 29
Market for the Registrant's Common Equity
and Related Shareholder Matters 30
Selected Financial Data 31
Corporate and Shareholder Data 32

Financial Highlights
Benchmark Electronics, Inc. and Subsidiaries

<TABLE>
<CAPTION>
Year ended December 31,
(In thousands, except per-share data) 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $201,296 97,353 98,168 75,859 50,647
Income from operations $ 15,391 9,250 8,778 6,590 4,375
Net income $ 8,864 6,148 5,769 4,582 3,130
Earnings per common share $ 1.92 1.50 1.41 1.13 .83
Working capital $ 72,586 37,285 30,890 29,160 25,796
Total assets $168,174 57,037 48,333 47,425 34,380
Long-term debt $ 30,485 -- -- -- --
Shareholders' equity $104,999 46,624 40,131 34,213 29,573
Weighted average common and equivalent
shares outstanding 4,611 4,106 4,088 4,066 3,762
</TABLE>

The Company at a glance
<PAGE>
Benchmark Electronics, Inc., provides contract manufacturing and design services
to original equipment manufacturers (OEMs) in the electronics industry,
including manufacturers of medical devices, communications equipment, industrial
and business computers, and testing and industrial instruments. The company
specializes in assembling high quality, technologically complex printed circuit
boards with computer-automated equipment using surface mount and pin-thru-hole
interconnection technology for customers requiring low-to-medium volume
assembly. The company frequently works with customers from product design stages
through ongoing production and provides manufacturing services for successive
product generations.

President's letter

Dear Shareholder:

It is my pleasure to report to you once again record-breaking financial results
in calendar year 1996. As a result of the acquisition of EMD Technologies, Inc.
in July 1996 and the continued growth and expansion of our traditional business,
Benchmark Electronics, Inc. earned a record net income, $8,863,515, or $1.92 per
share. The company posted record sales of $201,296,320, approximately 107 %
greater than 1995. And once again, we showed a record year-end backlog, this
time reaching $230,000,000 as of December 31, 1996.

During 1996, our revenue growth rate was more than twice that of the
electronic contract manufacturing industry as compiled by the Institute for
Interconnecting and Packaging Electronic Circuits (IPC).

Our continued focus on strategic, high-growth markets--medical devices,
telecommunications, instrumentation, high-end computer systems and industrial
controls--produced revenue growth during 1996 both through the addition of new
outsourcing relationships and by the expansion of programs and product lines
with existing customers.

This year I am especially pleased to be able to report to you on our first
acquisition. In July of 1996, we acquired EMD Technologies, Inc. (EMD), a well
respected, privately held electronic contract manufacturing firm located in
Winona, Minnesota. This move significantly increased our sales revenues during
1996, and in fact has changed the overall stature of the company. Through the
acquisition, Benchmark became a top tier firm in our field, moving into the top
ten ranking by revenue among publicly traded firms in the contract manufacturing
industry.

(Caption for chart: The strongest basis for continued growth -- clear focus,
customer satisfaction and financial strength.)

A number of strong benefits to our customers accrue from Benchmark's
becoming a top tier firm, and we'll discuss these further on in the
Shareholder's Report. But I am especially excited about the synergies available
from the acquisition of EMD, and the result: an ability to provide our

<PAGE>
customers with the leading edge assembly technologies, design and test
development capabilities, enhanced procurement leverage, and nationwide
geographic presence and service.

(Caption for chart: Benchmark's compound sales revenue growth, including the
EMD acquisition July 30, 1996, verses the IPC average for 1992-1996.)

During 1996, Benchmark, for the first time since our initial public
offering, elected to finance a portion of the acquisition of EMD. In keeping
with our conservative financial management posture, in November of 1996, we
completed a third stock offering of 1,016,500 shares. The proceeds to the
company from this equity financing were used primarily to pay down a portion of
the debt incurred for the acquisition and to provide a strong financial base for
the future growth of Benchmark. The company is now in a position to take
advantage of future acquisition opportunities that may possibly arise.

Currently our balance sheet is well positioned for future growth. The debt
to total capital ratio is quite conservative by industry standards. This allows
us to leverage our operations to continue to provide superior financial results
for our shareholders.

During 1996, we celebrated our tenth anniversary as an independent company.
My sincere thanks and appreciation to Benchmark employees--the driving force
behind our growth and success. I am especially pleased to welcome EMD employees
to the Benchmark family and to express our appreciation for their contributions
in 1996.

In summary, 1996 was a pivotal year for Benchmark as we became one of the
top tier firms in the electronic contract manufacturing industry. However, we
have not changed our overall business strategy. We strengthened our customer
service, and emphasized continuing development of our management team to provide
a solid foundation for future growth. Finally, as always, we retained our
conservative financial management philosophy.

Looking forward, I am enthused about our enhanced outsourcing capabilities,
which offer better ways to meet our customer's needs and which promise growth
for Benchmark for the long term.

Sincerely,

Donald E. Nigbor
President and Chief Executive Officer
March 20, 1997

(Caption for photo: Officers - seated left to right, Donald Nigbor and Cary Fu.
Standing left to right, Lenora Gurton, Christopher Nawrocki, Gayla Delly and
Steven Barton.)

Outsourcing Solutions

During 1996, Benchmark made very significant improvements in our ability to
offer leading edge design-through-delivery outsourcing solutions to our
customers.

Design Engineering
<PAGE>
The design engineering capabilities of EMD have long been respected in the
electronic contract manufacturing industry. The acquisition of that firm allows
our company to offer product software and circuit design, bare printed circuit
board layout (PCB), mechanical product design, and test fixture/software
development, all under one roof. That means "one-stop shopping" to our customers
from an outsourcing standpoint, not just for design and test fixturing, but
right through prototype stage and production runs including the "box build" or
final system-level assembly phase.

(Captions for photos:
Benchmark provides electronic circuit and PCB design expertise to speed
customers' products to the market place.

Customers' engineers work closely with Benchmark mechanical designers to produce
cost effective and reliable mechanical packaging designs.

The box build area exemplifies one-stop shopping: Benchmark designs,
manufacturers and ships finished products.)

Advanced Technologies

Benchmark is now able to offer customers the most advanced leading edge
manufacturing processes--ball grid arrays (BGA), chip on board (COB), and multi
chip modules (MCM) technologies--with production experience for new generations
of products. These technologies allow significant increases in electronic
packaging density and circuit performance as compared to surface mount (SMT) or
thru-hole interconnect technologies.

We are also able to offer customers the services of the EMD advanced
technology development laboratory, which contains such world class process
analysis equipment as scanning electron microscopes. The lab provides initial
process development, on-going failure analysis, and corrective action
capabilities that are as good as any firm's in the electronic contract
manufacturing industry.

(Captions for photos:
Advanced robotics places ball grid arrays with extreme accuracy in production
volumes. Automatic test development lab provides in-circuit and functional test
software/hardware to verify customer's product functionality.

Micrograph illustrating the capabilities of die attach technology.

Scanning electron microscopy is utilized to provide failure analysis and process
qualification as a key element in our continuous improvement program.)

Expanded Service Locations

Benchmark's acquisition of EMD enhanced our marketing abilities, enabling the
company to provide improved service to outsourcing clients nationwide. We can
now offer outsourcing
<PAGE>
solutions from our sites in the Pacific Northwest, the Midwest and Southwest.
One of the hallmarks of Benchmark's
(Map of USA showing 3 locations)
customer satisfaction--and consequent continued growth--is flexible service
stemming from our proximity to our customers. Those customers tell us that one
of the competitive marketing advantages Benchmark offers them is our
strategically located multiple manufacturing facilities. To them, that means
flexibility in engineering changes or improvements to their products, quick
response to their changes in delivery schedules, and more responsive
coordination of those product deliveries on a just-in-time basis.

Not to be overlooked in Benchmark's success is the fact that our multiple
facility locations can "second-source". Resources can be leveraged from any
location to meet changing customer needs, including product engineering
manufacturing techniques, analysis tools, and manufacturing capacity.

(Captions for photos:
Synthetic vision system provides continuous monitoring of critical manufacturing
process by utilizing advanced laser and computer/vision algorithms. Real time
x-ray analysis/inspection is utilized as a process development tool or ongoing
quality assurance methodology.)

Material Procurement

In an outsourcing relationship, material procurement leverage is of extreme
importance to the customer since the electronic components make up the larger
part of the cost of a product. Today's engineering design functions are so
sophisticated that the direct labor costs of products are typically quite low
because most components are designed to be placed on the circuit boards by
high-speed and high-accuracy robotics. In many instances, a relationship with a
turnkey contract manufacturer is economically beneficial for a customer, since
the quantity of electronic components that the customer would buy on their own
is quite small compared to that of their contract manufacturing source, which
multiplies or leverages its purchasing power by procuring materials for all of
its customers combined. The material procurement leverage of Benchmark more than
doubled during 1996, allowing us to provide very cost effective and advantageous
electronic component pricing to our outsourcing customers. Too, we gained much
higher visibility to many of the electronic component manufacturers.

Financial Strength

In the typical outsourcing relationship, Benchmark's customers seek a
specialized niche: medium to high volume production of a broad mix of products.
Benchmark is frequently the sole source, or a very significant source, of the
customer's production. Understandably, then, Benchmark's financial stability is
of extreme concern to our customers. Our balance sheet outlines the financial
<PAGE>
resources so crucial for supporting our existing customers' growth and for
adding additional outsourcing relationships in the future.

(Caption for pie chart: Sales by market segments which represent the marketing
focus of Benchmark's outsourcing relationships across a diversified industry
base.)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the "Selected Financial
Data" and the Consolidated Financial Statements of the Company and the notes
thereto appearing elsewhere herein.

ACQUISITION

On July 30, 1996, the Company completed its acquisition of EMD Technologies,
Inc. (EMD). This business, headquartered in Winona, Minnesota, was acquired for
674,964 shares of common stock, $30.5 million in cash, and the Company paid $2.2
million in acquisition costs. The transaction was accounted for under the
purchase method of accounting, and, accordingly, the results of operations of
EMD since July 30, 1996 have been included in the accompanying consolidated
statements of income. The acquisition resulted in goodwill of approximately
$25.0 million which is being amortized on a straight line basis over 15 years.
See Note 2 of Notes to Consolidated Financial Statements.

In order to finance a portion of the cash consideration for the
acquisition of EMD, the Company issued a $30 million, 8.02% Senior Note due 2006
(Senior Note) to Northwestern Mutual Life Insurance Company and obtained a
four-year, $15 million revolving line of credit with a commercial bank which
replaced the Company's prior revolving line of credit. See Note 5 of Notes to
Consolidated Financial Statements and "Liquidity and Capital Resources".

Completion of the acquisition of EMD on July 30, 1996 and the inclusion
of EMD's operations in the Company's accounts subsequent to that date is
responsible for a substantial portion of the variation in the results of the
Company's operations (including the components thereof) for the year ended
December 31, 1996, as compared to 1995, and the increase in long term debt in
1996 as compared to 1995. The effects of the acquisition of EMD on the Company's
financial condition as of December 31, 1996 and its reported results of
operations and earnings per share for the period since the acquisition should be
considered when reviewing the financial information contained herein.

The following discussion and analysis contains certain forward-looking
statements regarding future financial condition and results of operations and
the Company's business operations. The words "expect," "estimate," "anticipate,"
"predict," and similar expressions are intended to identify forward looking
statements. Such statements involve risks uncertainties and assumptions,
including but not limited to, the effective integration of EMD into the Company,
industry and economic conditions and customer actions and other factors
discussed in this Form 10-K and in the Company's other filings with the
Securities and Exchange Commission. Should one or more of these risks or
uncertainties materialize or should underlying assumptions prove incorrect,
actual outcomes may vary materially from those indicated.
<PAGE>
RESULTS OF OPERATIONS

The following table presents the percentage relationship that certain items in
the Company's Statements of Income bear to sales for the periods indicated.

Percentage of sales
Year ended December 31,
1996 1995 1994
- --------------------------------------------------------------------------------
Sales ........................................... 100.0% 100.0% 100.0%
Cost of sales ................................... 88.4 87.5 87.8
-----------------------------
Gross profit ............................... 11.6 12.5 12.2
Selling expenses ................................ .9 1.4 1.4
General and administrative expenses ............. 2.7 1.6 1.8
Amortization of goodwill ........................ .3 -- --
-----------------------------
Income from operations ..................... 7.7 9.5 8.9
-----------------------------
Other income (expense) .......................... (.5) .3 .3
-----------------------------
Income before income taxes ................. 7.2 9.8 9.2
Income tax expense .............................. 2.8 3.5 3.3
-----------------------------
Net Income ..................................... 4.4% 6.3% 5.9%
=============================

Year Ended December 31, 1996 Compared With Year Ended December 31, 1995

Sales in 1996 increased $103.94 million, or 106.8% over 1995 sales.
Approximately 65% of this increase in sales was due to the acquisition of EMD
during the third quarter of 1996 and the remainder of the sales increase
resulted from increased production volumes made possible by the expansion of the
surface mount assembly capacity at the Company's Angleton, Texas facility, which
was completed during the second quarter of 1996. In addition, the increase in
production volumes during 1996 was attributable in part to the fulfillment
during the first quarter of 1996 of orders that were subject to customers'
changes in production schedules and product mix experienced by the Company in
the last quarter of 1995 and to the absence of component shortages during 1996
which had caused delays during 1995.

A substantial percentage of the Company's sales have been to a small
number of customers, and the loss of a major customer, if not replaced, would
adversely affect the Company. During 1996, the Company's three largest customers
accounted for approximately 42% of the Company's sales, and the Company's
largest customer accounted for approximately 16% of sales. The Company's future
sales are dependent on the success of its customers, some of which operate in
businesses associated with rapid technological change and consequent product
obsolescence. Developments adverse to the Company's major customers or their
products, or the failure of a major customer to pay for components or services,
could have an adverse effect on the Company.

The Company had a record year-end backlog of $230 million at December
31, 1996, as compared to the 1995 year-end backlog of $117 million. Although the
Company expects to fill substantially all of this backlog in 1997, the Company
has no long-term contract agreements from its customers and customer orders can
be canceled, changed or delayed by customers. The timely replacement of
canceled, changed or delayed orders with new customers cannot be assured, nor
can there be any assurance that any of the Company's current customers will
continue to utilize the Company's services.
<PAGE>
Gross profit increased $11.1 million, or 90.5% over 1995. Gross profit
as a percentage of sales decreased from 12.5% for 1995 to 11.6% for 1996. The
increase in gross profit was due primarily to higher sales volumes and normal
changes in product mix and customer mix. The Company's gross profit reflects a
number of factors, including product mix, the level of start up costs and
efficiencies associated with new programs, capacity utilization of surface mount
and other equipment, and pricing with the electronics industry. All of these
factors are continually changing and are interrelated, making it impracticable
to determine separately the effect of each factor. The decrease in gross profit
as a percentage of sales during 1996 was due primarily to the product mix and
the initiation of new programs.

Selling expenses increased by $0.4 million, or 30.6%, from 1995 to $1.8
million. The increase in selling expenses was due primarily to an increase in
support expenses, including travel expenses and commissions, and additional
personnel associated with the acquisition of EMD.

General and administrative expenses increased $3.8 million, or 238.3%,
from 1995 to $5.4 million. The acquisition of EMD resulted in additional
personnel and related expenses supporting the subsidiary operations.
Additionally in order to satisfy the increased level of business activity and to
continue the development and improvement of the systems and processes necessary
to accommodate future growth, the Company has added management personnel. The
increase in general and administrative expenses reflects these additional
personnel and related departmental expenses, as well as the additional
administrative expenses, such as travel and communication costs incurred in
connection with the acquisition of EMD.

The amortization of goodwill associated with the acquisition of EMD for
the year ended December 31, 1996 was $0.7 million. Interest expense incurred by
the Company on the debt incurred in connection with the acquisition of EMD was
approximately $1.4 million in 1996. Neither of these costs were present in 1995.

Interest income was approximately $0.4 million in 1996 compared to $0.2
million in 1995. The increase was due to the investment by the Company of excess
cash in interest bearing marketable securities.

Income tax expense of $5.6 million represented an effective tax rate of
38.8% for the year ended December 31, 1996, compared with an effective tax rate
of 35.5% for the year ended December 31, 1995. The increase is due to the higher
pre-tax income and nondeductible amortization of goodwill offset by the benefit
from the use of a foreign sales corporation.

The Company reported net income of approximately $8.9 million, or $1.92
per share, for 1996 compared with net income of approximately $6.1 million, or
$1.50 per share for 1995. The approximately $2.7 million increase in net income
during 1996 was a result of the combined effects of the acquisition of EMD and
the overall increase in revenues resulting from the factors discussed above.

Year Ended December 31, 1995 Compared With Year Ended December 31, 1994

Sales in 1995 decreased $0.82 million, or .8% below 1994 sales. The decrease in
sales was due primarily to the slow start-up of several new programs caused by
the long lead times of certain components such as capacitors, crystals, diodes
and transistors, coupled with the changes in production schedules and mix
experienced in the last quarter of 1995. Because of the continued increase in
demand for surface mount components and the inability of most
<PAGE>
manufacturers to meet that demand, the Company anticipates continued component
shortages with respect to capacitors, crystals, diodes and transistors and
longer lead times of these components from time to time. Although Sequent
Computer Systems Inc., which accounted for approximately 49.1% of 1994 sales,
second-sourced some of its products during 1995, the Company successfully
undertook the transition to serving a much larger and more diversified customer
base. Sequent accounted for approximately 27.6% of sales during 1995.

Gross profit increased $0.31 million, or 2.6% over 1994. Gross profit as
a percentage of sales increased from 12.2% for 1994 to 12.5% for 1995. The
slight improvement in gross profit reflects continuing productivity improvements
in operations and a more profitable product mix. Also contributing to the
increase was a reduction in cost of sales due to the increased availability, and
consequent decline in the price, of the semiconductor components subject to
allocation from the second quarter of 1992 through the second quarter of 1994.
The shortage of certain components discussed above did not materially impact
gross profits because the components involved are lower cost components than
those which were subject to the allocation procedures implemented through the
second quarter of 1994.

Selling expenses decreased by $23,000, or 1.6%, from 1994 to $1.4
million. The decrease in selling expenses was generally consistent with the
decline in sales.

General and administrative expenses decreased $142,000, or 8.1% from
1994 to $1.6 million in 1995. The decrease was generally consistent with the
decline in sales.

Interest income was $268,000 in 1995 compared to $252,000 in 1994. The
increase was due to the temporary investment by the Company of cash in interest
bearing marketable securities.

Income tax expense of $3.4 million represented an effective tax rate of
35.5% for the year ended December 31, 1995, compared with an effective tax rate
of 36.2% for the year ended December 31, 1994.

The Company reported net income of approximately $6.1 million, or $1.50
per share, for 1995 compared with net income of approximately $5.8 million, or
$1.41 per share for 1994. The approximately $0.4 million increase in net income
during 1995 was primarily a result of higher gross margins in 1995.

LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its growth and operations through funds generated from
operations, proceeds from the sale of its common stock and, during 1996, funds
borrowed under its credit facilities. Prior to the second quarter of 1996, the
Company had never borrowed any amounts under its available line of credit.

Cash provided by operating activities was $12.3 million in 1996 compared
to cash used in operating activities of $3.4 million in 1995. In 1996,
substantial increases in accounts receivable were offset by net income,
depreciation and amortization, and increases in accounts payable and accrued
liabilities and decreases in inventory, net of effects from the acquisition of
EMD. The Company's accounts receivable and inventories have increased from $20.2
million and $23.0 million, respectively, at December 31, 1995 to $39.2 million
and $48.1 million, respectively, at December 31, 1996, reflecting the Company's
increased sales during this period. The Company expects continued increases in
accounts receivable and inventories to support the anticipated growth in sales.
The Company continued and is continuing the practice of purchasing components
only after customer orders are received,
<PAGE>
which mitigates, but does not eliminate the risk of loss on inventories.
Supplies of electronic components and other materials used in operations are
subject to industry-wide shortages. In certain instances, suppliers may allocate
available quantities to the Company. The Company has not experienced significant
supply constraints in the past year nor does it expect to in the near future.

Cash used in investing activities was $49.0 million for the year ended
December 31, 1996. The Company completed the planned expansion of its production
capacity at the Angleton plant during the second quarter of 1996, after which
the Company had 12 surface mount assembly lines in operation at the Angleton
plant. Capital expenditures of $8.6 million during the year were primarily
concentrated in the expansion of the facility and surface mount assembly
equipment associated with this expansion. On July 30, 1996, the Company
completed its acquisition of EMD. Approximately $30.8 million in cash was used
to complete the acquisition. See Note 2 of Notes to Consolidated Financial
Statements.

Cash provided by financing activities was $47.7 million for the year
ended December 31, 1996. During 1996 the Company obtained a four-year, $15
million revolving line of credit which replaced the Company's prior revolving
credit facility, financed a portion of the cash consideration of the acquisition
of EMD, refinanced the revolving line of credit at EMD and provided for future
working capital needs. This line of credit is unsecured and is guaranteed by
each of the Company's United States subsidiaries. The credit agreement related
to this line of credit contains certain financial covenants and restricts the
ability of the Company (i) to incur additional debt without the consent of the
bank and (ii) to pay dividends. The Company is entitled to borrow under the line
of credit up to the lesser of $15 million or the sum of 80% of its eligible
accounts receivable and 25% of its eligible inventories. The Company is entitled
to prepay the line of credit without penalty at any time upon proper notice to
the bank. The Company currently has no outstanding debt under its line of
credit.

Interest on the revolving credit facility accrues, at the Company's
option, at either the bank's Fixed Eurodollar Rate plus from .625% to 1.75% per
annum or its prime rate. The margin on the Fixed Eurodollar Rate fluctuates with
the Company's ratio of Funded Debt to EBITDA. Interest is payable quarterly. A
commitment fee of 0.17% per annum on the unused portion of the revolving credit
facility is payable quarterly in arrears.

In order to finance a portion of the cash consideration for the
acquisition of EMD, the Company issued a $30 million, 8.02% Senior Note due 2006
(Senior Note) to Northwestern Mutual Life Insurance Company. The Senior Note is
unsecured and guaranteed by each of the Company's United States subsidiaries.
Principal on the Senior Note is payable in annual installments of $5 million
beginning July 31, 2001 with a final installment of the unpaid principal amount
due July 31, 2006.
<PAGE>
The purchase agreement relating to the Senior Note (the Purchase
Agreement) includes customary affirmative and negative covenants and requires
that the Company maintain (i) a tangible net worth of not less that the sum of
(a) $39.0 million, (b) 50% of the Company's net income after June 30, 1996 and
(c) the aggregate amount of net cash proceeds from the sale of Common Stock
after June 30, 1996; (ii) minimum fixed charge and interest coverage ratios; and
(iii) a ratio of consolidated indebtedness to earnings before interest, taxes,
depreciation and amortization of not greater than 3.25 to 1.00 at any time prior
to March 31, 1997 and not greater than 3.00 to 1.00 at any time on or after
March 31, 1997. Upon any prepayment of all or a portion of the Senior Note, the
Company is obligated to pay the holder a premium on the amount prepaid. The
Purchase Agreement contains a provision that in the event of a change of control
(defined generally to mean the acquisition by a person or group (as defined in
the Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder) of beneficial ownership or more than 50% of the total voting power
of the outstanding voting stock of the Company), the Company must offer to
repurchase the Senior Note at par plus any prepayment penalty. The Purchase
Agreement also prohibits the payment of cash dividends by the Company at any
time when an event of default has occurred and is continuing under the
agreement, and otherwise limits the funds the Company may use for the payment of
dividends to the sum of (i) 50% of cumulative net income subsequent to July
30,1996, (ii) $10 million, and (iii) the net proceeds of the sale of equity.

During November, 1996, the Company issued 1,016,500 shares of common
stock in a public offering for net proceeds of approximately $28.5 million. The
net proceeds to the Company from the offering were used to repay all amounts
outstanding under the Company's revolving line of credit. The balance of the
offering proceeds will be used for working capital and other general corporate
purposes. See Note 7 of the Notes to the Consolidated Financial Statements.

The Company's operations are subject to certain federal, state and local
regulatory requirements relating to environmental, waste management, health and
safety matters. Some risk of costs and liabilities related to these matters is
inherent in the Company's business as with many similar businesses. Management
believes that the Company's business is operated in substantial compliance with
applicable environmental, waste management, health and safety regulations.

The Company may require additional capital to finance further
enhancements to or acquisitions or expansions of its manufacturing capacity.
Management believes that the level of working capital will continue to grow at a
rate generally consistent with the growth of the Company's operations. Although
no assurance can be given that future financing will be available on terms
acceptable to the Company, the Company may seek additional funds from time to
time through public or private debt or equity offerings or through bank
borrowings to the extent permitted by its existing debt agreements. Management
believes that the existing cash balances, funds generated from operations, and
borrowings under Company's credit facility will be sufficient to permit the
Company to meet its liquidity requirements in 1997 and for the foreseeable
future.

The Company does not hold or issue derivative financial instruments in
the normal course of business. Inflation and changing prices have not
significantly affected the Company's operating results or the markets in which
the Company performs services.
<PAGE>
CONSOLIDATED BALANCE SHEETS
Benchmark Electronics, Inc. and Subsidiaries

December 31,
l996 l995
- --------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents .................. $ 13,800,013 $ 2,785,336
Accounts receivable, net ................... 39,182,629 20,166,697
Income taxes receivable .................... 387,864 392,606
Inventories ................................ 48,100,338 22,983,155
Prepaid expenses and other assets .......... 819,806 255,141
Deferred tax asset ......................... 1,091,170 372,271
-----------------------------
Total current assets ................ 103,381,820 46,955,206
Property, plant and equipment .................. 44,468,964 17,956,102
Accumulated depreciation ....................... (13,834,261) (7,873,860)
-----------------------------
Net property, plant and equipment ... 30,634,703 10,082,242
Goodwill, net .................................. 24,350,291 --
Marketable securities .......................... 9,508,234 --
Other .......................................... 298,483 --
-----------------------------
$ 168,173,531 $ 57,037,448
=============================
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of long-term debt ..... $ 239,165 $ --
Accounts payable ........................... 24,352,472 9,116,298
Accrued liabilities ........................ 6,204,535 553,939
-----------------------------
Total current liabilities ........... 30,796,172 9,670,237
-----------------------------
Long-term debt, excluding current installments . 30,485,333 --
Deferred tax liability ......................... 1,892,612 743,143
Shareholders' equity:
Preferred shares, $.10 par value;
5,000,000 shares authorized, none
issued ................................. -- --
Common shares, $.10 par value;
10,000,000 shares authorized:
issued 5,763,276 and 4,046,142,
respectively; outstanding
5,738,534 and 4,021,400, respectively .. 573,853 402,140
Additional paid-in capital ................. 69,148,168 19,808,050
Retained earnings .......................... 35,337,868 26,474,353
Less treasury shares, at cost, 24,742 shares (60,475) (60,475)
-----------------------------
Total shareholders' equity .......... $ 104,999,414 $ 46,624,068
Commitments and contingencies
-----------------------------
$ 168,173,531 $ 57,037,448
=============================

See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME

Benchmark Electronics, Inc. and Subsidiaries

Year ended December 31,
1996 1995 1994
- --------------------------------------------------------------------------------
Sales ............................. $ 201,296,320 $ 97,352,935 $ 98,168,531
Cost of sales ..................... 177,981,328 85,113,385 86,236,300
--------------------------------------------
Gross profit .............. 23,314,992 12,239,550 11,932,231
Selling expenses .................. 1,814,793 1,389,978 1,412,720
General and administrative expenses 5,413,040 1,599,520 1,741,274
Amortization of goodwill .......... 695,722 -- --
--------------------------------------------
Income from operations .... 15,391,437 9,250,052 8,778,237
Interest expense .................. (1,441,834) -- --
Interest income ................... 442,384 268,029 252,302
Other income ...................... 90,880 12,601 11,228
--------------------------------------------
Income before income taxes 14,482,867 9,530,682 9,041,767
Income tax expense ................ (5,619,352) (3,382,727) (3,272,215)
--------------------------------------------
Net income ............. $ 8,863,515 $ 6,147,955 $ 5,769,552
============================================
Earnings per common share ......... $ 1.92 $ 1.50 $ 1.41
============================================
Weighted average common and
equivalent shares outstanding . 4,611,038 4,106,476 4,087,601

See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

Benchmark Electronics, Inc. and Subsidiaries

<TABLE>
<CAPTION>
Additional Total
Common paid-in Retained Treasury shareholders'
Shares shares capital earnings shares equity
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1993 ......... 3,991,900 $399,190 $19,317,747 $14,556,846 $(60,475) $ 34,213,308
Stock options exercised ............. 15,800 1,580 146,854 -- -- 148,434
Net income .......................... -- -- -- 5,769,552 -- 5,769,552
----------------------------------------------------------------------------
Balances, December 31, 1994 ......... 4,007,700 400,770 19,464,601 20,326,398 (60,475) 40,131,294
Stock options exercised ............. 13,700 1,370 198,885 -- -- 200,255
Federal tax benefit of
stock options exercised .......... -- -- 144,564 -- -- 144,564
Net income .......................... -- -- -- 6,147,955 -- 6,147,955
----------------------------------------------------------------------------
Balances, December 31, 1995 ......... 4,021,400 402,140 19,808,050 26,474,353 (60,475) 46,624,068
Common shares issued in public
offering, net of expenses ........ 1,016,500 101,650 28,389,491 -- -- 28,491,141
Stock options exercised ............. 25,670 2,567 404,877 -- -- 407,444
Federal tax benefit of stock
options exercised ................ -- -- 88,536 -- -- 88,536
Acquisition of EMD Technologies, Inc. 674,964 67,496 20,443,310 -- -- 20,510,806
Net Income .......................... -- -- -- 8,863,515 -- 8,863,515
Effect of difference between
fair value and cost of shares
released from collateral ......... -- -- 13,904 -- -- 13,904
----------------------------------------------------------------------------
Balances, December 31, 1996 ......... 5,738,534 $573,853 $69,148,168 $35,337,868 $(60,475) $104,999,414
============================================================================
</TABLE>

See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS

Benchmark Electronics, Inc. and Subsidiaries

<TABLE>
<CAPTION>
Year ended December 31,
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ......................................................... $ 8,863,515 $ 6,147,955 $ 5,769,552
Adjustments to reconcile net income
to net cash (used in) provided by operating activities:
Depreciation ................................................... 5,723,922 2,059,262 1,888,224
Amortization of premiums on marketable securities .............. 25,940 66,718 133,323
Deferred income taxes .......................................... 408,346 132,963 72,215
Amortization of goodwill ....................................... 695,722 -- --
Gain on the sale of property, plant and equipment .............. (42,878) -- (20,006)
ESOP shares contribution ....................................... 13,904 -- --
Changes in operating assets and liabilities, net of effects from
acquisition of business:
Accounts receivable ......................................... (10,119,586) (3,820,096) (3,816,549)
Income taxes receivable ..................................... 1,082,715 (392,606) --
Inventories ................................................. 3,131,340 (9,794,358) 5,698,526
Prepaid expenses and other assets ........................... (124,259) (52,133) 152,609
Accounts payable ............................................ 1,782,239 2,679,659 (5,342,738)
Accrued liabilities ......................................... 895,208 (502,300) 185,888
Current income taxes payable ................................ -- 45,701 (118,056)
------------------------------------------
Net cash (used in) provided by operations ................ 12,336,128 (3,429,235) 4,602,988
Cash flows from investing activities:
Additions to property, plant and equipment ......................... (8,684,400) (2,290,160) (6,321,347)
Proceeds from the sale of property, plant and equipment ............ 75,281 -- --
Acquisition, net of cash acquired .................................. (30,833,300) -- --
Proceeds from the sale or maturity of short-term investments ....... -- 1,542,000 2,735,641
Purchase of marketable securities .................................. (9,534,174) -- --
------------------------------------------
Net cash used in investing activities ....................... (48,976,593) (748,160) (3,585,706)
Cash flows from financing activities:
Net proceeds from public offering of common shares ................. 28,491,141 -- --
Proceeds from issuance of long-term debt ........................... 30,000,000 -- --
Principal payments on revolving line of credit ..................... (10,928,329) -- --
Debt issuance costs ................................................ (315,114) -- --
Proceeds from stock options exercised .............................. 407,444 200,255 148,434
------------------------------------------
Net cash provided by financing activities ................... 47,655,142 200,255 148,434
------------------------------------------
Net (decrease) increase in cash and cash equivalents ................... 11,014,677 (3,977,140) 1,165,716
Cash and cash equivalents at beginning of year ......................... 2,785,336 6,762,476 5,596,760
------------------------------------------
Cash and cash equivalents at end of year ............................... $ 13,800,013 $ 2,785,336 $ 6,762,476
==========================================
Supplemental disclosures of cash flow information:
Income taxes paid .................................................. $ 4,171,224 $ 3,391,495 $ 3,318,056
==========================================
Interest paid ...................................................... $ 369,021 -- --
==========================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 -- Summary of Significant Accounting Policies

(a) Business

Benchmark Electronics, Inc. (the Company) is a Texas corporation which provides
contract manufacturing and design services to original equipment manufacturers
(OEMs) in select industries, including medical devices, communications
equipment, industrial and business computers, testing instruments, and
industrial controls.

(b) Principles of Consolidation

The consolidated financial statements include the financial statements of
Benchmark Electronics, Inc. and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.

The Company considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents.

(d) Marketable Securities

Management determines the appropriate classification of its investments in debt
and equity securities at the time of purchase and reevaluates such determination
at each balance sheet date. Debt securities for which the Company does not have
the intent or ability to hold to maturity are classified as available for sale.
Securities available for sale are carried at fair value, with the unrealized
gains and losses, net of tax, reported in a separate component of shareholders'
equity. Held-to-maturity securities are recorded at amortized cost, adjusted for
the amortization or accretion of premiums or discounts to maturity.

Such amortization and interest are included in interest income. Realized
gains and losses from the sale of available for sale securities are included in
other income or expense and are determined on a specific identification method.

At December 31, 1996, the Company's investments in marketable securities
consist of Texas state guaranteed obligation bonds with an amortized cost of
$4,996,276, fair value of $4,985,000 and unrealized loss of $11,276; and
Lynnwood, Washington guaranteed obligation bonds with an amortized cost of
$4,511,958, fair value of $4,509,000 and unrealized loss of $2,958. These
investments are classified as long-term as the scheduled maturities range from
December 1998 to December 1999. At December 31, 1995, the Company had no
investments in marketable securities.

(e) Inventories

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

(f) Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation is calculated on
the straight-line method over the useful lives of the assets, which range from
three to thirty years. Leasehold improvements are amortized on the straight-line
method over the shorter of the useful life of the improvement or the remainder
of the lease term.

The Company adopted the provisions of Statement of Financial Accounting
Standard (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets to
Be Disposed Of" on January 1, 1996. This Statement requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Adoption of this Statement did not have a material
impact of the Company's financial position, results of operations, or liquidity.

(g) Goodwill and Other Assets

Goodwill, which represents the excess of purchase price over fair value of net
assets acquired, is amortized on a straight-line basis over the period of
expected benefit of 15 years. The accumulated amortization of goodwill at
December 31, 1996 was $695,722. The Company
<PAGE>
periodically reviews goodwill to assess recoverability. Other assets consist
principally of deferred financing costs which are amortized over the life of the
related debt. The accumulated amortization of deferred financing costs at
December 31, 1996 was $25,082.

(h) Earnings Per Share

Earnings per common and common equivalent share are computed by dividing net
income by the weighted average number of common and common equivalent shares
outstanding. For the purposes of this calculation, outstanding employee stock
options are considered common stock equivalents. Fully diluted earnings per
share are materially equal to primary earnings per share for all periods
presented.

(i) Revenue Recognition

Revenues are recognized at the time the circuit boards are shipped to the
customer, for both turnkey and consignment method sales. Under the consignment
method, OEMs provide the Company with the electronic components to be assembled,
and the Company recognizes revenue only on the labor used to assemble the
product.

(j) Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred
income taxes are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.

(k) Stock Option Plans

Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board (APB) Opinion No.
25, "Accounting for Stock Issued to Employees", and related interpretations. As
such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
January 1, 1996, the Company adopted the provisions of SFAS No. 123, "Accounting
for Stock-Based Compensation", which permits entities to recognize as expense
over the vesting period the fair value of all stock-based awards on the date of
grant. Alternately, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.

(l) Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.

(m) Reclassifications

Certain amounts previously reported in the 1995 and 1994 financial statements
have been reclassified to conform to the 1996 presentation.
<PAGE>
(n) Fair Values of Financial Instruments

The fair values of the Company's cash equivalents, accounts receivable, accrued
liabilities, and accounts payable approximated their carrying values due to the
short-term maturities of these instruments. The estimated fair value of
long-term debt is equivalent to its carrying value based on the Company's
current incremental borrowing rates for similar types of borrowing agreements.

Note 2 -- Acquisition

On July 30, 1996, the Company completed its acquisition of EMD Technologies,
Inc. (EMD). This business, headquartered in Winona, Minnesota, was acquired for
674,964 shares of common stock, $30,447,033 in cash, and the Company paid
$2,208,136 in acquisition costs. The transaction was accounted for under the
purchase method of accounting, and accordingly, the results of operations of EMD
since July 30, 1996 have been included in the consolidated statements of income.
The acquisition resulted in goodwill of $25,046,013 which will be amortized on a
straight line basis over 15 years.

The net purchase price was allocated as follows:

Working capital, other than cash ......................... $ 10,638,671
Property, plant and equipment ............................ 17,598,785
Other assets ............................................. 12,379
Goodwill ................................................. 25,046,013
Other liabilities ........................................ (1,951,742)
-------------
Purchase price, net of cash received .................. $ 51,344,106
------------
Net cash portion of purchase price ....................... $ 30,833,300
Common stock issued ...................................... 20,510,806
----------
Purchase price, net of cash received ..................... $ 51,344,106
============

The following unaudited summary pro forma condensed financial
information reflects the acquisition as if it had occurred on January 1, 1995
for purposes of the consolidated statements of income. The summary pro forma
information is not necessarily representative of what the Company's results of
operations would have been had the acquisition in fact occurred on January 1,
1995 and is not intended to project the Company's results of operations for any
future period or date.

(in thousands, except per share data) 1996 1995
- --------------------------------------------------------------------------------
Net sales ....................................... $292,298 258,107
Gross Profit .................................... 30,320 29,836
Income from operations .......................... 17,131 15,913
Income from continuing operations ............... 8,572 7,667
Earnings per common share:
Continuing operations ......................... $ 1.71 1.60
Weighted average common and
equivalent shares outstanding .............. 5,002 4,781

Note 3 -- Inventories

Inventory costs are summarized as follows:

December 31,
1996 1995
- --------------------------------------------------------------------------------
Raw materials ....................... $31,670,562 16,365,280
Work in process ..................... 16,429,776 6,617,875
-----------------------------------
$48,100,338 22,983,155
===================================
<PAGE>
Note 4 -- Property, Plant and Equipment
Property, plant and equipment consists of the following:

December 31,
1996 1995
- --------------------------------------------------------------------------------
Land .................................... $ 391,969 305,914
Buildings ............................... 8,361,254 3,266,169
Machinery and equipment ................. 29,499,683 12,881,836
Furniture and fixtures .................. 5,373,335 894,770
Vehicles ................................ 51,087 --
Leasehold improvements .................. 491,578 396,232
Construction in progress ................ 300,058 211,181
------------------------------
$44,468,964 17,956,102
==============================

Note 5 -- Borrowing Facilities

Long-term debt at December 31, 1996 consists of:
Senior note ............................................ $30,000,000
Other .................................................. 724,498
------------
Total long-term debt ................................ 30,724,498
Less current installments .............................. 239,165
------------
Long-term debt ......................................... $30,485,333
============

In order to finance a portion of the cash consideration for the
acquisition of EMD, the Company issued a $30 million, 8.02% Senior Note due 2006
("Senior Note") to Northwestern Mutual Life Insurance Company. The Senior Note
is unsecured and guaranteed by each of the Company's United States subsidiaries.
Principal on the Senior Note is payable in annual installments of $5.0 million
beginning July 31, 2001 with a final installment on the unpaid principal amount
due July 31, 2006. Interest on the Senior Note is payable semi-annually on
January 31st and July 31st.

The purchase agreement relating to the Senior Note (the "Purchase
Agreement") includes customary affirmative and negative convenants and restricts
the ability of the Company to incur additional debt and to pay dividends. Upon
any prepayment of all or a portion of the Senior Note, the Company is obligated
to pay the holder a premium on the amount prepaid. The Purchase Agreement
contains a provision that in the event of a change of control (defined generally
to mean the acquisition by a person or group (as defined in the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder) of
beneficial ownership of more than 50% of the total voting power of the
outstanding voting stock of the Company), the Company must offer to repurchase
the Senior Note at par plus any prepayment penalty.

The aggregate maturities of long-term debt for each of the five years
subsequent to December 31, 1996 are as follows: 1997, $239,165; 1998, $167,549;
1999, $199,960; 2000, $20,224; 2001, $5,021,771 and thereafter $25,075,829.

The Company has a $15,000,000, four-year revolving line of credit with a
commercial bank which is available primarily to finance accounts receivable and
inventory requirements. The Company is entitled to borrow under the line of
credit up to the lesser of $15,000,000 or the sum of 80% of its eligible
accounts receivable and 25% of its eligible inventories. As of December 31, 1996
and 1995, the Company had no borrowings outstanding under this line of credit.
Interest on the line of credit is payable quarterly and accrues, at the
Company's option, at either the bank's prime rate or its Fixed Eurodollar Rate
plus 0.625% to 1.75% per annum. A commitment fee of 0.17% per annum on the
unused portion of the line of credit is payable quarterly in arrears. The line
of credit agreement contains certain financial covenants and restricts the
ability of the Company to incur additional debt without the consent of the bank
and to pay dividends. The line of credit matures on July 31, 2000.

Note 6 -- Commitments

The Company has several noncancelable operating leases for office space and
manufacturing facilities that expire through 2002. Rental expense under the
leases for each of the years in the three-year period ended December 31, 1996
was $921,526, $213,765 and $330,007, respectively.

The Company leases EMD's manufacturing and office facilities in
Minnesota from a partnership whose partners include stockholders and a director
of the Company. These operating leases have initial terms of three to ten years,
expiring through December 2005 with annual renewals thereafter. Total rent
expense associated with these leases for the year ended December 31, 1996 was
$413,784

Aggregate annual rental payments on future lease commitments at
December 31, 1996 were as follows:

1997 $1,085,418
1998 1,096,908
1999 1,103,904
2000 1,119,900
2001 1,128,400
Thereafter 3,584,295
----------
$9,118,825
==========

Note 7 -- Common Stock and Stock Option Plans

During 1996, the Company issued 1,016,500 shares of common stock in a public
offering for net proceeds of $28,491,141.

The Company's stock option plan authorizes the Company, upon
recommendation of the compensation committee of the Board of Directors, to grant
options to purchase a total of 1,100,000 shares of the Company's common stock to
key employees of the Company.

The stock option plan provides for the discretionary granting by the
Company of "incentive stock options" within the meaning of Section 422A of the
Internal Revenue Code of 1986, as amended, as well as non qualified stock
options. The exercise price of any incentive stock option must not be less than
the fair market value of the common stock on the date of grant. The stock
options will terminate no later than 10 years after the date of grant. Although
options may vest in increments over time, they historically have become 20%
vested two years after the options are granted and 100% vested after 5 years.

In December of 1994, the Board of Directors of the Company adopted the
Benchmark Electronics, Inc., 1994 Stock Option Plan for Non-Employee Directors
(the "Plan") for the benefit of members of the Board of Directors of the Company
or its Affiliates who are not employees of the Company or its Affiliates (as
defined in the Plan). The aggregate number of shares of Common Stock for which
options may be granted under the Plan is 100,000.

Under the terms of the Plan, each member of the Board of Directors of
the Company or its Affiliates who was not an employee of the Company or any of
its Affiliates on the date of the grant (a "Non-Employee Director") will receive
a grant of an option to purchase 3,000 shares of the Company's Common Stock upon
the date of his election or re-election to the Board of Directors. Additionally,
any Non-Employee Director who was a director on the date the Board of Directors
adopted the Plan received (a) an option to purchase 3,000 shares of Common Stock
for the fiscal year in which the Plan was adopted by the Board of Directors and
(b) an option to purchase shares of Common Stock in amount equal to (i) 3,000,
multiplied by (ii) the number of consecutive fiscal years (immediately preceding
the fiscal year during which the Plan was adopted) that the individual served as
a director of the Company, provided that the number under clause (ii) shall not
exceed three (3). During 1996, 1995 and 1994, pursuant to the Plan, 15,000,
12,000 and 27,000 options, respectively, were granted to Directors to purchase
shares of Common Stock at an exercise price of $29.38, $21.50 and $25.88 per
share, respectively.
<PAGE>
The following table summarizes the activities relating to the Company's
stock option plans:

Weighted
Number of Average
Shares Exercise Price
- --------------------------------------------------------------------------------
Balance at December 31, 1993 ............... 254,100 $15.10
Granted ................................. 122,000 $24.46
Exercised ............................... (15,800) $ 9.39
Canceled ................................ (8,200) $15.53
---------
Balance at December 31, 1994 ............... 352,100 $18.59
Granted ................................. 108,000 $23.52
Exercised ............................... (13,700) $14.32
Canceled ................................ (45,800) $21.75
---------
Balance at December 31, 1995 ............... 400,600 $19.70
Granted ................................. 326,500 $28.86
Exercised ............................... (25,670) $16.26
Canceled ................................ (22,600) $27.61
---------
Balance at December 31, 1996 ............... 678,830 $23.99
=========

The following table summarizes information concerning currently
outstanding and exercisable options:

Options Outstanding Options Exercisable

Weighted
Average Weighted Weighted
Range of Outstanding Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
- ---------------------------------------------------------------------
$8.75-$15 79,950 5.28 $10.37 79,950 $10.37
$15-$20 52,700 6.37 $17.58 52,700 $17.58
$20-$25 193,380 9.11 $23.20 74,520 $22.49
$25-$30 324,300 8.48 $28.31 40,000 $26.92
$30-$35 28,500 9.96 $30.20 3,000 $30.75
------- -------
678,830 250,170
------- -------

At December 31, 1996, the range of exercise prices and weighted average
remaining contractual life of outstanding options was $8.75 - $30.75 and 8.39
years, respectively.

At December 31, 1996, 1995 and 1994, the number of options exercisable
was 250,170, 172,640 and 90,760, respectively, and the weighted average exercise
price of those options was $18.39, $15.79 and $14.70, respectively.

The Company applies APB Opinion No. 25 in accounting for its stock
option plans and, accordingly, no compensation cost has been recognized for its
stock options in the financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS No. 123, the Company's net income would have been
approximately $7,851,515, or $1.70 per share during 1996, or $5,856,955, or
$1.43 per share during 1995. Pro forma net income reflects only options granted
in 1996 and 1995. The fair value of the options granted during 1996 and 1995 is
estimated as $3,416,000 and $1,065,000, respectively, on the date of grant using
the Black-Scholes option-pricing model with the following assumptions: no
dividend yield, volatility of 30%, risk-free interest rate of 6%, assumed annual
forfeiture rate of 5%, and an expected life of 5 years.
<PAGE>
Note 8 -- Income Taxes
Income tax expense consists of:

Year ended December 31,
1996 1995 1994
- -----------------------------------------------------------------
Federal - Current $4,322,471 2,913,464 2,794,636
State - Current 888,535 336,300 405,364
Federal/State - Deferred 408,346 132,963 72,215
-------------------------------------
$5,619,352 3,382,727 3,272,215
=====================================

Income tax expense differed from the amounts computed by applying the
U.S. federal statutory income tax rate to pretax income as a result of the
following:

Year ended December 31,
1996 1995 1994
- --------------------------------------------------------------------------------
Tax at statutory rate ............... $ 4,924,175 3,240,432 3,074,201
State taxes, net of federal benefit . 586,433 221,958 267,540
Tax exempt interest ................. (49,882) (84,492) (81,929)
Tax benefit from use of
foreign sales corporation ........ (139,218) -- --
Amortization of goodwill ............ 236,545 -- --
Other ............................... 61,299 4,829 12,403
-----------------------------------------
Total income tax expense ............ $ 5,619,352 3,382,727 3,272,215
=========================================

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1996 and 1995 are presented below:

1996 1995
- --------------------------------------------------------------------------------
Deferred tax assets:
Carrying values of inventories ................... $ 647,075 269,607
Accrued liabilities deductible for tax purposes
on a cash basis ............................... 444,095 102,664
-------------------------
1,091,170 372,271
Less valuation allowance ......................... -- --
-------------------------
Net deferred tax assets ........................ $ 1,091,170 372,271
=========================
Deferred tax liabilities:
Plant and equipment, due to differences
in depreciation ............................... $(1,892,612) (695,979)
Other ............................................ -- (47,164)
-------------------------
Gross deferred tax liability ..................... (1,892,612) (743,143)
-------------------------
Net deferred tax liability ..................... $ (801,442) (370,872)
=========================

Note 9 -- Major Customers

The Company's customers operate in businesses associated with rapid
technological change and consequent product obsolescence. Developments adverse
to the electronics industry, the Company's customers or their products could
impact the Company's overall credit risk.

The Company extends credit based on evaluation of its customers'
financial condition and generally does not require collateral or other security
from its customers and would incur an accounting loss equal to the carrying
value of the accounts receivable if its customer failed to perform according to
the terms of the credit arrangement.
<PAGE>
Sales to major customers were as follows for the indicated periods:

Year ended December 31,
(In thousands) 1996 1995 1994
- ----------------------------------------------------------------
Customer A $33,680 -- --
Customer B 28,638 9,718 6,186
Customer C 22,160 16,666 2,922
Customer D 8,938 114 --
Customer E 8,003 26,903 48,184

In 1994, Customer E in the table above notified the Company that it
intended to second source some of its products beginning in 1995. The Company
believes that its ongoing aggressive sales efforts, combined with the continuing
trend toward the use of surface-mount technology by OEMs for the Company's
turnkey manufacturing services reduced the overall impact of the customer's
decision.

In 1996, the Company had export sales of approximately $29 million to
Europe from the Company's United States operations. There were no export sales
in 1995 or 1994.

Note 10 -- Employee Benefit Plans

The Company has a defined contribution plan qualified under Section 401(k) of
the Internal Revenue Code for the benefit of its employees. The Plan covers all
employees with at least one year of service. The Company has agreed to
contribute an amount equal to 50% of each participant's contributions to the
extent such participant's contribution does not exceed 4% of their compensation
for the year and 1% of each participant's compensation. A participant's
contribution may not exceed 20% of annual compensation, or the maximum amount
allowed as determined by the Internal Revenue Code. The Company may also make
discretionary contributions to the plan. During 1996, 1995 and 1994 the Company
made contributions to the plan of approximately $430,000, $185,000 and $155,000,
respectively.

Effective May 6, 1992, the Company adopted an Incentive Bonus Plan
("Bonus Plan") for the benefit of its employees, including executive officers.
The Bonus Plan replaced the Company's Incentive Bonus Plan which was adopted in
1990. The Bonus Plan is administered by the Compensation Committee. The total
amount of cash bonus awards to be made under the Bonus Plan for any plan year
depends primarily on the Company's sales and net income for such year.

For any plan year, the Company's sales and net income must meet or
exceed, or in combination with other factors satisfy, levels targeted by the
Company in its business plan, as established at the beginning of each fiscal
year, for any bonus awards to be made. Aggregate bonus awards to all
participants under the Bonus Plan may not exceed 7% of the Company's net income.
The Compensation Committee has the authority to determine the total amount of
bonus awards, if any, to be made to the eligible employees for any plan year
based on its evaluation of the Company's financial condition and results of
operations, the Company's business and prospects, and such other criteria as it
may determine to be relevant or appropriate. The Company expensed $320,000 in
1996 and $350,000 in 1994 in conjunction with the bonus plans. No bonus amounts
were accrued or expensed in 1995.

Note 11 -- Concentrations of Business Risk

The Company uses numerous suppliers of electronic components and other materials
for its operations. Some components used by the Company have been subject to
industry-wide shortages, and suppliers have been forced to allocate available
quantities among their customers. The Company's inability to obtain any needed
components during periods of allocation could cause delays in manufacturing and
could adversely affect results of operations.

Note 12 -- Contingencies

The Company is involved in various legal actions arising in the ordinary course
of business. In the opinion of management, the ultimate disposition of these
matters will not have a material adverse effect on the Company's consolidated
financial position.
<PAGE>
INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
Benchmark Electronics, Inc.:

We have audited the accompanying consolidated balance sheets of
Benchmark Electronics, Inc. and subsidiaries as of December 31, 1996 and 1995,
and the related consolidated statements of income, shareholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Benchmark
Electronics, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.

KPMG PEAT MARWICK LLP

Houston, Texas
January 24, 1997
<PAGE>
MANAGEMENT'S REPORT

The management of Benchmark Electronics, Inc. has prepared and is responsible
for the consolidated financial statements and related financial data contained
in this report. The consolidated financial statements were prepared in
accordance with generally accepted accounting principles and necessarily include
certain amounts based upon management's best estimates and judgments. The
financial information contained elsewhere in this annual report is consistent
with that in the consolidated financial statements.

The Company maintains internal accounting control systems that are
adequate to prepare financial records and to provide reasonable assurance that
the assets are safeguarded from loss or unauthorized use. We believe these
systems are effective, and the cost of the systems does not exceed the benefits
obtained.

The Audit Committee, composed exclusively of outside directors, has
reviewed all financial data included in this report. The committee meets
periodically with the Company's management and independent public accountants on
financial reporting matters. The independent public accountants have complete
access to the Audit Committee and may meet with the committee, without
management present, to discuss their audit results and opinions on the quality
of financial reporting.

The role of independent public accountants is to render a professional,
independent opinion on management's financial statements to the extent required
by generally accepted auditing standards. Benchmark's responsibility is to
conduct its affairs according to the highest standards of personal and corporate
conduct.

Donald E. Nigbor Cary T. Fu
President & Chief Executive Officer Executive Vice President
<PAGE>
CORPORATE INFORMATION
QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table sets forth certain unaudited quarterly information with
respect to the Company's results of operations for the years 1996, 1995 and
1994. Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly earnings per share may not equal
the total earnings per share amounts for the fiscal year.

1996 Quarter
(In thousands, except per share data) 1st 2nd 3rd 4th
- --------------------------------------------------------------------------------
Sales ............................. $30,383 33,500 62,304 75,109
Gross profit ...................... 3,825 4,484 6,550 8,456
Net income ........................ 1,839 2,025 2,365 2,635
Earnings per common share ......... .45 .49 .51 .48

1995 Quarter
1st 2nd 3rd 4th
- --------------------------------------------------------------------------------
Sales ............................. $23,115 23,646 24,393 26,199
Gross profit ...................... 3,089 3,125 3,108 2,918
Net income ........................ 1,569 1,588 1,561 1,430
Earnings per common share ......... .38 .39 .38 .35

1994 Quarter
1st 2nd 3rd 4th
- --------------------------------------------------------------------------------
Sales ............................. $24,275 25,045 25,099 23,750
Gross profit ...................... 2,767 2,857 3,055 3,253
Net income ........................ 1,335 1,375 1,473 1,587
Earnings per common share ......... .33 .34 .36 .39

<PAGE>
MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

The Company's Common Stock is listed on the American Stock Exchange under the
symbol "BHE." The following table shows the high and low sales prices for the
Common Stock as reported on the American Stock Exchange for the fiscal quarters
(or portions thereof) indicated.

1 2 3 4
- --------------------------------------------------------------------------------

1995

High $27 1/4 26 3/8 31 7/8 29 1/4
Low $22 3/4 20 1/4 24 7/8 23 1/2

1996

High $29 7/8 32 34 1/4 31 3/4
Low $24 1/8 28 28 5/8 24 1/2

1997 (through March 20, 1997)

High $32 3/4
Low $28 5/8

The last reported sale price of Common Stock on March 20, 1997, as
reported by the American Stock Exchange, was $28 5/8. There were approximately
102 record holders of Common Stock as of March 20, 1997.

The Company has not paid any cash dividends on the Common Stock in the
past and anticipates that, for the foreseeable future, it will retain any
earnings available for dividends for use in its business.
<PAGE>
SELECTED FINANCIAL DATA

Benchmark Electronics, Inc. and Subsidiaries

<TABLE>
<CAPTION>
Year ended December 31,
(In thousands, except per-share data) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected Statements of Income Data
Sales .......................................... $ 201,296 $ 97,353 $ 98,168 $ 75,859 $ 50,647
Cost of sales .................................. 177,981 85,113 86,236 66,462 43,683
----------------------------------------------------------
Gross profit .............................. 23,315 12,240 11,932 9,397 6,964
----------------------------------------------------------
Selling expenses ............................... 1,815 1,390 1,413 1,328 1,386
----------------------------------------------------------
General and administrative expenses ............ 5,413 1,600 1,741 1,542 1,311
Amortization of goodwill ....................... (696) -- -- 63 108
----------------------------------------------------------
Income from operations .................... 15,391 9,250 8,778 6,590 4,375
Interest expense ............................... (1,442) -- -- -- --
Interest income ................................ 442 268 252 384 358
Other income (expense) ......................... 92 13 11 (30) 26
Income tax expense ............................. (5,619) (3,383) (3,272) (2,478) (1,629)
----------------------------------------------------------
Income before cumulative effect of
change in accounting principle ......... 8,864 6,148 5,769 4,466 3,130
Cumulative effect at January 1, 1993
of change in accounting for income taxes -- -- -- 116 --
----------------------------------------------------------
Net income ................................ $ 8,864 $ 6,148 $ 5,769 $ 4,582 $ 3,130
==========================================================
Earnings per common share before cumulative
effect of change in accounting principle (1) $ 1.92 $ 1.50 $ 1.41 $ 1.10 $ .83
Cumulative effect at January 1, 1993
of change in accounting for income taxes .... -- -- -- .03 --
----------------------------------------------------------
Earnings per common share (1) .................. $ 1.92 $ 1.50 $ 1.41 $ 1.13 $ .83
Weighted average common and
equivalent shares outstanding ............... 4,611 4,106 4,088 4,066 3,762
==========================================================
</TABLE>

December 31,
(In thousands) 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------
Selected Balance Sheet Data
Working capital ............. $ 72,586 $37,285 $30,890 $29,160 $25,796
Total assets ................ 168,174 57,037 48,333 47,425 34,380
Long-term debt .............. 30,485 -- -- -- --
Shareholders' equity ........ $104,999 $46,624 $40,131 $34,213 $29,573
=================================================

(1) See Note 1 of Notes to Consolidated Financial Statements for the basis of
computing earnings per common share.
<PAGE>
CORPORATE AND SHAREHOLDER DATA

<TABLE>
<CAPTION>
Officers Directors Notices
<S> <C> <C>
Donald E. Nigbor(3) David H. Arnold STOCK TRANSFER AGENT AND REGISTRAR
President and President and Chairman of the Board
Chief Executive Officer DCM Technology, Inc. Communications concerning stock transfer
Winona, Minnesota requirements, lost certificates or changes of
Steven A. Barton (1), (3) (Machine Tool Manufacturing) address should be directed to:
Executive Vice President Harris Trust and Savings Bank
John C. Custer (1) c/o Harris Trust Company of New York
Cary T. Fu (3) Retired - Former Chairman of the Board 77 Water Street, 4th floor
Executive Vice President Mason & Hanger-Silas Mason Co., Inc. New York, NY 10005
Lexington, Kentucky 800/926-1269.
(Technical services contracting and
Lenora A. Gurton engineering firm)
Secretary STOCK TRADING
Steven A. Barton The common stock of Benchmark
Gayla J. Delly Executive Vice President Electronics, Inc. trades on the
Treasurer Benchmark Electronics, Inc. American Stock Exchange under the
symbol BHE.
Christopher Nawrocki Gerald W. Bodzy (2)
Vice President; Senior Vice President and Managing Director SEC FORM 10-K
President of Stephens Inc.
EMD Associates, Inc. Houston, Texas A copy of the company's Annual Report
(Investment banking) on Form 10-K for the fiscal year ended
(1) Part-time since June 1993 December 31, 1996, filed with the
Peter G. Dorflinger (1) (2) Securities and Exchange Commission,
Vice President and General Counsel is available without charge upon written
General Counsel Advanced Medical Instruments request to:
Houston, Texas Gayla J. Delly
(Medical instruments manufacturer) Treasurer
Bracewell & Patterson, L.L.P. Benchmark Electronics, Inc.
Houston, Texas Cary T. Fu 3000 Technology Drive
Executive Vice President Angleton, TX 77515
Benchmark Electronics, Inc.
Independent Auditors FINANCIAL MAILING LIST
Donald E. Nigbor
KPMG Peat Marwick LLP President and Chief Executive Officer Shareholders whose stock is held in
Houston, Texas Benchmark Electronics, Inc. trust or by a brokerage firm may receive
timely financial mailings directly from
(1) Member of Compensation Committee Benchmark by writing to Ms. Gayla J.
(2) Member of Audit Committee Delly at the above address.
(3) Executive Officer
ANNUAL MEETING
Interested shareholders are invited to
attend the Benchmark Electronics, Inc.
annual meeting, which will be held at
10:00 a.m. on Tuesday, May 20, 1997,
at the Doubletree Hotel at Allen Center,
400 Dallas Street, Houston, Texas.
</TABLE>
This annual report is printed on recycled paper.

EXHIBIT 21

SUBSIDIARIES OF BENCHMARK ELECTRONICS, INC.

Electronics Acquisition, Inc., a Texas corporation
EMD Associates, Inc., a Minnesota corporation
EMD-Foreign Sales Corporation, a Barbados corporation

All subsidiaries are wholly owned, directly or indirectly, by Benchmark
Electronics, Inc.

EXHIBIT 23

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
Benchmark Electronics, Inc.:

We consent to incorporation by reference in the registration statement on
Form S-8 (No. 33-61660) of Benchmark Electronics, Inc. of our report dated
January 24, 1997, related to the consolidated balance sheets of Benchmark
Electronics, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1996, which
report appears in the December 31, 1996 annual report on Form 10-K of Benchmark
Electronics, Inc.

KPMG PEAT MARWICK LLP

Houston, Texas
March 26, 1997

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</TABLE>