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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended June 30, 2005



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 000-26933



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LIONBRIDGE TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)



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|                         |  |                                     
|------------------------ |  | ------------------------------------
|Delaware                 |  | 04-3398462                          
|(State of Incorporation) |  | (I.R.S. Employer Identification No.)



1050 Winter Street,
Waltham, MA 02451

(Address of Principal Executive Offices)



Registrants Telephone Number, Including Area Code: 781-434-6000



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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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange
Act).    Yes   x    No ̈



The number of shares outstanding of the registrants common stock, par
value $0.01 per share, as of July 31, 2005 was 47,686,294.



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##### Table of Contents

LIONBRIDGE TECHNOLOGIES, INC.



FORM
10-Q



FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005



TABLE OF CONTENTS



|              |  |                                                                                                             |  |     
|------------- |  | ----------------------------------------------------------------------------------------------------------- |  | ----
|              |  |                                                                                                             |  | Page
|PART I:       |  | FINANCIAL INFORMATION                                                                                       |  |     
|              |  |                                                                                                            
|ITEM 1.       |  | Consolidated Financial Statements:                                                                          |  |     
|              |  |                                                                                                            
|              |  | Consolidated Balance Sheets as of June 30, 2005 (unaudited) and December 31, 2004                           |  | 3   
|              |  |                                                                                                            
|              |  | Consolidated Statements of Operations (unaudited) for the three and six months ended June 30, 2005 and 2004 |  | 4   
|              |  |                                                                                                            
|              |  | Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2005 and 2004           |  | 5   
|              |  |                                                                                                            
|              |  | Notes to Consolidated Financial Statements (unaudited)                                                      |  | 6   
|              |  |                                                                                                            
|ITEM 2.       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                       |  | 11  
|              |  |                                                                                                            
|ITEM 3.       |  | Quantitative and Qualitative Disclosures About Market Risk                                                  |  | 19  
|              |  |                                                                                                            
|ITEM 4.       |  | Controls and Procedures                                                                                     |  | 20  
|              |  |                                                                                                            
|PART II:      |  | OTHER INFORMATION                                                                                           |  |     
|              |  |                                                                                                            
|ITEM 1.       |  | Legal Proceedings                                                                                           |  | 21  
|              |  |                                                                                                            
|ITEM 4.       |  | Submission of Matters to a Vote of Security Holders                                                         |  | 22  
|              |  |                                                                                                            
|ITEM 6.       |  | Exhibits                                                                                                    |  | 22  
|              | 
|SIGNATURE     |  | 23                                                                                                         
|              | 
|EXHIBIT INDEX |  | 24                                                                                                         



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##### Table of Contents

PART I. FINANCIAL INFORMATION



Item 1. Consolidated Financial Statements



LIONBRIDGE TECHNOLOGIES, INC.



CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data)



|                                                                                                                                                                           |  |              |         |   |                  |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                                                           |  | June 30,2005 |         |   | December 31,2004 |  
|                                                                                                                                                                           |  | (unaudited)  |         |   |                  |  
|ASSETS                                                                                                                                                                     |  |              |         |   |                  |   |         |  
|Current assets:                                                                                                                                                            |  |              |         |   |                  |   |         |  
|Cash and cash equivalents                                                                                                                                                  |  | $            | 24,116  |   |                  | $ | 38,450  |  
|Short-term investments                                                                                                                                                     |  |              | 15,800  |   |                  |   | 4,000   |  
|Restricted cash                                                                                                                                                            |  |              | 89      |   |                  |   | 114     |  
|Accounts receivable, net of allowance of $428 and $364 at June 30, 2005 and December 31, 2004, respectively                                                                |  |              | 24,886  |   |                  |   | 21,065  |  
|Work in process                                                                                                                                                            |  |              | 9,832   |   |                  |   | 9,199   |  
|Other current assets                                                                                                                                                       |  |              | 2,573   |   |                  |   | 1,889   |  
|                                                                                                                                                                           |  |              |         |   |                  |   |         |  
|Total current assets                                                                                                                                                       |  |              | 77,296  |   |                  |   | 74,717  |  
|Property and equipment, net                                                                                                                                                |  |              | 3,299   |   |                  |   | 2,685   |  
|Goodwill                                                                                                                                                                   |  |              | 34,916  |   |                  |   | 34,916  |  
|Other intangible assets, net                                                                                                                                               |  |              | 46      |   |                  |   | 64      |  
|Other assets                                                                                                                                                               |  |              | 1,626   |   |                  |   | 1,006   |  
|                                                                                                                                                                           |  |              |         |   |                  |   |         |  
|Total assets                                                                                                                                                               |  | $            | 117,183 |   |                  | $ | 113,388 |  
|                                                                                                                                                                           |  |              |         |   |                  |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                       |  |              |         |   |                  |   |         |  
|Current liabilities:                                                                                                                                                       |  |              |         |   |                  |   |         |  
|Accounts payable                                                                                                                                                           |  | $            | 8,223   |   |                  | $ | 6,322   |  
|Accrued compensation and benefits                                                                                                                                          |  |              | 5,943   |   |                  |   | 5,415   |  
|Accrued outsourcing                                                                                                                                                        |  |              | 3,859   |   |                  |   | 3,575   |  
|Accrued merger and restructuring                                                                                                                                           |  |              | 238     |   |                  |   | 655     |  
|Other accrued expenses                                                                                                                                                     |  |              | 4,918   |   |                  |   | 5,362   |  
|Deferred revenue                                                                                                                                                           |  |              | 3,733   |   |                  |   | 3,263   |  
|Other current liabilities                                                                                                                                                  |  |              | 39      |   |                  |   | 164     |  
|                                                                                                                                                                           |  |              |         |   |                  |   |         |  
|Total current liabilities                                                                                                                                                  |  |              | 26,953  |   |                  |   | 24,756  |  
|                                                                                                                                                                           |  |              |         |   |                  |   |         |  
|Long-term liabilities                                                                                                                                                      |  |              | 1,164   |   |                  |   | 1,166   |  
|Contingencies (Note 11)                                                                                                                                                    |  |              |         |   |                  |   |         |  
|Stockholders equity:                                                                                                                                                      |  |              |         |   |                  |   |         |  
|Preferred stock, $0.01 par value; 5,000,000 shares authorized; no shares issued and outstanding                                                                            |  |              |        |   |                  |   |        |  
|Common stock, $0.01 par value; 100,000,000 shares authorized; 47,679,408 and 46,924,701 shares issued and outstanding at June 30, 2005 and
December 31, 2004, respectively |  |              | 477     |   |                  |   | 470     |  
|Additional paid-in capital                                                                                                                                                 |  |              | 188,133 |   |                  |   | 184,464 |  
|Accumulated deficit                                                                                                                                                        |  |              | (97,720 | ) |                  |   | (98,889 | )
|Deferred compensation                                                                                                                                                      |  |              | (4,484  | ) |                  |   | (2,089  | )
|Accumulated other comprehensive income                                                                                                                                     |  |              | 2,660   |   |                  |   | 3,510   |  
|                                                                                                                                                                           |  |              |         |   |                  |   |         |  
|Total stockholders equity                                                                                                                                                 |  |              | 89,066  |   |                  |   | 87,466  |  
|                                                                                                                                                                           |  |              |         |   |                  |   |         |  
|Total liabilities and stockholders equity                                                                                                                                 |  | $            | 117,183 |   |                  | $ | 113,388 |  
|                                                                                                                                                                           |  |              |         |   |                  |   |         |  



The accompanying notes
are an integral part of the consolidated financial statements.



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LIONBRIDGE TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Amounts in thousands,
except per share data)



|                                                                            |  |                            |        |                          |   |        |  |      |        |  |   |       
|--------------------------------------------------------------------------- |  | -------------------------- | ------ | ------------------------ | - | ------ |  | ---- | ------ |  | - | ------
|                                                                            |  | Three Months EndedJune 30, |        | Six Months EndedJune 30,
|                                                                            |  | 2005                       |        | 2004                     |   | 2005   |  | 2004
|Revenue                                                                     |  | $                          | 41,338 |                          | $ | 40,962 |  | $    | 80,158 |  | $ | 80,827
|Operating expenses:                                                         |  |                            |        |                          |   |        |  |      |        |  |   |       
|Cost of revenue (exclusive of depreciation and amortization included below) |  |                            | 26,453 |                          |   | 24,559 |  |      | 52,488 |  |   | 49,130
|Sales and marketing                                                         |  |                            | 4,051  |                          |   | 3,673  |  |      | 7,864  |  |   | 7,257 
|General and administrative                                                  |  |                            | 7,913  |                          |   | 7,660  |  |      | 15,628 |  |   | 15,810
|Research and development                                                    |  |                            | 238    |                          |   | 54     |  |      | 382    |  |   | 179   
|Depreciation and amortization                                               |  |                            | 569    |                          |   | 775    |  |      | 1,228  |  |   | 1,640 
|Amortization of acquisition-related intangible assets                       |  |                            | 9      |                          |   | 9      |  |      | 18     |  |   | 108   
|Merger, restructuring and other charges                                     |  |                            |       |                          |   | 241    |  |      | 449    |  |   | 1,854 
|Stock-based compensation                                                    |  |                            | 503    |                          |   | 124    |  |      | 819    |  |   | 243   
|                                                                            |  |                            |        |                          |   |        |  |      |        |  |   |       
|Total operating expenses                                                    |  |                            | 39,736 |                          |   | 37,095 |  |      | 78,876 |  |   | 76,221
|                                                                            |  |                            |        |                          |   |        |  |      |        |  |   |       
|Income from operations                                                      |  |                            | 1,602  |                          |   | 3,867  |  |      | 1,282  |  |   | 4,606 
|                                                                            |  |                            |        |                         
|Interest income                                                             |  |                            | 156    |                          |   | 74     |  |      | 336    |  |   | 159   
|Other expense, net                                                          |  |                            | 160    |                          |   | 29     |  |      | 222    |  |   | 67    
|                                                                            |  |                            |        |                          |   |        |  |      |        |  |   |       
|Income before income taxes                                                  |  |                            | 1,598  |                          |   | 3,912  |  |      | 1,396  |  |   | 4,698 
|Provision for income taxes                                                  |  |                            | 212    |                          |   | 201    |  |      | 227    |  |   | 294   
|                                                                            |  |                            |        |                          |   |        |  |      |        |  |   |       
|Net income                                                                  |  | $                          | 1,386  |                          | $ | 3,711  |  | $    | 1,169  |  | $ | 4,404 
|                                                                            |  |                            |        |                          |   |        |  |      |        |  |   |       
|Net income per share of common stock:                                       |  |                            |        |                          |   |        |  |      |        |  |   |       
|Basic                                                                       |  | $                          | 0.03   |                          | $ | 0.08   |  | $    | 0.02   |  | $ | 0.09  
|Diluted                                                                     |  | $                          | 0.03   |                          | $ | 0.08   |  | $    | 0.02   |  | $ | 0.09  
|Weighted average number of common shares outstanding:                       |  |                            |        |                          |   |        |  |      |        |  |   |       
|Basic                                                                       |  |                            | 47,067 |                          |   | 46,496 |  |      | 47,010 |  |   | 46,412
|Diluted                                                                     |  |                            | 49,249 |                          |   | 48,754 |  |      | 49,274 |  |   | 48,713



The accompanying notes
are an integral part of the consolidated financial statements.



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LIONBRIDGE TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in thousands)



|                                                                                      |  |                          |         |   |      |   |        |  
|------------------------------------------------------------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------ | -
|                                                                                      |  | Six Months EndedJune 30, |        
|                                                                                      |  | 2005                     |         |   | 2004 |  
|Cash flows from operating activities:                                                 |  |                          |         |   |      |   |        |  
|Net income                                                                            |  | $                        | 1,169   |   |      | $ | 4,404  |  
|Adjustments to reconcile net income to net cash provided by operating activities:     |  |                          |         |   |      |   |        |  
|Amortization of acquisition-related intangible assets                                 |  |                          | 18      |   |      |   | 108    |  
|Stock-based compensation                                                              |  |                          | 819     |   |      |   | 243    |  
|Non-cash merger, restructuring and other charges                                      |  |                          |        |   |      |   | 146    |  
|Depreciation and amortization                                                         |  |                          | 1,228   |   |      |   | 1,640  |  
|Provision for doubtful accounts                                                       |  |                          | 150     |   |      |   | 93     |  
|Other                                                                                 |  |                          | 29      |   |      |   | 14     |  
|Changes in operating assets and liabilities, net of effects of acquisition:           |  |                          |         |   |      |   |        |  
|Accounts receivable                                                                   |  |                          | (4,822  | ) |      |   | 394    |  
|Work in process                                                                       |  |                          | (1,115  | ) |      |   | (896   | )
|Other current assets                                                                  |  |                          | (752    | ) |      |   | 338    |  
|Other assets                                                                          |  |                          | (631    | ) |      |   | 221    |  
|Accounts payable                                                                      |  |                          | 3,376   |   |      |   | (2,104 | )
|Accrued compensation and benefits                                                     |  |                          | 732     |   |      |   | (373   | )
|Accrued outsourcing                                                                   |  |                          | 519     |   |      |   | 866    |  
|Accrued merger and restructuring                                                      |  |                          | (379    | ) |      |   | 442    |  
|Other accrued expenses                                                                |  |                          | (242    | ) |      |   | (327   | )
|Deferred revenue                                                                      |  |                          | 550     |   |      |   | (713   | )
|                                                                                      |  |                          |         |   |      |   |        |  
|Net cash provided by operating activities                                             |  |                          | 649     |   |      |   | 4,496  |  
|                                                                                      |  |                          |         |   |      |   |        |  
|Cash flows from investing activities:                                                 |  |                          |         |   |      |   |        |  
|Purchases of property and equipment                                                   |  |                          | (1,485  | ) |      |   | (402   | )
|Proceeds from sale of property and equipment                                          |  |                          |        |   |      |   | 48     |  
|Payments for businesses acquired, net of cash acquired                                |  |                          | (837    | ) |      |   |       |  
|Purchases of short-term investments                                                   |  |                          | (60,750 | ) |      |   |       |  
|Sales of short-term investments                                                       |  |                          | 48,950  |   |      |   |       |  
|                                                                                      |  |                          |         |   |      |   |        |  
|Net cash used in investing activities                                                 |  |                          | (14,122 | ) |      |   | (354   | )
|                                                                                      |  |                          |         |   |      |   |        |  
|Cash flows from financing activities:                                                 |  |                          |         |   |      |   |        |  
|Proceeds from issuance of common stock under option and employee stock purchase plans |  |                          | 463     |   |      |   | 953    |  
|Payments of capital lease obligations                                                 |  |                          | (130    | ) |      |   | (116   | )
|                                                                                      |  |                          |         |   |      |   |        |  
|Net cash provided by financing activities                                             |  |                          | 333     |   |      |   | 837    |  
|                                                                                      |  |                          |         |   |      |   |        |  
|Net increase (decrease) in cash and cash equivalents                                  |  |                          | (13,140 | ) |      |   | 4,979  |  
|                                                                                      |  |                         
|Effects of exchange rate changes on cash and cash equivalents                         |  |                          | (1,194  | ) |      |   | (149   | )
|                                                                                      |  |                         
|Cash and cash equivalents at beginning of period                                      |  |                          | 38,450  |   |      |   | 29,496 |  
|                                                                                      |  |                          |         |   |      |   |        |  
|Cash and cash equivalents at end of period                                            |  | $                        | 24,116  |   |      | $ | 34,326 |  
|                                                                                      |  |                          |         |   |      |   |        |  



The accompanying notes
are an integral part of the consolidated financial statements.



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LIONBRIDGE TECHNOLOGIES, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



1. BASIS OF PRESENTATION



The accompanying consolidated financial statements include the accounts of Lionbridge Technologies, Inc. and its wholly owned subsidiaries (collectively,
Lionbridge or the Company). These financial statements are unaudited. However, in the opinion of management, the consolidated financial statements include all adjustments, necessary for their fair presentation. Interim
results are not necessarily indicative of results expected for a full year. The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all
information and footnotes necessary for a complete presentation of the operations, financial position and cash flows of the Company in conformity with generally accepted accounting principles. These statements should be read in conjunction with the
Companys Annual Report on Form 10-K for the year ended December 31, 2004.



The Companys preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reported periods. Estimates are used when accounting for collectibility of
receivables, calculating service revenue using a percentage-of-completion assessment and valuing intangible assets, deferred tax assets and net assets of businesses acquired. Actual results could differ from these estimates.



Accounting for Stock-Based Compensation



The Company accounts for its stock-based compensation plans under the
recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. The following table illustrates the effect on net income and net income per share if the Company had
applied the fair value recognition provisions of Statement of Financial Accounting Standards Statement No. 123 (SFAS No. 123), Accounting for Stock-Based Compensation, as amended, to stock-based employee compensation:



|                                                                                                                                      |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ---------- | - | ------------------------- | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                                                                                                      |  | Three Months Ended June 30, |            |   | Six Months Ended June 30, |  
|                                                                                                                                      |  | 2005                        |            |   | 2004                      |   |            | 2005 |  |   | 2004       |  
|Net income, as reported                                                                                                               |  | $                           | 1,386,000  |   |                           | $ | 3,711,000  |      |  | $ | 1,169,000  |   |  | $ | 4,404,000  |  
|Add: Stock-based employee compensation expense included in reported net income, net of related tax effects                            |  |                             | 503,000    |   |                           |   | 124,000    |      |  |   | 819,000    |   |  |   | 243,000    |  
|Deduct: Stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                             | (1,338,000 | ) |                           |   | (1,195,000 | )    |  |   | (2,415,000 | ) |  |   | (2,812,000 | )
|                                                                                                                                      |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Pro forma net income (loss)                                                                                                           |  | $                           | 551,000    |   |                           | $ | 2,640,000  |      |  | $ | (427,000   | ) |  | $ | 1,835,000  |  
|                                                                                                                                      |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Net income (loss) per share:                                                                                                          |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Basic, as reported                                                                                                                    |  | $                           | 0.03       |   |                           | $ | 0.08       |      |  | $ | 0.02       |   |  | $ | 0.09       |  
|Basic, pro forma                                                                                                                      |  | $                           | 0.01       |   |                           | $ | 0.06       |      |  | $ | (0.01      | ) |  | $ | 0.04       |  
|Net income (loss) per share:                                                                                                          |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Diluted, as reported                                                                                                                  |  | $                           | 0.03       |   |                           | $ | 0.08       |      |  | $ | 0.02       |   |  | $ | 0.09       |  
|Diluted, pro forma                                                                                                                    |  | $                           | 0.01       |   |                           | $ | 0.05       |      |  | $ | (0.01      | ) |  | $ | 0.04       |  



2. PROPERTY AND EQUIPMENT



Property and equipment, net consists of the following:



|                                                |  |               |             |   |                  |   |             |  
|----------------------------------------------- |  | ------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                |  | June 30, 2005 |             |   | December 31,2004 |  
|Computer software and equipment                 |  | $             | 19,567,000  |   |                  | $ | 18,705,000  |  
|Furniture and office equipment                  |  |               | 3,514,000   |   |                  |   | 3,633,000   |  
|Leasehold improvements                          |  |               | 2,068,000   |   |                  |   | 2,150,000   |  
|                                                |  |               |             |   |                  |   |             |  
|                                                |  |               | 25,149,000  |   |                  |   | 24,488,000  |  
|Less: Accumulated depreciation and amortization |  |               | (21,850,000 | ) |                  |   | (21,803,000 | )
|                                                |  |               |             |   |                  |   |             |  
|                                                |  | $             | 3,299,000   |   |                  | $ | 2,685,000   |  
|                                                |  |               |             |   |                  |   |             |  



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LIONBRIDGE TECHNOLOGIES, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



3.
BUSINESS ACQUISITION



On February 1, 2005, Lionbridge
acquired all of the capital stock of Logoport Software GmbH. Total purchase consideration included a cash payment of $750,000 made at closing and an additional $87,000 of acquisition costs. In addition, the purchase agreement provides for certain
contingent payments totaling $550,000 to be made by Lionbridge over a two-year period, dependent on the continued employment of the former owner of Logoport Software GmbH, who as a Lionbridge employee, will continue to develop certain acquired
technology for Lionbridges internal use. The total purchase price of $837,000 was allocated to acquired technology and is being amortized over a seven-year life. The Company has recorded no goodwill as a result of this acquisition. During the
quarter ended June 30, 2005, according to the terms of the purchase agreement, Lionbridge made a payment of $125,000 which was capitalized as internal use software and is being amortized over a seven-year life. It is anticipated that the future
payments will also be capitalized as internal use software and amortized over a seven-year life as such amounts would be considered compensation payable to the former owner for the continued development of the Companys internal use software.



4. DEBT



Line of Credit



In December 2004, Lionbridge entered into a line of credit agreement with a commercial bank. Under the terms of the agreement, Lionbridge is able to
borrow up to $35.0 million (including up to $15 million in certain other currencies), limited by certain financial covenants. Borrowings outstanding under the agreement are collateralized by the domestic assets of the Company and its U.S.
subsidiaries. The agreement bears interest at Prime, LIBOR or IBOR (at the discretion of the Company) plus an applicable margin based on certain financial covenants. As of June 30, 2005 and December 31, 2004, respectively, Lionbridge had no
borrowings outstanding under the agreement.



5. STOCKHOLDERS EQUITY



Stock-Based Compensation



On June 1, 2005, Lionbridge recorded deferred compensation of $74,000,
representing the fair market value of 15,000 shares of restricted common stock issued to an employee. Restrictions on disposition lapse over five years from the date of grant on each anniversary date. On March 11, 2005, the Company recorded deferred
compensation of $427,000, representing the fair market value of 75,019 shares of restricted common stock issued to certain employees. Restrictions on disposition lapse ratably over eighteen months from the date of grant on each nine month
anniversary date. On February 16, 2005, the Company recorded deferred compensation of $2.8 million, representing the fair market value of 475,231 shares of restricted common stock issued to certain employees. Of the 475,231 shares of restricted
common stock issued in February 2005, restrictions on disposition lapse from the date of grant on each anniversary date as follows: 71,731 shares after two years, 171,500 shares after three years and 232,000 shares after four years, respectively.



Total amortization of deferred compensation related to all
restricted stock awards was $503,000 and $124,000 for the three-month periods ended June 30, 2005 and 2004, respectively and $819,000 and $243,000 for the six-month periods ended June 30, 2005 and 2004, respectively.



6. COMPREHENSIVE INCOME



Total comprehensive income consists of net income and the net change in foreign currency translation adjustment, which is
the only component of accumulated other comprehensive income. Total comprehensive income was $940,000 and $3.9 million for the three-month periods ended June 30, 2005 and 2004, respectively, and $320,000 and $4.2 million for the six-month periods
ended June 30, 2005 and 2004, respectively.



7. NET INCOME PER SHARE



Basic earnings per share is computed by dividing net
income by the weighted average number of shares of common stock outstanding. For purposes of calculating diluted earnings per share, the denominator includes both the weighted average number of shares of common stock outstanding and the number of
dilutive common stock equivalents such as stock options, unvested restricted stock and warrants, as determined using the treasury stock method.



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LIONBRIDGE TECHNOLOGIES, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



Shares used in calculating basic and diluted earnings per share for the three and six-month periods ended June 30, 2005 and 2004 respectively, are as follows:



|                                                                                     |  |                             |  |                           |  |            |  |           
|------------------------------------------------------------------------------------ |  | --------------------------- |  | ------------------------- |  | ---------- |  | ----------
|                                                                                     |  | Three Months Ended June 30, |  | Six Months Ended June 30,
|                                                                                     |  | 2005                        |  | 2004                      |  | 2005       |  | 2004      
|Weighted average number of shares of common stock outstandingbasic                  |  | 47,067,000                  |  | 46,496,000                |  | 47,010,000 |  | 46,412,000
|Dilutive common stock equivalents relating to options, restricted stock and warrants |  | 2,182,000                   |  | 2,258,000                 |  | 2,264,000  |  | 2,301,000 
|                                                                                     |  |                             |  |                           |  |            |  |           
|Weighted average number of shares of common stock outstandingdiluted                |  | 49,249,000                  |  | 48,754,000                |  | 49,274,000 |  | 48,713,000
|                                                                                     |  |                             |  |                           |  |            |  |           



Options, unvested
restricted stock and warrants to purchase 3,687,000 and 1,517,000 shares of common stock for the three-month periods ended June 30, 2005 and 2004, respectively, and 3,408,000 and 1,441,000 for the six-month periods ended June 30, 2005 and 2004,
respectively, were not included in the calculation of diluted net income per share, as their effect would be anti-dilutive.



8. MERGER, RESTRUCTURING AND OTHER CHARGES



During the six-month period ended June 30, 2005, Lionbridge recorded $449,000 of restructuring charges for workforce reductions in France and the U.S.,
consisting of thirty-one technical and two sales staff. Of this amount, $382,000 related to the Companys Globalization segment and $67,000 to the Testing segment. Of the $949,000 of cash payments during the six-month period ended June 30,
2005, $757,000 and $163,000 related to the Globalization and Testing segments, respectively, and $29,000 related to Corporate and Other.



During the six month-period ended June 30, 2004, Lionbridge recorded restructuring and other charges of $1.9 million primarily related to the acquisition
and integration of Mentorix. The $1.9 million of restructuring and other charges included $705,000 for anticipated losses recorded on vacated facilities, $146,000 for the impairment of long-lived assets, and $1.0 million for workforce reductions in
the U.S., Brazil, France, Ireland, Germany, the Netherlands and China, consisting of fifty-nine technical, twelve administrative, and four sales staff. Of the $1.9 million of restructuring and other charges recorded during the six-month period ended
June 30, 2004, $1.1 million related to the Companys Globalization reporting segment, $511,000 to Testing and $233,000 to Corporate and Other. Lionbridge has completed its restructuring plan, initiated in the third quarter of 2003, in
conjunction with the acquisition and integration of Mentorix. Since inception of this restructuring plan, Lionbridge has recorded $2.8 million in related restructuring and other charges.



The following table summarizes the accrual activity for the six months ended June 30, 2005 and 2004, respectively, by
initiative:



|                                         |  |      |          |   |      |   |           |  
|---------------------------------------- |  | ---- | -------- | - | ---- | - | --------- | -
|                                         |  | 2005 |          |   | 2004 |  
|Beginning balance, January 1             |  | $    | 784,000  |   |      | $ | 255,000   |  
|Employee severance and related items:    |  |      |          |   |      |   |           |  
|Charges recorded                         |  |      | 449,000  |   |      |   | 1,003,000 |  
|Revisions of estimated liabilities       |  |      |         |   |      |   | (22,000   | )
|Cash payments                            |  |      | (764,000 | ) |      |   | (932,000  | )
|                                         |  |      |          |   |      |   |           |  
|                                         |  |      | (315,000 | ) |      |   | 49,000    |  
|                                         |  |      |          |   |      |   |           |  
|Lease termination costs and other items: |  |      |          |   |      |   |           |  
|Charges recorded                         |  |      |         |   |      |   | 705,000   |  
|Cash payments                            |  |      | (185,000 | ) |      |   | (187,000  | )
|                                         |  |      |          |   |      |   |           |  
|                                         |  |      | (185,000 | ) |      |   | 518,000   |  
|                                         |  |      |          |   |      |   |           |  
|Ending balance, June 30                  |  | $    | 284,000  |   |      | $ | 822,000   |  
|                                         |  |      |          |   |      |   |           |  



During the six months
ended June 30, 2004, Lionbridge recorded $22,000 in revisions of estimated liabilities which related to employee severance and related items, due to the reversal of excess accruals for employee termination costs previously estimated and recorded as
part of its restructuring plan related to the acquisition and integration of Mentorix.



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LIONBRIDGE TECHNOLOGIES, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



At June 30, 2005, the consolidated balance sheet includes accruals totaling $284,000 primarily related to the integration of the Companys India operation. Lionbridge currently anticipates that $238,000 of this total will be fully
utilized within twelve months. The remaining $46,000 relates to lease obligations on unused facilities expiring through 2007 and is included in long-term liabilities.



9. SEGMENT INFORMATION



Lionbridge has determined that its operating segments are those that are based on its method of internal reporting, which separately presents its business
by the geographic site in which services are performed. Lionbridge has combined those segments, which meet the aggregation criteria of SFAS No. 131, in determining its reportable segments. The Company is organized into two reportable operating
segments: Globalization and Testing.



The Globalization segment
provides product localization and content globalization services that enable simultaneous worldwide release and ongoing maintenance of products and related technical support, training materials, and sales and marketing information in multiple
languages. Globalization also includes application and content development services. The Testing segment provides comprehensive testing of software, hardware and Web sites, as well as product certification programs. All other unallocated enterprise
costs are reflected in the Corporate and Other category.



The table below presents information about the reported revenue and net income of the Company for the three and six-month periods ended June 30, 2005 and 2004. Asset information by reportable segment is not reported, since the Company does
not produce such information internally.



|                                   |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|---------------------------------- |  | --------------------------- | ---------- | - | ------------------------- | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                   |  | Three Months Ended June 30, |            |   | Six Months Ended June 30, |  
|                                   |  | 2005                        |            |   | 2004                      |   |            | 2005 |  |   | 2004       |  
|External revenue:                  |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Globalization                      |  | $                           | 33,447,000 |   |                           | $ | 31,095,000 |      |  | $ | 63,937,000 |   |  | $ | 61,552,000 |  
|Testing                            |  |                             | 7,891,000  |   |                           |   | 9,867,000  |      |  |   | 16,221,000 |   |  |   | 19,275,000 |  
|                                   |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|                                   |  | $                           | 41,338,000 |   |                           | $ | 40,962,000 |      |  | $ | 80,158,000 |   |  | $ | 80,827,000 |  
|                                   |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Net income:                        |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Globalization                      |  | $                           | 5,269,000  |   |                           | $ | 6,363,000  |      |  | $ | 8,573,000  |   |  | $ | 11,058,000 |  
|Testing                            |  |                             | 747,000    |   |                           |   | 1,439,000  |      |  |   | 1,479,000  |   |  |   | 2,761,000  |  
|Less: corporate and other expenses |  |                             | (4,630,000 | ) |                           |   | (4,091,000 | )    |  |   | (8,883,000 | ) |  |   | (9,415,000 | )
|                                   |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|                                   |  | $                           | 1,386,000  |   |                           | $ | 3,711,000  |      |  | $ | 1,169,000  |   |  | $ | 4,404,000  |  
|                                   |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  



10. OTHER INTANGIBLE ASSETS



The following table summarizes other intangible assets at
June 30, 2005 and December 31, 2004, respectively:



|                                       |  |                    |         |                         |   |         |  |                    |        |                         |   |         |  |         |  |   |       
|-------------------------------------- |  | ------------------ | ------- | ----------------------- | - | ------- |  | ------------------ | ------ | ----------------------- | - | ------- |  | ------- |  | - | ------
|                                       |  |                    |         | June 30, 2005           |   |         |  |                    |        | December 31, 2004       |   |        
|                                       |  | GrossCarryingValue |         | AccumulatedAmortization |   | Balance |  | GrossCarryingValue |        | AccumulatedAmortization |   | Balance
|Mentorix internally developed software |  | $                  | 110,000 |                         | $ | 64,000  |  | $                  | 46,000 |                         | $ | 110,000 |  | $46,000 |  | $ | 64,000



Future amortization
expense related to intangible assets held at June 30, 2005 is expected to be $19,000 and $27,000 for the years ended December 31, 2005 and 2006, respectively.



11. CONTINGENCIES



On or about July 24, 2001, a purported securities class action lawsuit captioned Samet v. Lionbridge Technologies, Inc. et al. (01-CV-6770)
was filed in the United States District Court for the Southern District of New York (the Court) against the Company, certain of its officers and directors, and certain underwriters involved in the Companys initial public offering.
The complaint in this action asserted, among other things, that Lionbridges initial public offering registration statement contained misstatements and/or omissions regarding the underwriters alleged conduct in allocating shares in
Lionbridges initial public offering to the underwriters



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LIONBRIDGE TECHNOLOGIES, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



customers. In March 2002, the United States District Court for the Southern District of New York entered an order dismissing without prejudice the claims against Lionbridge and its officers and directors (the case remained pending against
the underwriter defendants). On April 19, 2002, the plaintiffs filed an amended complaint naming as defendants not only the underwriter defendants but also Lionbridge and certain of its officers and directors. The amended complaint asserts claims
under both the registration and antifraud provisions of the federal securities laws relating to, among other allegations, the underwriters alleged conduct in allocating shares in the Companys initial public offering and the disclosures
contained in the Companys registration statement. The Company understands that various plaintiffs have filed approximately 1,000 lawsuits making substantially similar allegations against approximately 300 other publicly-traded companies in
connection with the underwriting of their public offerings. On July 15, 2002, the Company, together with the other issuers named as defendants in these coordinated proceedings, filed a collective motion to dismiss the complaint on various legal
grounds common to all or most of the issuer defendants. In October 2002, the claims against officers and directors were dismissed without prejudice. In February 2003, the Court issued its ruling on the motion to dismiss, ruling that the claims under
the antifraud provisions of the securities laws could proceed against the Company and a majority of the other issuer defendants.



In June 2003, Lionbridge elected to participate in a proposed settlement agreement with the plaintiffs in this litigation. If ultimately approved by the
Court, this proposed settlement would result in a dismissal, with prejudice, of all claims in the litigation against Lionbridge and against any other of the issuer defendants who elect to participate in the proposed settlement, together with the
current or former officers and directors of participating issuers who were named as individual defendants. The proposed settlement does not provide for the resolution of any claims against underwriter defendants, and the litigation as against those
defendants is continuing. The proposed settlement provides that the class members in the class action cases brought against the participating issuer defendants will be guaranteed a recovery of $1 billion by insurers of the participating issuer
defendants. If recoveries totaling $1 billion or more are obtained by the class members from the underwriter defendants, however, the monetary obligations to the class members under the proposed settlement will be satisfied. In addition, Lionbridge
and any other participating issuer defendants will be required to assign to the class members certain claims that they may have against the underwriters of their IPOs.



The proposed settlement contemplates that any amounts necessary to fund the settlement or settlement-related expenses would
come from participating issuers directors and officers liability insurance policy proceeds, as opposed to funds of the participating issuer defendants themselves. A participating issuer defendant could be required to contribute to the costs of
the settlement if that issuers insurance coverage were insufficient to pay that issuers allocable share of the settlement costs. Lionbridge expects that its insurance proceeds will be sufficient for these purposes and that it will not
otherwise be required to contribute to the proposed settlement.



Consummation of the proposed settlement is conditioned upon obtaining both preliminary and final approval by the Court. Formal settlement documents were submitted to the Court in June 2004, together with a motion asking the Court to
preliminarily approve the form of settlement. Certain underwriters who were named as defendants in the settling cases, and who are not parties to the proposed settlement, opposed preliminary approval of the proposed settlement of those cases. On
February 15, 2005, the Court issued an order preliminarily approving the proposed settlement in all respects but one. In response to this order, the plaintiffs and the issuer defendants are in the process of submitting revised settlement documents
to the Court. The underwriter defendants may object to the revised settlement documents. If the Court approves the revised settlement documents, it will direct that notice of the terms of the proposed settlement be published in a newspaper and on
the internet and mailed to all proposed class members. It will also schedule a fairness hearing, at which objections to the proposed settlement will be heard. Thereafter, the Court will determine whether to grant final approval to the proposed
settlement.



If the proposed settlement described above is not
consummated, Lionbridge intends to continue to defend the litigation vigorously. Moreover, if the proposed settlement is not consummated, the Company believes that the underwriters may have an obligation to indemnify Lionbridge for the legal fees
and other costs of defending this suit. While Lionbridge cannot guarantee the outcome of these proceedings, the Company believes that the final result of this lawsuit will have no material effect on its consolidated financial condition, results of
operations, or cash flows.



12. RECENT ACCOUNTING PRONOUNCEMENTS



In May 2005, the Financial Accounting Standards Board
(FASB) issued Statement of Accounting Standards (SFAS) 154, Accounting Changes and Error Corrections which replaces APB Opinion No. 20 Accounting Changes and FASB SFAS 3 Reporting Accounting
Changes in Interim Financial Statements. This statement changes the requirements for the accounting for and reporting of a change in accounting principle. This statement applies to all voluntary changes in accounting principle. It also applies
to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. This statement requires voluntary changes in accounting principles be recognized retrospectively to
prior periods financial statements, rather than recognition in the net income of the current period. Retrospective application requires



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LIONBRIDGE TECHNOLOGIES, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



restatements of prior period financial statements as if that accounting principle had always been used. This statement carries forward without change the guidance contained in Opinion 20 for reporting the correction of an error in
previously issued financial statements and a change in accounting estimate. The provisions of FASB SFAS 154 are effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not
expect the adoption of this pronouncement to have a significant impact on the Companys financial statements.



In December 2004, the FASB issued Statement of Financial Accounting Standards 123revised 2004 (SFAS 123R), Share-Based
Payment which replaces Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting for Stock-Based Compensation and supersedes APB Opinion No. 25 (APB 25), Accounting for Stock Issued to
Employees. On April 14, 2005, the Securities and Exchange Commission amended the effective date for SFAS 123R to annual periods that begin after June 15, 2005. Accordingly, the Company will be required to adopt SFAS 123R effective January 1,
2006. SFAS 123R requires the measurement of all employee share-based payments to employees, including grants of employee stock options, using a fair-value-based method and the recording of such expense in our consolidated statements of income. SFAS
123R requires companies to assess the most appropriate model to calculate the value of the options. Lionbridge currently uses the Black-Scholes option pricing model to value options and are currently assessing which model we may use in the future
under the new statement and may determine that an alternative model may more appropriate. In addition, there are a number of other requirements under the new standard that would result in differing accounting treatment than those required under SFAS
123. These differences include, but are not limited to, the accounting for the tax benefit on employee stock options and for stock issued under our employee stock purchase plan, and the presentation of these tax benefits within the consolidated
statement of cash flows. In addition to the appropriate fair value model to be used for valuing share-based payments, we will also be required to determine the transition method to be used at date of adoption of SFAS 123R. The allowed transition
methods include choices of prospective or retroactive adoption. The prospective method requires that compensation expense be recorded for all unvested stock options and restricted stock at the beginning of the first quarter of adoption of SFAS 123R,
while the retroactive methods would record compensation expense for all unvested stock options and restricted stock beginning with the first period restated. The pro forma disclosures previously permitted under SFAS 123 will no longer be an
alternative to financial statement recognition. See Note 1 in our Notes to Consolidated Financial Statements for the pro forma net income (loss) and net income (loss) per share amounts, for the three and six-month periods ended June 30, 2005 and
2004, as if we had used a fair-value-based method similar to the methods required under SFAS 123R to measure compensation expense for employee stock incentive awards. It is expected that the adoption of SFAS 123R will have a significant impact on
our consolidated statements of operations and net income (loss) per share if the adoption results in amounts similar to those in the current pro forma disclosure.



Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations



The matters discussed in this Form 10-Q include forward-looking statements that involve risks or uncertainties. These statements are neither promises nor
guarantees, but are based on various assumptions by management regarding future circumstances over many of which Lionbridge has little or no control. A number of important risks and uncertainties, including those identified under the captions
Factors That May Affect Future Results in Lionbridges Annual Report on Form 10-K, filed February 28, 2005 (SEC File No. 000-26933) and Risk Factors in Lionbridges Registration Statements on Form S-3 (SEC File Nos.
333-105446, 333-106693, 333-107753 and 333-122698) and subsequent filings, including Form 8-K, filed June 28, 2005 (SEC File No. 000-26933) as well as risks and uncertainties discussed elsewhere in this Form 10-Q could cause Lionbridges actual
results to differ materially from those in the forward-looking statements. Those risks and uncertainties include the following: (i) the success of Lionbridges continued diversification of its customer base; (ii) pricing pressures from
customers; (iii) termination of customer contracts prior to the end of their term; (iv) ability to execute anticipated projects and opportunities in our pipeline, and recognize revenue from such opportunities; (v) Lionbridges dependence on
clients product releases to generate revenues, in particular with respect to technology clients; (vi) customer delays or postponements of services; (vii) the loss of a major client or customer; (viii) the size, timing and recognition of
revenue from major clients; (ix) the impact of foreign currency fluctuations on its operating results and profitability; (x) risks associated with the management of growth; (xi) Lionbridges inability to successfully integrate Bowne Global
Solutions and its employees into Lionbridge and achieve expected synergies; (xii) the Companys ability to accurately forecast the acquisition related restructuring costs and allocation of the purchase price, goodwill and other intangibles
acquisition related and other asset adjustments, as well as the impact of equity based compensation expense associated with FAS 123R; (xiii) costs associated with and consequential to the acquisition and integration of Bowne Global Solutions and
benefits realized from the acquisition; (xiv) market acceptance of new service offerings; (xv) the failure to keep pace with the rapidly changing requirements of its customers; (xvi) the ability to realize benefits from the Lionbridge India solution
center; (xvii) the ability to recognize benefits from our new language technology deployment; (xviii) the ability to implement and realize cost efficiencies and benefits from offshore production capabilities and restructuring activities, and the
timing and size of such restructuring activities; (xix) costs associated with restructuring of certain European operations; (xx) Lionbridges ability to attract and retain key personnel; (xxi) Lionbridge being held liable for defects or



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errors in its solutions or services; (xxii) political, economic and business fluctuations in international markets; as well as risks of additional downturns
in conditions generally, and in the information technology and software industries specifically, and the risks associated with competition and competitive price pressures; and (xxiii) Lionbridges ability to forecast revenue and operating
results. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. The forward-looking statements in this Form
10-Q are made as of the date of this filing only, and Lionbridge does not undertake to update or supplement these statements due to changes in circumstances or otherwise.



Introduction



Lionbridge is a leading provider of globalization and testing services that enable clients to develop, release, manage and maintain their enterprise
content and technology applications globally. Globalization is the process of adapting content and products to meet the language and cultural requirements of users throughout the world. Globalization also includes the development and maintenance of
content and applications. Testing is the process of ensuring the quality, interoperability, usability and performance of clients software, hardware, consumer technology products, Web sites and content. Testing also includes product
certification and competitive analysis. Lionbridge offers its testing services under the VeriTest brand.



Lionbridge provides a suite of globalization and testing outsourcing services to businesses, particularly in the technology, consumer products, life
sciences, publishing, financial services, manufacturing and retail industries. Lionbridges solutions include product and content globalization; content and eLearning courseware development; software and hardware testing, product certification
and competitive analysis; and application development and maintenance.



For the six-month period ended June 30, 2005, Lionbridges income from operations was $1.3 million, with net income of $1.2 million. For the years ended December 31, 2004 and 2003, respectively, the Companys income from
operations was $7.2 million and $7.5 million, respectively, with net income of $7.1 million and $2.5 million, respectively. Prior to 2002, the Company experienced operating losses, as well as net losses, for each year of its operations and, as of
June 30, 2005, had an accumulated deficit of $97.7 million.



Recent Developments



On June 27, 2005, the
Company entered into an Agreement and Plan of Merger (the Merger Agreement) with GGS Acquisition Corp., a Delaware corporation and wholly owned subsidiary of the Company, BGS Companies, Inc., a Delaware corporation (Bowne Global
Solutions), Bowne & Co., Inc., a Delaware corporation (Bowne), and Bowne of New York, LLC, a Delaware limited liability company. Upon completion of the transactions contemplated by the Merger Agreement, the Company will own all
the outstanding shares of Bowne Global Solutions common stock. As consideration for these transactions, Bowne will receive no less than $180 million, $130 million of which will be cash. In connection with the execution of the Merger Agreement, the
Company received a Commitment Letter dated as of June 27, 2005 from Wachovia Bank, National Association and Wachovia Capital Markets, LLC. The Commitment Letter provides for a 5-year $25 million revolving credit facility and a 6-year $100 million
term facility (together with the revolving credit facility, the Facility). The Facility will be used to fund a portion of the $130 million cash payment to Bowne. The Company will issue up to 9.4 million shares of common stock to Bowne to
fund $50 million of the purchase price. If the 9.4 million shares of common stock do not represent at least $50 million, the Company will fund the remainder of the purchase price, if any, through the issuance of a subordinated promissory note of no
more than $20 million.



As of June 30, 2005, there are no
material changes from Lionbridges critical accounting policies and estimates disclosed in the Companys Annual Report on Form 10-K for the year ended December 31, 2004.



Revenue Recognition



Lionbridge recognizes revenue in accordance with SEC Staff Accounting Bulletin No. 104, Revenue Recognition and Emerging Issues Task Force
(EITF) Issue No. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables (EITF 00-21). Accordingly, we recognize revenue when: (1) persuasive evidence of an arrangement exists; (2) delivery has
occurred or services rendered; (3) the fee is fixed or determinable; and (4) collectibility is reasonably assured. Determination of criteria (3) and (4) are based on managements judgments regarding the fixed nature of the fee charged for
services rendered and products delivered and the collectibility of those fees.



Lionbridges revenue is derived from project-by-project fees and long-term service agreements. Projects are generally billed on a time and expense or milestone basis. Amounts billed in excess of revenue are
recorded as deferred revenue. Revenue is generated from the provision of services to its customers for content development; product and content globalization; software and hardware testing; product certification; and application development and
maintenance.



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Content development, software and hardware testing, and application development and maintenance projects
are time and expense priced contacts, and revenue is recognized using a time and expense basis, primarily on labor costs incurred to date.



Product and content globalization and product certification projects are fixed price contracts and revenue is recognized as services are delivered using a
percentage-of-completion assessment based primarily on labor costs incurred to date as a percentage of managements estimate of total costs of individual projects.



The delivery of Lionbridges product and content globalization involves, and is dependent on, the translation of
content by subcontractors and in-house employees. As the time to translate each word of content within a project is relatively uniform, labor input is reflective of the delivery of the contracted service and an appropriate metric for the measurement
of progress in delivering such services.



The use of a
percentage-of-completion assessment of service delivery requires significant judgment relative to estimating total contract costs, including assumptions relative to the length of time to complete the project, the nature and complexity of the work to
be performed, anticipated increases in employee wages and prices for subcontractor services, and the availability of subcontractor services. When adjustments in estimated project costs are identified, anticipated losses, if any, are recognized in
the period in which they are determined.



Lionbridges
service offerings include integrated service arrangements, consisting of combinations of content development, product and content globalization, software and hardware testing, product certification and application development and maintenance
services. Each of these component services within the integrated offering can be delivered through a single arrangement with multiple deliverables. For these integrated service arrangements, the Company applies the consensus of EITF 00-21 to
determine whether the deliverables specified in a multiple element arrangement should be treated as separate units of accounting for revenue recognition purposes. Accordingly, if the elements qualify as separate units of accounting, and fair value
exists for the elements of the contract that are unrelated to the other services, these elements are accounted for separately and the related revenue is recognized as the services are delivered or the services are rendered as noted above.



Lionbridges product and content globalization agreements
with its customers may provide the customer with a fixed and limited time period following delivery during which Lionbridge will attempt to address any non-conformity to previously agreed upon objective specifications relating to the work, either in
the form of a limited acceptance period or a post-delivery warranty period. Management believes recognition of revenue at the time the services are delivered is appropriate, because its obligations under such provisions are limited in time, limited
in scope, and historically have not involved significant costs. In the future, if the post delivery acceptance or warranty provisions become more complex or include subjective acceptance criteria, Lionbridge may have to revise its revenue
recognition policy appropriately, which could affect the timing of revenue recognition.



Merger, Restructuring and Other Charges



During the six-month period ended June 30, 2005, Lionbridge recorded $449,000 of restructuring charges for workforce reductions in France and the U.S., consisting of thirty-one technical and two sales staff. Of this
amount, $382,000 related to the Companys Globalization segment and $67,000 to the Testing segment. Of the $949,000 of cash payments during the six-month period ended June 30, 2005, $757,000 and $163,000 related to the Globalization and Testing
segments, respectively, and $29,000 related to Corporate and Other.



During the six months ended June 30, 2004, Lionbridge recorded restructuring and other charges of $1.9 million primarily related to the acquisition and integration of Mentorix. The $1.9 million of restructuring and other charges included
$705,000 for anticipated losses recorded on vacated facilities, $146,000 for the impairment of long-lived assets, and $1.0 million for workforce reductions in the U.S., Brazil, France, Ireland, Germany, the Netherlands and China, consisting of
fifty-nine technical, twelve administrative, and four sales staff. Of the $1.9 million of restructuring and other charges recorded during the six-month period ended June 30, 2004, $1.1 million related to the Companys Globalization reporting
segment, $511,000 to Testing and $233,000 to Corporate and Other. Lionbridge has completed its restructuring plan, initiated in the third quarter of 2003, in conjunction with the acquisition and integration of Mentorix. Since inception of this
restructuring plan, Lionbridge has recorded $2.8 million in related restructuring and other charges.



Non-Cash Charges



Stock-Based Compensation. On June 1, 2005, the Company recorded deferred compensation of $74,000, representing the fair market value of 15,000
shares of restricted common stock issued to a certain employee. Restrictions on disposition lapse over five years from the date of grant on each anniversary date. On March 11, 2005, the Company recorded deferred compensation of $427,000,
representing the fair market value of 75,019 shares of restricted common stock issued to certain employees.



13



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##### Table of Contents

Restrictions on disposition lapse ratably over eighteen months from the date of grant on each nine month anniversary date. During the quarter ended June 30,
2005, unamortized deferred compensation of $10,000, representing the fair market value of 2,244 shares of restricted common stock issued to employees at that time, was reversed upon the separation of these employees. On February 16, 2005, the
Company recorded deferred compensation of $2.8 million, representing the fair market value of 475,231 shares of restricted common stock issued to certain employees. Of the 475,231 shares of restricted common stock issued in February 2005,
restrictions on disposition lapse from the date of grant on each anniversary date as follows: 71,731 shares after two years, 171,500 shares after three years and 232,000 shares after four years, respectively.



Total amortization of deferred compensation related to all restricted stock
awards was $503,000 and $124,000 for the three-month periods ended June 30, 2005 and 2004, respectively and $819,000 and $243,000 for the six-month periods ended June 30, 2005 and 2004, respectively.



Lionbridge currently expects to amortize the following remaining amounts of
deferred compensation existing as of June 30, 2005 in the fiscal periods as follows:



|                  |  |   |          
|----------------- |  | - | ---------
|December 31, 2005 |  | $ | 891,000  
|December 31, 2006 |  |   | 1,563,000
|December 31, 2007 |  |   | 1,139,000
|December 31, 2008 |  |   | 669,000  
|December 31, 2009 |  |   | 222,000  
|                  |  |   |          
|                  |  | $ | 4,484,000
|                  |  |   |          



Results of
Operations



The following table sets forth for the periods
indicated certain unaudited consolidated financial data as a percentage of total revenue.



|                                                                            |  |                            |   |  |                          |   |  |       |   |  |       |  
|--------------------------------------------------------------------------- |  | -------------------------- | - |  | ------------------------ | - |  | ----- | - |  | ----- | -
|                                                                            |  | Three Months EndedJune 30, |   |  | Six Months EndedJune 30, |  
|                                                                            |  | 2005                       |   |  | 2004                     |   |  | 2005  |   |  | 2004  |  
|Revenue                                                                     |  | 100.0                      | % |  | 100.0                    | % |  | 100.0 | % |  | 100.0 | %
|Operating expenses:                                                         |  |                            |   |  |                          |   |  |       |   |  |       |  
|Cost of revenue (exclusive of depreciation and amortization included below) |  | 64.0                       |   |  | 60.0                     |   |  | 65.5  |   |  | 60.8  |  
|Sales and marketing                                                         |  | 9.8                        |   |  | 9.0                      |   |  | 9.8   |   |  | 9.0   |  
|General and administrative                                                  |  | 19.1                       |   |  | 18.7                     |   |  | 19.5  |   |  | 19.6  |  
|Research and development                                                    |  | 0.6                        |   |  | 0.1                      |   |  | 0.5   |   |  | 0.2   |  
|Depreciation and amortization                                               |  | 1.4                        |   |  | 1.9                      |   |  | 1.5   |   |  | 2.0   |  
|Amortization of acquisition-related intangible assets                       |  |                           |   |  |                         |   |  |      |   |  | 0.1   |  
|Merger, restructuring and other charges                                     |  |                           |   |  | 0.6                      |   |  | 0.6   |   |  | 2.3   |  
|Stock-based compensation                                                    |  | 1.2                        |   |  | 0.3                      |   |  | 1.0   |   |  | 0.3   |  
|                                                                            |  |                            |   |  |                          |   |  |       |   |  |       |  
|Total operating expenses                                                    |  | 96.1                       |   |  | 90.6                     |   |  | 98.4  |   |  | 94.3  |  
|                                                                            |  |                            |   |  |                          |   |  |       |   |  |       |  
|Income from operations                                                      |  | 3.9                        |   |  | 9.4                      |   |  | 1.6   |   |  | 5.7   |  
|                                                                            |  |                            |   | 
|Interest income                                                             |  | 0.4                        |   |  | 0.2                      |   |  | 0.4   |   |  | 0.2   |  
|Other expense, net                                                          |  | 0.4                        |   |  | 0.1                      |   |  | 0.3   |   |  | 0.1   |  
|                                                                            |  |                            |   |  |                          |   |  |       |   |  |       |  
|Income before income taxes                                                  |  | 3.9                        |   |  | 9.5                      |   |  | 1.7   |   |  | 5.8   |  
|Provision for income taxes                                                  |  | 0.5                        |   |  | 0.5                      |   |  | 0.2   |   |  | 0.4   |  
|                                                                            |  |                            |   |  |                          |   |  |       |   |  |       |  
|Net income                                                                  |  | 3.4                        | % |  | 9.0                      | % |  | 1.5   | % |  | 5.4   | %
|                                                                            |  |                            |   |  |                          |   |  |       |   |  |       |  



Revenue. The
following table shows Globalization and Testing revenues in dollars and as a percentage of total revenue for the three and six months ended June 30, 2005 and 2004, respectively:



|              |  |                             |            |  |                           |   |      |   |            |  |     |      |  |   |            |  |      |   |  |   |            |  |     |  
|------------- |  | --------------------------- | ---------- |  | ------------------------- | - | ---- | - | ---------- |  | --- | ---- |  | - | ---------- |  | ---- | - |  | - | ---------- |  | --- | -
|              |  | Three Months Ended June 30, |            |  | Six Months Ended June 30, |  
|              |  | 2005                        |            |  |                           |   | 2004 |   |            |  |     | 2005 |  |   |            |  | 2004 |   |  |  
|Globalization |  | $                           | 33,447,000 |  | 81                        | % |      | $ | 31,095,000 |  | 76  | %    |  | $ | 63,937,000 |  | 80   | % |  | $ | 61,552,000 |  | 76  | %
|Testing       |  |                             | 7,891,000  |  | 19                        | % |      |   | 9,867,000  |  | 24  | %    |  |   | 16,221,000 |  | 20   | % |  |   | 19,275,000 |  | 24  | %
|              |  |                             |            |  |                           |   |      |   |            |  |     |      |  |   |            |  |      |   |  |   |            |  |     |  
|Total revenue |  | $                           | 41,338,000 |  | 100                       | % |      | $ | 40,962,000 |  | 100 | %    |  | $ | 80,158,000 |  | 100  | % |  | $ | 80,827,000 |  | 100 | %
|              |  |                             |            |  |                           |   |      |   |            |  |     |      |  |   |            |  |      |   |  |   |            |  |     |  



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##### Table of Contents

Revenue for the quarter ended June 30, 2005 was $41.3 million, an increase of $376,000, or 0.9%, from
$41.0 million for the quarter ended June 30, 2004 and an increase of 6.5% from revenue of $38.8 million for the first quarter of 2005. The increase from the prior year was due to $2.4 million of revenue growth in Globalization, partially offset by a
decrease of $2.0 million in Testing revenue as compared to the corresponding period of 2004.



Globalization revenue was $33.4 million for the quarter ended June 30, 2005, an increase of $2.4 million, or 7.6%, from Globalization revenue of $31.1 million in the quarter ended June 30, 2004. This increase was
primarily due to organic revenue growth from new engagements with customers outside of the Companys traditional technology market sector. Testing revenue was $7.9 million for the quarter ended June 30, 2005, a decrease of $2.0 million, or
20.0%, from Testing revenue of $9.9 million in the quarter ended June 30, 2004. The year-on-year decrease was primarily due to a slow down in market demand for technology applications products and certification testing, particularly from one of the
Companys largest customers.



For the six months ended
June 30, 2005, revenue was $80.2 million, a decrease of $669,000, or 0.8%, as compared to $80.8 million for the same period of the prior year. Revenue from new customer engagements offset the Companys revenue shortfall from certain large
traditional technology customers. Globalization revenue was $63.9 million for the six months ended June 30, 2005, an increase of $2.4 million, or 3.9%, from $61.6 million in the corresponding period of the prior year primarily due to organic revenue
growth. Lionbridges Globalization revenue benefited from new engagements with customers outside of the Companys traditional technology market sector, as well as a new engagement with a large enterprise software provider in 2005, as
compared to the corresponding period of 2004. Testing revenue was $16.2 million for the six months ended June 30, 2005, a decrease of $3.1 million, or 15.8%, from $19.3 million in the corresponding period of the prior year for the reasons noted
above.



Cost of Revenue. Cost of revenue, excluding
depreciation and amortization, consists primarily of expenses incurred for translation services provided by third parties as well as salaries and associated employee benefits for personnel related to client projects. The following table shows
Globalization and Testing cost of revenues, the percentage variance from the three and six month periods of the prior year and as a percentage of revenue for the three and six months ended June 30, 2005 and 2004, respectively:



|                      |  |                                 |            |   |                        |       |    |                                 |   |            |                               |  |   |                                        |   |  |                               |    |  |   |            |  
|--------------------- |  | ------------------------------- | ---------- | - | ---------------------- | ----- | -- | ------------------------------- | - | ---------- | ----------------------------- |  | - | -------------------------------------- | - |  | ----------------------------- | -- |  | - | ---------- | -
|                      |  | Three Months EndedJune 30, 2005 |            |   | % ChangeQ2 04 to Q2 05 |       |    | Three Months EndedJune 30, 2004 |   |            | Six Months EndedJune 30, 2005 |  |   | % Change Six Months 04 toSix Months 05 |   |  | Six Months EndedJune 30, 2004 |   
|Globalization:        |  |                                 |            |   |                        |       |    |                                 |   |            |                               |  |   |                                        |   |  |                               |    |  |   |            |  
|Cost of revenue       |  | $                               | 21,934,000 |   |                        | 16.1  | %  |                                 | $ | 18,898,000 |                               |  | $ | 42,998,000                             |   |  | 12.6                          | %  |  | $ | 38,180,000 |  
|Percentage of revenue |  |                                 | 65.6       | % |                        |       |    |                                 |   | 60.8       | %                             |  |   | 67.3                                   | % |  |                               |    |  |   | 62.0       | %
|Testing:              |  |                                 |            |   |                        |       |    |                                 |   |            |                               |  |   |                                        |   |  |                               |    |  |   |            |  
|Cost of revenue       |  |                                 | 4,519,000  |   |                        | (20.2 | )% |                                 |   | 5,661,000  |                               |  |   | 9,490,000                              |   |  | (13.3                         | )% |  |   | 10,950,000 |  
|Percentage of revenue |  |                                 | 57.3       | % |                        |       |    |                                 |   | 57.4       | %                             |  |   | 58.5                                   | % |  |                               |    |  |   | 56.8       | %
|                      |  |                                 |            |   |                        |       |    |                                 |   |            |                               |  |   |                                        |   |  |                               |    |  |   |            |  
|Total cost of revenue |  | $                               | 26,453,000 |   |                        |       |    |                                 | $ | 24,559,000 |                               |  | $ | 52,488,000                             |   |  |                               |    |  | $ | 49,130,000 |  
|                      |  |                                 |            |   |                        |       |    |                                 |   |            |                               |  |   |                                        |   |  |                               |    |  |   |            |  
|Percentage of revenue |  |                                 | 64.0       | % |                        |       |    |                                 |   | 60.0       | %                             |  |   | 65.5                                   | % |  |                               |    |  |   | 60.8       | %



For the quarter ended
June 30, 2005, as a percentage of revenue, total cost of revenue increased to 64.0% as compared to 60.0% for the corresponding quarter of the prior year. For the quarter ended June 30, 2005, cost of revenue increased $1.9 million, or 7.7%, to $26.5
million as compared to $24.6 million for the corresponding quarter of the prior year.



Globalization cost of revenue increased to 65.6% as compared to 60.8% for the corresponding period of the prior year. This increase was primarily driven by work mix variations and startup costs relating to
localization services for new client engagements in the quarter. These cost increases included contractor costs for specialists on certain Application, Development and Maintenance (ADM) and Content projects and increased costs for
translation services for Localization projects, as compared to the corresponding period of the prior year. Testing cost of revenue decreased slightly to 57.3% as compared to 57.4% for the corresponding period of the prior year. This improvement was
due to the favorable impact of cost savings resulting from restructuring activities, as the Company adjusted capacity to anticipated lower Testing revenue levels, which decreased $2.0 million, or 20.0%, and favorable work mix and scope variations in
testing services provided as compared to the prior year.



For
the six months ended June 30, 2005, as a percentage of revenue, total cost of revenue increased to 65.5% as compared to 60.8% for the corresponding period of the prior year. Cost of revenue was $52.5 million for the six months ended June 30, 2005,
an increase of $3.4 million, or 6.8%, as compared to $49.1 million for the same period of 2004.



Globalization cost of revenue increased to 67.3% as compared to 62.0% for the corresponding period of the prior year, primarily driven by work mix
variations and startup costs relating to localization services for new client engagements in the quarter. These cost increases included contractor costs for specialists on certain ADM and Content projects and increased costs for translation services
for Localization projects, as compared to the corresponding period of the prior year. Globalization cost of revenue was $43.0 million for the six months ended June 30, 2005, an increase of $4.8 million, or 12.6%, from



15



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##### Table of Contents

$38.2 million in the comparable period of 2004, primarily due to outsourcing costs and increased contract labor required to support the growth in related
revenue. Testing cost of revenue increased to 58.5% for the six months ended June 30, 2005 as compared to 56.8% for the corresponding period of the prior year. The increase was primarily the result of under-utilized capacity in the VeriTest testing
laboratories due to lower than anticipated Testing revenue during the period, and the mix and scope of testing services provided as compared to the prior year, partially offset by the benefit of cost management and restructuring activities, as the
Company adjusted capacity in response to revenue shortfalls. Testing cost of revenue was $9.5 million for the six months ended June 30, 2005, a decrease of $1.5 million, or 13.3%, from $11.0 million in the comparable period of 2004, primarily
reflecting the benefit of cost management and restructuring activities, as noted above.



Sales and Marketing.Sales and marketing expenses consist primarily of salaries, commissions and associated employee benefits, travel expenses of sales and marketing personnel, promotional expenses and the
costs of programs aimed at increasing revenue, such as advertising, trade shows, public relations and other market development programs. The following table shows sales and marketing expenses in dollars, the dollar variance as compared to the prior
year period and as a percentage of revenue for the three and six months ended June 30, 2005 and 2004, respectively:



|                                   |  |                             |           |   |                           |   |           |      |  |   |           |   |  |   |           |  
|---------------------------------- |  | --------------------------- | --------- | - | ------------------------- | - | --------- | ---- |  | - | --------- | - |  | - | --------- | -
|                                   |  | Three Months Ended June 30, |           |   | Six Months Ended June 30, |  
|                                   |  | 2005                        |           |   | 2004                      |   |           | 2005 |  |   | 2004      |  
|Total sales and marketing expenses |  | $                           | 4,051,000 |   |                           | $ | 3,673,000 |      |  | $ | 7,864,000 |   |  | $ | 7,257,000 |  
|Increase from prior year           |  |                             | 378,000   |   |                           |   |           |      |  |   | 607,000   |   |  |   |           |  
|Percentage of revenue              |  |                             | 9.8       | % |                           |   | 9.0       | %    |  |   | 9.8       | % |  |   | 9.0       | %



Sales and marketing
costs of $4.1 million for the quarter ended June 30, 2005 increased $378,000 from the corresponding quarter of 2004. The increase was primarily attributable to higher employee-related expenses and travel costs in the sales organization. In addition,
this increase was also the result of higher associated variable compensation due to a larger percentage of revenue being derived from new customer programs and sales resources added to drive larger, offshore initiatives, in the quarter ended June
30, 2005, as compared to the corresponding period of the prior year.



For the six months ended June 30, 2005, sales and marketing expenses increased 8.4% to $7.9 million from $7.3 million in the comparable period of 2004. The increase was primarily the result of increased employee-related expenses and travel
costs incurred as noted above. As a percentage of revenue, sales and marketing expenses increased to 9.8% in the second quarter of 2005 from 9.0% in the corresponding period in 2004, and increased to 9.8% during the first six months of 2005, from
9.0% during the six months ended June 30, 2004, as a result of the increase in expenses.



General and Administrative. General and administrative expenses consist of salaries of the management, purchasing, process and technology, finance and administrative groups, and associated employee benefits and
travel; facilities costs; information systems costs; professional fees; business reconfiguration costs and all other site and corporate costs. The following table shows general and administrative expenses in dollars, the dollar variance as compared
to the prior year period and as a percentage of revenue for the three and six months ended June 30, 2005 and 2004, respectively:



|                                          |  |                             |           |   |                           |   |           |      |  |   |            |   |  |   |            |  
|----------------------------------------- |  | --------------------------- | --------- | - | ------------------------- | - | --------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                          |  | Three Months Ended June 30, |           |   | Six Months Ended June 30, |  
|                                          |  | 2005                        |           |   | 2004                      |   |           | 2005 |  |   | 2004       |  
|Total general and administrative expenses |  | $                           | 7,913,000 |   |                           | $ | 7,660,000 |      |  | $ | 15,628,000 |   |  | $ | 15,810,000 |  
|Increase (decrease) from prior year       |  |                             | 253,000   |   |                           |   |           |      |  |   | (182,000   | ) |  |   |            |  
|Percentage of revenue                     |  |                             | 19.1      | % |                           |   | 18.7      | %    |  |   | 19.5       | % |  |   | 19.6       | %



General and
administrative costs increased $253,000, or 3.3%, to $7.9 million for the quarter ended June 30, 2005 as compared to $7.7 million for the quarter ended June 30, 2004. The increase was primarily the result of higher employee, audit and certain costs
incurred in connection with the pending acquisition of Bowne Global Solutions, in the quarter ended June 30, 2005, as compared to the corresponding period of the prior year.



For the six months ended June 30, 2005, general and administrative expenses decreased $182,000 to $15.6 million from $15.8
million during the corresponding period of 2004. The decrease was primarily the result of lower employee, facility and travel costs, reflecting the benefit of restructuring activities primarily related to the integration of the India operation in
the first quarter of 2005, partially offset by the increase in the second quarter noted above, as compared to the six months ended June 30, 2004. As a percentage of revenue, general and administrative expenses increased to 19.1% in the quarter ended
June 30, 2005, as compared to 18.7% for the quarter ended June 30, 2005, and decreased to 19.5% from 19.6% for the six months ended June 30, 2005 and 2004, respectively, due primarily to the items noted above.



Research and Development.Research and development expenses relate to
the development and integration of configurable technologies used in the globalization process and the research and development of a language management technology platform



16



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##### Table of Contents

initiated in 2004. The costs consist primarily of salaries and associated employee benefits and third-party contractor expenses.The following table shows
research and development expense in dollars, the dollar variance as compared to the prior year and as a percentage of revenue for the three and six months ended June 30, 2005 and 2004, respectively:



|                                       |  |                             |         |   |                           |   |        |      |  |   |         |   |  |   |         |  
|-------------------------------------- |  | --------------------------- | ------- | - | ------------------------- | - | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                       |  | Three Months Ended June 30, |         |   | Six Months Ended June 30, |  
|                                       |  | 2005                        |         |   | 2004                      |   |        | 2005 |  |   | 2004    |  
|Total research and development expense |  | $                           | 238,000 |   |                           | $ | 54,000 |      |  | $ | 382,000 |   |  | $ | 179,000 |  
|Increase from prior year               |  |                             | 184,000 |   |                           |   |        |      |  |   | 203,000 |   |  |   |         |  
|Percentage of revenue                  |  |                             | 0.6     | % |                           |   | 0.1    | %    |  |   | 0.5     | % |  |   | 0.2     | %



Research and
development expense increased 340.7% to $238,000 for the quarter ended June 30, 2005 as compared to $54,000 for the quarter ended June 30, 2004. For the six months ended June 30, 2005, research and development expenses increased 113.4% to $382,000
from $179,000 for the six months ended June 30, 2004. This increase is attributable to research and development costs incurred in development of a language management technology platform.



Depreciation and Amortization.Depreciation and amortization consist of the expense related to property and equipment
that is being depreciated over the estimated useful lives of the assets using the straight-line method. The following table shows depreciation and amortization expense in dollars, the dollar variance as compared to the prior year and as a percentage
of revenue for the three and six months ended June 30, 2005 and 2004, respectively:



|                                            |  |                             |         |   |                           |   |         |      |  |   |           |   |  |   |           |  
|------------------------------------------- |  | --------------------------- | ------- | - | ------------------------- | - | ------- | ---- |  | - | --------- | - |  | - | --------- | -
|                                            |  | Three Months Ended June 30, |         |   | Six Months Ended June 30, |  
|                                            |  | 2005                        |         |   | 2004                      |   |         | 2005 |  |   | 2004      |  
|Total depreciation and amortization expense |  | $                           | 569,000 |   |                           | $ | 775,000 |      |  | $ | 1,228,000 |   |  | $ | 1,640,000 |  
|Decrease from prior year                    |  |                             | 206,000 |   |                           |   |         |      |  |   | 412,000   |   |  |   |           |  
|Percentage of revenue                       |  |                             | 1.4     | % |                           |   | 1.9     | %    |  |   | 1.5       | % |  |   | 2.0       | %



Depreciation and
amortization expense decreased 26.6% to $569,000 for the quarter ended June 30, 2005 as compared to $775,000 for the quarter ended June 30, 2004. For the six months ended June 30, 2005, depreciation and amortization expense decreased 25.1% to $1.2
million from $1.6 million for the six months ended June 30, 2004. The culmination of depreciable lives of certain assets acquired in prior years resulted in decreased depreciation and amortization expense for the three and six months ended June 30,
2005, as compared to the corresponding periods of the prior year.



Liquidity
and Capital Resources



In December 2004, Lionbridge
entered into a line of credit agreement with a commercial bank. Under the terms of the agreement, Lionbridge is able to borrow up to $35.0 million (including up to $15 million in certain other currencies), limited by certain financial covenants.
Borrowings outstanding under the agreement are collateralized by the domestic assets of the Company and its U.S. subsidiaries. The agreement bears interest at Prime, LIBOR or IBOR (at the discretion of the Company) plus an applicable margin based on
certain financial covenants. As of June 30, 2005, Lionbridge had no borrowings outstanding under the agreement.



The following table shows cash and cash equivalents and working capital at June 30, 2005 and at December 31, 2004:



|                          |  |               |            |                   |   |           
|------------------------- |  | ------------- | ---------- | ----------------- | - | ----------
|                          |  | June 30, 2005 |            | December 31, 2004
|Cash and cash equivalents |  | $             | 24,116,000 |                   | $ | 38,450,000
|Short-term investments    |  |               | 15,800,000 |                   |   | 4,000,000 
|Working capital           |  |               | 50,343,000 |                   |   | 49,961,000



Lionbridges
working capital increased $382,000 to $50.3 million at June 30, 2005 as compared to $50.0 million at December 31, 2004. As of June 30, 2005, cash and cash equivalents totaled $24.1 million, a decrease of $14.3 million from $38.5 million at December
31, 2004; short term investments totaled $15.8 million at June 30, 2005, an increase of $11.8 million as compared to $4.0 million at December 31, 2004; accounts receivable and work in process totaled $34.7 million, an increase of $4.5 million as
compared to December 31, 2004; and other current assets increased by $684,000 as compared to December 31, 2004. Current liabilities totaled $27.0 million at June 30, 2005, an increase of $2.2 million from December 31, 2004.



The following table shows the net cash provided by operating activities, net
cash used in investing activities, and net cash provided by financing activities for the six months ended June 30, 2005 and 2004, respectively:



|                                          |  |                           |            |      |   |          
|----------------------------------------- |  | ------------------------- | ---------- | ---- | - | ---------
|                                          |  | Six Months Ended June 30,
|                                          |  | 2005                      |            | 2004
|Net cash provided by operating activities |  | $                         | 649,000    |      | $ | 4,496,000
|Net cash used in investing activities     |  |                           | 14,122,000 |      |   | 354,000  
|Net cash provided by financing activities |  |                           | 333,000    |      |   | 837,000  



17



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##### Table of Contents

Net cash provided by operating activities was $649,000 for the six-month period ended June 30, 2005, as
compared to net cash provided by operating activities of $4.5 million for the corresponding period of the prior year. The primary source of cash in the six months ended June 30, 2005 was the growth and profitability of the business, including net
income of $1.2 million (inclusive of $2.2 million in depreciation, amortization and other non-cash expenses), and a net $4.0 million increase in accounts payable and accrued expenses and a $550,000 increase in deferred revenue, partially offset by
other changes including a $6.2 million increase in accounts receivable, a $1.1 million increase in work-in-process and certain other operating assets. The primary source of cash in the six months ended June 30, 2004 was the growth and profitability
of the business, including net income of $4.4 million (inclusive of $2.2 million in depreciation, amortization and other non-cash expenses), and a $953,000 reduction in accounts receivable and certain other operating assets, partially offset by
other changes including a net $1.5 million decrease in accounts payable and accrued expenses, a $896,000 increase in work-in-process and a $713,000 decrease in deferred revenue.



Lionbridge has not experienced any significant trends in accounts receivable and work in process other than changes relative
to the change in revenue, as previously noted. Fluctuations in accounts receivable from period to period relative to changes in revenue are a result of timing of customer invoicing and receipt of payments from customers.



Net cash used in investing activities increased $13.8 million to $14.1
million for the six-month period ended June 30, 2005 from $354,000 for the corresponding quarter of the prior year. The primary investing activities in the six-month period ended June 30, 2005 were the purchase of $60.8 million of short-term
investments, $837,000 for the acquisition of Logoport and $1.5 million for the purchase of property and equipment. Net cash provided by investing activities in the six-month period ended June 30, 2005 came from the sale of $49.0 million of
short-term investments. Net cash provided by investing activities in the six-month period ended June 30, 2004 consisted of the purchase of $402,000 of property and equipment, partially offset by $48,000 in proceeds from the sale of property and
equipment.



Net cash provided by financing activities decreased
$504,000 to $333,000 in the six-month period ended June 30, 2005 as compared to $837,000 for the corresponding period of 2004. Net cash provided by financing activities for both six-month periods consisted of the proceeds from the issuance of common
stock under option and employee stock purchase plans, partially offset by the payments of capital lease obligations.



Lionbridges future financing requirements will depend upon a number of factors, including its operating performance and increases in operating
expenses associated with growth in its business, and the pending merger with Bowne Global Solutions. In connection with this merger, the Company received a Commitment Letter dated as of June 27, 2005 from Wachovia Bank, National Association and
Wachovia Capital Markets, LLC. The Commitment Letter provides for a 5-year $25 million revolving credit facility and a 6-year $100 million term facility (together with the revolving credit facility, the Facility). The Facility will be
used to fund a portion of the $130 million cash payment to Bowne. The Company will issue up to 9.4 million shares of common stock to Bowne to fund $50 million of the purchase price. If the 9.4 million shares of common stock do not represent at least
$50 million, the Company will fund the remainder of the purchase price, if any, through the issuance of a subordinated promissory note of no more than $20 million.



On February 10, 2005, Lionbridge filed with the Securities and Exchange Commission a shelf registration statement on Form
S-3 under the Securities Act of 1933, as amended (333-122698), covering the registration of common stock (the Securities), in an aggregate amount of $130 million, which was declared effective by the Commission on February 23, 2005. These
Securities may be offered from time to time in amounts, at prices and on terms to be determined at the time of sale. The Company believes the shelf registration provides additional financing flexibility to meet potential future funding requirements
and the ability to take advantage of potentially attractive capital market conditions. Lionbridge anticipates that its present cash and short-term investments position, available financing and access to capital markets should provide adequate cash
to fund its currently anticipated cash needs for the next twelve months and foreseeable future.



Contractual Obligations



As of June 30, 2005, there are no material changes in Lionbridges contractual obligations as disclosed in the Companys Annual Report on Form 10-K for the year ended December 31, 2004.



Off-Balance Sheet Arrangements



The Company does not have any special purpose entities or off-balance sheet
financing arrangements.



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Recent Accounting Pronouncements



In May 2005, the Financial Accounting Standards Board (FASB) issued Statement of Accounting Standards
(SFAS) 154, Accounting Changes and Error Corrections which replaces APB Opinion No. 20 Accounting Changes and FASB SFAS 3 Reporting Accounting Changes in Interim Financial Statements. This statement
changes the requirements for the accounting for and reporting of a change in accounting principle. This statement applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the
unusual instance that the pronouncement does not include specific transition provisions. This statement requires voluntary changes in accounting principles be recognized retrospectively to prior periods financial statements, rather than
recognition in the net income of the current period. Retrospective application requires restatements of prior period financial statements as if that accounting principle had always been used. This statement carries forward without change the
guidance contained in Opinion 20 for reporting the correction of an error in previously issued financial statements and a change in accounting estimate. The provisions of FASB SFAS 154 are effective for accounting changes and corrections of errors
made in fiscal years beginning after December 15, 2005. The Company does not expect the adoption of this pronouncement to have a significant impact on its financial statements.



In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards
123revised 2004 (SFAS 123R), Share-Based Payment which replaces Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting for Stock-Based Compensation and supersedes APB Opinion
No. 25 (APB 25), Accounting for Stock Issued to Employees. On April 14, 2005, the Securities and Exchange Commission amended the effective date for SFAS 123R to annual periods that begin after June 15, 2005. Accordingly, the
Company will be required to adopt SFAS 123R effective January 1, 2006. SFAS 123R requires the measurement of all employee share-based payments to employees, including grants of employee stock options, using a fair-value-based method and the
recording of such expense in our consolidated statements of income. SFAS 123R requires companies to assess the most appropriate model to calculate the value of the options. Lionbridge currently uses the Black-Scholes option pricing model to value
options and are currently assessing which model we may use in the future under the new statement and may determine that an alternative model may more appropriate. In addition, there are a number of other requirements under the new standard that
would result in differing accounting treatment than those required under SFAS 123. These differences include, but are not limited to, the accounting for the tax benefit on employee stock options and for stock issued under our employee stock purchase
plan, and the presentation of these tax benefits within the consolidated statement of cash flows. In addition to the appropriate fair value model to be used for valuing share-based payments, we will also be required to determine the transition
method to be used at date of adoption of SFAS 123R. The allowed transition methods include choices of prospective or retroactive adoption. The prospective method requires that compensation expense be recorded for all unvested stock options and
restricted stock at the beginning of the first quarter of adoption of SFAS 123R, while the retroactive methods would record compensation expense for all unvested stock options and restricted stock beginning with the first period restated. The pro
forma disclosures previously permitted under SFAS 123 will no longer be an alternative to financial statement recognition. See Note 1 in our Notes to Consolidated Financial Statements for the pro forma net income (loss) and net income (loss) per
share amounts, for the three-month period ended June 30, 2005 and 2004, as if we had used a fair-value-based method similar to the methods required under SFAS 123R to measure compensation expense for employee stock incentive awards. It is expected
that the adoption of SFAS 123R will have a significant impact on our consolidated statements of operations and net income (loss) per share if the adoption results in amounts similar to those in the current pro forma disclosure.



Item 3.Quantitative and Qualitative Disclosures about Market Risk



Lionbridge is exposed to market risk related to changes in interest rates and foreign currency exchange fluctuation. Lionbridge does not use derivative
financial instruments for speculative or trading purposes.



Interest Rate Risk. Lionbridge is exposed to market risk from changes in interest rates with respect to its line of credit with a commercial bank. There were no amounts outstanding as of June 30, 2005 under this facility. In
addition, Lionbridges ability to finance future acquisitions through debt transactions may be impacted if it is unable to obtain appropriate debt financing at acceptable rates. Lionbridge is exposed to market risk from changes in interest
rates through its investing activities. Lionbridges investment portfolio consists primarily of investments in high-grade commercial bank money market accounts. A hypothetical 10% increase or decrease in interest rates would not have a material
impact on the carrying value of Lionbridges investments due to their immediate available liquidity or their short maturity.



Foreign Currency Exchange Rate Risk. Lionbridge conducts a large portion of its business in international markets. Although a majority of
Lionbridges contracts with clients are denominated in U.S. dollars, 44% of its costs for the six-month periods ended June 30, 2005 and 2004, respectively, were denominated in foreign currencies. Eleven percent and 6% of its assets were
recorded in foreign currencies as of June 30, 2005 and December 31, 2004, respectively. Twenty-one percent and 22% of its liabilities were recorded in foreign currencies as of June 30, 2005 and December 31, 2004, respectively. The principal foreign
currencies applicable to our business are the Euro, the Indian Rupee and the Yen. In addition, Lionbridge has assets and liabilities denominated in U.S. dollars in foreign countries. As a result, Lionbridge is exposed to foreign currency exchange
fluctuations. Lionbridge has not historically used derivative instruments to reduce its exposure to exchange rate fluctuations; however, beginning in January 2005, the Company adopted an economic hedging policy. The impact of hedging activities
during the quarter ended June 30, 2005 was not material and



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the Company had no derivative instruments outstanding as of June 30, 2005. From time to time, the U.S. dollar has been volatile relative to foreign
currencies, particularly the Euro. Therefore, Lionbridge has experienced exchange rate gains or losses as a result of fluctuations in assets and liabilities and changes in revenue and expense mix in various subsidiaries operating in non-U.S. dollar
denominated functional currencies. If Lionbridge is unsuccessful in reducing foreign currency exchange rate risk, Lionbridge may experience additional foreign currency fluctuations which may significantly harm its revenue, cash flow and results of
operations, as well as Lionbridges ability to maintain profitability as it continues to grow its business.



Item 4.Controls and Procedures



Evaluation of disclosure controls and procedures.Lionbridge maintains disclosure controls and procedures designed to ensure that information required to be disclosed in the Companys filings under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported accurately within the time periods specified in the Securities and Exchange Commissions rules and forms. As of the end of the period covered by this report, an
evaluation was performed under the supervision and with the participation of management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of the
Companys disclosure controls and procedures (pursuant to Exchange Act Rule 13a-15). Based upon this evaluation, the CEO and CFO concluded that the Companys disclosure controls and procedures are effective as of June 30, 2005.



Changes in internal controls.There were no significant changes in
the Companys internal control over financial reporting that occurred during the quarter ended June 30, 2005 that materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.



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LIONBRIDGE TECHNOLOGIES, INC.



PART IIOTHER INFORMATION



Item 1.Legal Proceedings



On or about July 24, 2001, a purported securities class action lawsuit captioned Samet v. Lionbridge Technologies, Inc. et al. (01-CV-6770) was filed in the United States District Court for the Southern
District of New York (the Court) against the Company, certain of its officers and directors, and certain underwriters involved in the Companys initial public offering. The complaint in this action asserted, among other things, that
Lionbridges initial public offering registration statement contained misstatements and/or omissions regarding the underwriters alleged conduct in allocating shares in Lionbridges initial public offering to the underwriters
customers. In March 2002, the United States District Court for the Southern District of New York entered an order dismissing without prejudice the claims against Lionbridge and its officers and directors (the case remained pending against the
underwriter defendants). On April 19, 2002, the plaintiffs filed an amended complaint naming as defendants not only the underwriter defendants but also Lionbridge and certain of its officers and directors. The amended complaint asserts claims under
both the registration and antifraud provisions of the federal securities laws relating to, among other allegations, the underwriters alleged conduct in allocating shares in the Companys initial public offering and the disclosures
contained in the Companys registration statement. The Company understands that various plaintiffs have filed approximately 1,000 lawsuits making substantially similar allegations against approximately 300 other publicly-traded companies in
connection with the underwriting of their public offerings. On July 15, 2002, the Company, together with the other issuers named as defendants in these coordinated proceedings, filed a collective motion to dismiss the complaint on various legal
grounds common to all or most of the issuer defendants. In October 2002, the claims against officers and directors were dismissed without prejudice. In February 2003, the Court issued its ruling on the motion to dismiss, ruling that the claims under
the antifraud provisions of the securities laws could proceed against the Company and a majority of the other issuer defendants.



In June 2003, Lionbridge elected to participate in a proposed settlement agreement with the plaintiffs in this litigation. If ultimately approved by the
Court, this proposed settlement would result in a dismissal, with prejudice, of all claims in the litigation against Lionbridge and against any other of the issuer defendants who elect to participate in the proposed settlement, together with the
current or former officers and directors of participating issuers who were named as individual defendants. The proposed settlement does not provide for the resolution of any claims against underwriter defendants, and the litigation as against those
defendants is continuing. The proposed settlement provides that the class members in the class action cases brought against the participating issuer defendants will be guaranteed a recovery of $1 billion by insurers of the participating issuer
defendants. If recoveries totaling $1 billion or more are obtained by the class members from the underwriter defendants, however, the monetary obligations to the class members under the proposed settlement will be satisfied. In addition, Lionbridge
and any other participating issuer defendants will be required to assign to the class members certain claims that they may have against the underwriters of their IPOs.



The proposed settlement contemplates that any amounts necessary to fund the settlement or settlement-related expenses would
come from participating issuers directors and officers liability insurance policy proceeds, as opposed to funds of the participating issuer defendants themselves. A participating issuer defendant could be required to contribute to the costs of
the settlement if that issuers insurance coverage were insufficient to pay that issuers allocable share of the settlement costs. Lionbridge expects that its insurance proceeds will be sufficient for these purposes and that it will not
otherwise be required to contribute to the proposed settlement.



Consummation of the proposed settlement is conditioned upon obtaining both preliminary and final approval by the Court. Formal settlement documents were submitted to the Court in June 2004, together with a motion asking the Court to
preliminarily approve the form of settlement. Certain underwriters who were named as defendants in the settling cases, and who are not parties to the proposed settlement, opposed preliminary approval of the proposed settlement of those cases. On
February 15, 2005, the Court issued an order preliminarily approving the proposed settlement in all respects but one. In response to this order, the plaintiffs and the issuer defendants are in the process of submitting revised settlement documents
to the Court. The underwriter defendants may object to the revised settlement documents. If the Court approves the revised settlement documents, it will direct that notice of the terms of the proposed settlement be published in a newspaper and on
the internet and mailed to all proposed class members. It will also schedule a fairness hearing, at which objections to the proposed settlement will be heard. Thereafter, the Court will determine whether to grant final approval to the proposed
settlement.



If the proposed settlement described above is not
consummated, Lionbridge intends to continue to defend the litigation vigorously. Moreover, if the proposed settlement is not consummated, the Company believes that the underwriters may have an obligation to indemnify Lionbridge for the legal fees
and other costs of defending this suit. While Lionbridge cannot guarantee the outcome of these proceedings, the Company believes that the final result of this lawsuit will have no material effect on its consolidated financial condition, results of
operations, or cash flows.



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Item 4.Submission of Matters to a Vote of Security Holders



On May 20, 2005, the Company held its Annual Meeting of Stockholders. At the meeting the stockholders elected two members (Rory J. Cowan and Paul
Kavanagh) to the Board of Directors to serve for a three-year term as Class III Directors. 36,379,059 shares were cast for Mr. Cowan; 1,115,184 shares were cast to withhold authority for Mr. Cowan. 36,936,121 shares were cast for Mr. Kavanagh;
558,122 shares were cast to withhold authority for Mr. Kavanagh.



Item 6. Exhibits



(a) Exhibits.



|     |  |                                                                                                                                                                                                                                                                                                                                                              
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1  |  | Agreement and Plan of Merger dated as of June 27, 2005 among Lionbridge Technologies, Inc., GGS Acquisition Corp.,BGS Companies, Inc., Bowne & Co., Inc. and Bowne of New York, LLC
(filed as Exhibit 2.1 to Registrants Current Reporton Form 8-K filed with the Securities and Exchange Commission on June 28, 2005 and incorporated herein by reference).
|     | 
|31.1 |  | Certification of Rory J. Cowan, the Companys principal executive officer as required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                      
|     | 
|31.2 |  | Certification of Stephan J. Lifshatz, the Companys principal financial officer as required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                
|     | 
|32.1 |  | Certifications of Rory J. Cowan, the Companys principal executive officer, and Stephen J. Lifshatz, the Companys principal financial officer, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                    



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LIONBRIDGE TECHNOLOGIES, INC.



SIGNATURE



Pursuant to the requirements 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.



LIONBRIDGE TECHNOLOGIES, INC.By:

/S/ STEPHEN J. LIFSHATZStephen J. Lifshatz Senior Vice President, Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer)




Dated: August 5, 2005



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Exhibit Index



|              |  |                                                                                                                                                                                                                                                                                                                                                                
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                                                                                    
|2.1           |  | Agreement and Plan of Merger dated as of June 27, 2005 among Lionbridge Technologies, Inc., GGS Acquisition Corp., BGS Companies, Inc., Bowne & Co., Inc. and Bowne of New York, LLC (filed
as Exhibit 2.1 to Registrants Current Report on Form 8-K filed with the Securities and Exchange Commission on June 28, 2005 and incorporated herein by reference).
|              | 
|31.1          |  | Certification of Rory J. Cowan, the Companys principal executive officer as required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                        
|              | 
|31.2          |  | Certification of Stephan J. Lifshatz, the Companys principal financial officer as required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                  
|              | 
|32.1          |  | Certifications of Rory J. Cowan, the companys principal executive officer, and Stephen J. Lifshatz, the companys principal financial officer, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                      



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