##### Table of Contents

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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 September 30, 2006

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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated
filer ̈Accelerated filer  x    Non-accelerated filer ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes ̈No  x

The number of shares outstanding of the registrants common stock, par value $0.01 per share, as of October 31, 2006 was 60,008,018.



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##### Table of Contents

LIONBRIDGE TECHNOLOGIES, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2006

TABLE OF CONTENTS



|                              |  |                                                                                                                                    |  |     
|----------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                              |  |                                                                                                                                    |  | Page
|PART I: FINANCIAL INFORMATION |  |                                                                                                                                   
|                              |  |                                                                                                                                   
|ITEM 1                        |  | Condensed Consolidated Financial Statements:                                                                                       |  |     
|                              |  |                                                                                                                                   
|                              |  | Condensed Consolidated Balance Sheets as of September 30, 2006 (unaudited) and December 31, 2005                                   |  | 3   
|                              |  |                                                                                                                                   
|                              |  | Condensed Consolidated Statements of Operations (unaudited) for the three months and nine months ended September 30, 2006 and 2005 |  | 4   
|                              |  |                                                                                                                                   
|                              |  | Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2006 and 2005                  |  | 5   
|                              |  |                                                                                                                                   
|                              |  | Notes to Condensed Consolidated Financial Statements (unaudited)                                                                   |  | 6   
|                              |  |                                                                                                                                   
|ITEM 2                        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                              |  | 18  
|                              |  |                                                                                                                                   
|ITEM 3                        |  | Quantitative and Qualitative Disclosures About Market Risk                                                                         |  | 31  
|                              |  |                                                                                                                                   
|ITEM 4                        |  | Controls and Procedures                                                                                                            |  | 32  
|                              | 
|PART II: OTHER INFORMATION    |  |                                                                                                                                   
|                              |  |                                                                                                                                   
|ITEM 1                        |  | Legal Proceedings                                                                                                                  |  | 32  
|                              |  |                                                                                                                                   
|ITEM 1A.                      |  | Risk Factors                                                                                                                       |  | 33  
|                              |  |                                                                                                                                   
|ITEM 2                        |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                        |  | 34  
|                              |  |                                                                                                                                   
|ITEM 6                        |  | Exhibits                                                                                                                           |  | 34  
|                              | 
|SIGNATURE                     |  | 35                                                                                                                                
|                              | 
|EXHIBIT INDEX                 |  | 36                                                                                                                                



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##### Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

LIONBRIDGE TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data)



|                                                                                                                                                                                |  |                    |          |   |                   |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | -------- | - | ----------------- | - | -------- | -
|                                                                                                                                                                                |  | September 30, 2006 |          |   | December 31, 2005 |  
|                                                                                                                                                                                |  | (unaudited)        |          |   |                   |  
|ASSETS                                                                                                                                                                          |  |                    |          |   |                   |   |          |  
|Current assets:                                                                                                                                                                 |  |                    |          |   |                   |   |          |  
|Cash and cash equivalents                                                                                                                                                       |  | $                  | 21,877   |   |                   | $ | 25,147   |  
|Accounts receivable, net of allowance of $726 at September 30, 2006 and December 31, 2005                                                                                       |  |                    | 66,743   |   |                   |   | 68,017   |  
|Work in process                                                                                                                                                                 |  |                    | 36,035   |   |                   |   | 25,759   |  
|Other current assets                                                                                                                                                            |  |                    | 8,755    |   |                   |   | 7,446    |  
|                                                                                                                                                                                |  |                    |          |   |                   |   |          |  
|Total current assets                                                                                                                                                            |  |                    | 133,410  |   |                   |   | 126,369  |  
|Property and equipment, net                                                                                                                                                     |  |                    | 13,178   |   |                   |   | 14,002   |  
|Goodwill                                                                                                                                                                        |  |                    | 130,949  |   |                   |   | 130,982  |  
|Other intangible assets, net                                                                                                                                                    |  |                    | 39,061   |   |                   |   | 45,590   |  
|Other assets                                                                                                                                                                    |  |                    | 3,286    |   |                   |   | 3,034    |  
|                                                                                                                                                                                |  |                    |          |   |                   |   |          |  
|Total assets                                                                                                                                                                    |  | $                  | 319,884  |   |                   | $ | 319,977  |  
|                                                                                                                                                                                |  |                    |          |   |                   |   |          |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                            |  |                    |          |   |                   |   |          |  
|Current liabilities:                                                                                                                                                            |  |                    |          |   |                   |   |          |  
|Short-term debt and current portion of long-term debt, net of discount of $397 and $412 at September 30, 2006 and December 31, 2005,
respectively                               |  | $                  | 959      |   |                   | $ | 1,195    |  
|Accounts payable                                                                                                                                                                |  |                    | 19,622   |   |                   |   | 14,809   |  
|Accrued compensation and benefits                                                                                                                                               |  |                    | 17,452   |   |                   |   | 17,969   |  
|Accrued outsourcing                                                                                                                                                             |  |                    | 11,798   |   |                   |   | 9,052    |  
|Accrued merger and restructuring                                                                                                                                                |  |                    | 1,841    |   |                   |   | 3,007    |  
|Accrued expenses and other current liabilities                                                                                                                                  |  |                    | 15,414   |   |                   |   | 14,578   |  
|Deferred revenue                                                                                                                                                                |  |                    | 5,750    |   |                   |   | 8,577    |  
|                                                                                                                                                                                |  |                    |          |   |                   |   |          |  
|Total current liabilities                                                                                                                                                       |  |                    | 72,836   |   |                   |   | 69,187   |  
|                                                                                                                                                                                |  |                    |          |   |                   |   |          |  
|Long-term debt, less current portion and net of discount of $1,398 and $1,746 at September 30, 2006 and December 31, 2005,
respectively                                         |  |                    | 76,523   |   |                   |   | 90,268   |  
|Deferred income taxes, long-term                                                                                                                                                |  |                    | 8,076    |   |                   |   | 7,420    |  
|Other long-term liabilities                                                                                                                                                     |  |                    | 3,489    |   |                   |   | 3,367    |  
|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; 60,006,471 and 59,266,985 shares issued and outstanding at September 30,
2006 and December 31, 2005, respectively |  |                    | 600      |   |                   |   | 593      |  
|Additional paid-in capital                                                                                                                                                      |  |                    | 255,160  |   |                   |   | 254,405  |  
|Accumulated deficit                                                                                                                                                             |  |                    | (101,740 | ) |                   |   | (102,802 | )
|Deferred compensation                                                                                                                                                           |  |                    |         |   |                   |   | (4,157   | )
|Accumulated other comprehensive income                                                                                                                                          |  |                    | 4,940    |   |                   |   | 1,696    |  
|                                                                                                                                                                                |  |                    |          |   |                   |   |          |  
|Total stockholders equity                                                                                                                                                      |  |                    | 158,960  |   |                   |   | 149,735  |  
|                                                                                                                                                                                |  |                    |          |   |                   |   |          |  
|Total liabilities and stockholders equity                                                                                                                                      |  | $                  | 319,884  |   |                   | $ | 319,977  |  
|                                                                                                                                                                                |  |                    |          |   |                   |   |          |  

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



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LIONBRIDGE TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Amounts in thousands,
except per share data)



|                                                                            |  |                                  |         |   |                                 |   |        |      |  |      |         |  |   |         |  
|--------------------------------------------------------------------------- |  | -------------------------------- | ------- | - | ------------------------------- | - | ------ | ---- |  | ---- | ------- |  | - | ------- | -
|                                                                            |  | Three Months Ended September 30, |         |   | Nine Months Ended September 30, |  
|                                                                            |  | 2006                             |         |   | 2005                            |   |        | 2006 |  | 2005 |        
|Revenue                                                                     |  | $                                | 107,964 |   |                                 | $ | 58,417 |      |  | $    | 317,612 |  | $ | 138,575 |  
|Operating expenses:                                                         |  |                                  |         |   |                                 |   |        |      |  |      |         |  |   |         |  
|Cost of revenue (exclusive of depreciation and amortization included below) |  |                                  | 72,445  |   |                                 |   | 38,211 |      |  |      | 209,219 |  |   | 90,718  |  
|Sales and marketing                                                         |  |                                  | 7,274   |   |                                 |   | 5,136  |      |  |      | 22,463  |  |   | 13,135  |  
|General and administrative                                                  |  |                                  | 18,882  |   |                                 |   | 11,728 |      |  |      | 55,664  |  |   | 28,020  |  
|Research and development                                                    |  |                                  | 689     |   |                                 |   | 449    |      |  |      | 2,173   |  |   | 832     |  
|Depreciation and amortization                                               |  |                                  | 1,323   |   |                                 |   | 916    |      |  |      | 4,228   |  |   | 2,144   |  
|Amortization of acquisition-related intangible assets                       |  |                                  | 2,177   |   |                                 |   | 630    |      |  |      | 6,529   |  |   | 648     |  
|Merger, restructuring and other charges                                     |  |                                  | 2,055   |   |                                 |   | 1,879  |      |  |      | 3,466   |  |   | 2,328   |  
|                                                                            |  |                                  |         |   |                                 |   |        |      |  |      |         |  |   |         |  
|Total operating expenses                                                    |  |                                  | 104,845 |   |                                 |   | 58,949 |      |  |      | 303,742 |  |   | 137,825 |  
|                                                                            |  |                                  |         |   |                                 |   |        |      |  |      |         |  |   |         |  
|Income (loss) from operations                                               |  |                                  | 3,119   |   |                                 |   | (532   | )    |  |      | 13,870  |  |   | 750     |  
|                                                                            |  |                                  |         |  
|Interest expense:                                                           |  |                                  |         |   |                                 |   |        |      |  |      |         |  |   |         |  
|Interest on outstanding debt                                                |  |                                  | 1,984   |   |                                 |   | 629    |      |  |      | 5,890   |  |   | 629     |  
|Amortization of deferred financing costs and discount on debt               |  |                                  | 257     |   |                                 |   | 64     |      |  |      | 717     |  |   | 64      |  
|Interest income                                                             |  |                                  | 146     |   |                                 |   | 147    |      |  |      | 332     |  |   | 483     |  
|Other expense, net                                                          |  |                                  | 1,091   |   |                                 |   | 246    |      |  |      | 2,236   |  |   | 468     |  
|                                                                            |  |                                  |         |   |                                 |   |        |      |  |      |         |  |   |         |  
|Income (loss) before income taxes                                           |  |                                  | (67     | ) |                                 |   | (1,324 | )    |  |      | 5,359   |  |   | 72      |  
|Provision for income taxes                                                  |  |                                  | 866     |   |                                 |   | 1,120  |      |  |      | 4,297   |  |   | 1,347   |  
|                                                                            |  |                                  |         |   |                                 |   |        |      |  |      |         |  |   |         |  
|Net income (loss)                                                           |  | $                                | (933    | ) |                                 | $ | (2,444 | )    |  | $    | 1,062   |  | $ | (1,275  | )
|                                                                            |  |                                  |         |   |                                 |   |        |      |  |      |         |  |   |         |  
|Net income (loss) per share of common stock:                                |  |                                  |         |   |                                 |   |        |      |  |      |         |  |   |         |  
|Basic                                                                       |  | $                                | (0.02   | ) |                                 | $ | (0.05  | )    |  | $    | 0.02    |  | $ | (0.03   | )
|Diluted                                                                     |  | $                                | (0.02   | ) |                                 | $ | (0.05  | )    |  | $    | 0.02    |  | $ | (0.03   | )
|Weighted average number of common shares outstanding:                       |  |                                  |         |   |                                 |   |        |      |  |      |         |  |   |         |  
|Basic                                                                       |  |                                  | 59,062  |   |                                 |   | 50,362 |      |  |      | 58,931  |  |   | 48,135  |  
|Diluted                                                                     |  |                                  | 59,062  |   |                                 |   | 50,362 |      |  |      | 60,784  |  |   | 48,135  |  

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



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LIONBRIDGE TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in thousands)



|                                                                                         |  |                                 |         |   |      |   |          |  
|---------------------------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ---- | - | -------- | -
|                                                                                         |  | Nine Months Ended September 30, |        
|                                                                                         |  | 2006                            |         |   | 2005 |  
|Cash flows from operating activities:                                                    |  |                                 |         |   |      |   |          |  
|Net income (loss)                                                                        |  | $                               | 1,062   |   |      | $ | (1,275   | )
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                                 |         |   |      |   |          |  
|Stock-based compensation                                                                 |  |                                 | 4,347   |   |      |   | 1,150    |  
|Amortization of deferred financing charges and discount on debt                          |  |                                 | 717     |   |      |   | 64       |  
|Depreciation and amortization                                                            |  |                                 | 4,228   |   |      |   | 2,144    |  
|Amortization of acquisition-related intangible assets                                    |  |                                 | 6,529   |   |      |   | 648      |  
|Non-cash merger, restructuring and other charges                                         |  |                                 |        |   |      |   | 35       |  
|Provision for doubtful accounts                                                          |  |                                 |        |   |      |   | 156      |  
|Deferred income taxes                                                                    |  |                                 | 586     |   |      |   |         |  
|Other                                                                                    |  |                                 | 65      |   |      |   | 38       |  
|Changes in operating assets and liabilities, net of effects of acquisitions:             |  |                                 |         |   |      |   |          |  
|Accounts receivable                                                                      |  |                                 | 4,087   |   |      |   | (8,188   | )
|Work in process                                                                          |  |                                 | (9,249  | ) |      |   | (156     | )
|Other current assets                                                                     |  |                                 | (1,078  | ) |      |   | (1,620   | )
|Other assets                                                                             |  |                                 | 222     |   |      |   | (999     | )
|Accounts payable                                                                         |  |                                 | 4,961   |   |      |   | 5,675    |  
|Accrued compensation and benefits                                                        |  |                                 | 3,386   |   |      |   | 957      |  
|Accrued outsourcing                                                                      |  |                                 | 2,266   |   |      |   | 820      |  
|Accrued merger and restructuring                                                         |  |                                 | (785    | ) |      |   | 195      |  
|Accrued expenses and other liabilities                                                   |  |                                 | (8,619  | ) |      |   | 2,647    |  
|Deferred revenue                                                                         |  |                                 | (3,078  | ) |      |   | 1,235    |  
|                                                                                         |  |                                 |         |   |      |   |          |  
|Net cash provided by operating activities                                                |  |                                 | 9,647   |   |      |   | 3,526    |  
|                                                                                         |  |                                 |         |   |      |   |          |  
|Cash flows from investing activities:                                                    |  |                                 |         |   |      |   |          |  
|Purchases of property and equipment                                                      |  |                                 | (2,862  | ) |      |   | (2,364   | )
|Proceeds from sale of property and equipment                                             |  |                                 | 11      |   |      |   |         |  
|Payments for businesses acquired                                                         |  |                                 |        |   |      |   | (121,337 | )
|Purchase price adjustment for businesses acquired                                        |  |                                 | 2,515   |   |      |   |         |  
|Purchases of short-term investments                                                      |  |                                 |        |   |      |   | (77,300  | )
|Sales of short-term investments                                                          |  |                                 |        |   |      |   | 81,300   |  
|                                                                                         |  |                                 |         |   |      |   |          |  
|Net cash used in investing activities                                                    |  |                                 | (336    | ) |      |   | (119,701 | )
|                                                                                         |  |                                 |         |   |      |   |          |  
|Cash flows from financing activities:                                                    |  |                                 |         |   |      |   |          |  
|Proceeds from issuance of short-term debt                                                |  |                                 | 9,500   |   |      |   | 2,500    |  
|Payments of short-term debt                                                              |  |                                 | (9,500  | ) |      |   | (2,500   | )
|Proceeds from issuance of long-term debt                                                 |  |                                 |        |   |      |   | 97,728   |  
|Payments of long-term debt                                                               |  |                                 | (14,252 | ) |      |   |         |  
|Proceeds from issuance of common stock under option and employee stock purchase plans    |  |                                 | 1,130   |   |      |   | 1,708    |  
|Payments of capital lease obligations                                                    |  |                                 | (79     | ) |      |   | (176     | )
|                                                                                         |  |                                 |         |   |      |   |          |  
|Net cash provided by (used in) financing activities                                      |  |                                 | (13,201 | ) |      |   | 99,260   |  
|                                                                                         |  |                                 |         |   |      |   |          |  
|Net decrease in cash and cash equivalents                                                |  |                                 | (3,890  | ) |      |   | (16,915  | )
|Effects of exchange rate changes on cash and cash equivalents                            |  |                                 | 620     |   |      |   | (1,092   | )
|Cash and cash equivalents at beginning of period                                         |  |                                 | 25,147  |   |      |   | 38,564   |  
|                                                                                         |  |                                 |         |   |      |   |          |  
|Cash and cash equivalents at end of period                                               |  | $                               | 21,877  |   |      | $ | 20,557   |  
|                                                                                         |  |                                 |         |   |      |   |          |  

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



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LIONBRIDGE TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION

The accompanying condensed 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, all of a normal nature,
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 U.S. 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, 2005.

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.

2. STOCKHOLDERS EQUITY AND STOCK-BASED COMPENSATION

Effect of Adoption of SFAS 123R, Share-Based Payment

The Company has stock-based compensation plans for salaried employees
and non-employee members of the Board of Directors. The plans provide for discretionary grants of stock options, restricted stock and stock units, and other stock-based awards. The plans are administered by the Nominating and Compensation Committee
of the Board of Directors, which consists of non-employee directors.

Effective January 1, 2006, the Company adopted Statement of
Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (SFAS 123R), utilizing the modified prospective method whereby prior periods were not restated for comparability. SFAS 123R requires recognition
of stock-based compensation expense in the statement of operations over the vesting period based on the fair value of the award at the grant date. Previously, the Company used the intrinsic value method under Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees (APB 25), as amended by related interpretations of the Financial Accounting Standards Board (FASB).

Under APB 25, no compensation cost was recognized for stock options if the quoted market price of the stock at the grant date was equal to the amount per
share the employee had to pay to acquire the stock after fulfilling the vesting period. SFAS 123R supersedes APB 25 as well as Statement of Financial Accounting Standard No. 123 Accounting for Stock-Based Compensation (SFAS
123), which permitted pro forma footnote disclosures to report the difference between the fair value method and the intrinsic value method.

The Company recognized expense for restricted stock grants under the previous guidance, thus the impact from adopting SFAS 123R pertains to its requirement to expense the value of stock option and market-based awards. In the three and nine
months ended September 30, 2006, the Company expensed $994,000 and $2.6 million, respectively, for stock options and market-based awards, classified in the statement of operations line items as follows:



|                                                                                        |  |                                                       |         |  |   |          
|--------------------------------------------------------------------------------------- |  | ----------------------------------------------------- | ------- |  | - | ---------
|                                                                                        |  | For the Three and NineMonths Ended September 30, 2006
|Cost of revenue                                                                         |  | $                                                     | 33,000  |  | $ | 83,000   
|Sales and marketing                                                                     |  |                                                       | 198,000 |  |   | 569,000  
|General and administrative                                                              |  |                                                       | 749,000 |  |   | 1,865,000
|Research and development                                                                |  |                                                       | 14,000  |  |   | 36,000   
|                                                                                        |  |                                                       |         |  |   |          
|Total stock-based compensation expense related to stock options and market-based awards |  | $                                                     | 994,000 |  | $ | 2,553,000
|                                                                                        |  |                                                       |         |  |   |          

The impact of recording stock-based compensation related to stock options was a reduction in basic
and diluted earnings per share during the three and nine month periods ended September 30, 2006 of $0.02 and $0.04, respectively. The Company has reclassified $331,000 and $1.2 million of stock-based compensation recognized under APB 25 in the
three and nine month periods ended September 30, 2005, respectively, from the previously reported stock-based compensation line item into the operating expense line items to conform to the current period presentation. The adoption
of SFAS 123R had no impact on cash flows from operating or financing activities.

Valuation Assumptions for Stock Options

During the three-month periods ended September 30, 2006 and 2005, 330,500 and 160,000 stock options were granted, respectively.
During the nine-month periods ended September 30, 2006 and 2005, 1,268,500 and 904,000 stock options were granted, respectively. During the three-month period ended September 30, 2006, 8,206 shares were purchased under the



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employee stock purchase plan. During the nine-month periods ended September 30, 2006 and 2005, 8,206 and 33,601
shares were purchased under the employee stock purchase plan, respectively. The fair value of each option (excluding market-based awards discussed below) was estimated on the date of grant using the Black-Scholes option-pricing model with the
following assumptions:



|                        |  |                                  |   |  |                                 |   |  |              |   |  |              |  
|----------------------- |  | -------------------------------- | - |  | ------------------------------- | - |  | ------------ | - |  | ------------ | -
|                        |  | Three Months Ended September 30, |   |  | Nine Months Ended September 30, |  
|                        |  | 2006                             |   |  | 2005                            |   |  | 2006         |   |  | 2005         |  
|Risk-free interest rate |  | 5.02                             | % |  | 4.09                            | % |  | 4.36 to 5.02 | % |  | 3.41 to 4.09 | %
|Expected volatility     |  | 50.8                             | % |  | 84.0                            | % |  | 50.8         | % |  | 84.0         | %
|Expected life (years)   |  | 3.3                              |   |  | 4.0                             |   |  | 3.3          |   |  | 4.0          |  
|Dividend yield          |  | 0                                | % |  | 0                               | % |  | 0            | % |  | 0            | %

Expected volatilities are based on historical volatilities of Lionbridges common stock; the
expected life represents the weighted average period of time that options granted are expected to be outstanding giving consideration to vesting schedules and the Companys historical exercise patterns; and the risk-free rate is based on the
U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option. In accordance with the Securities and Exchange Staff Accounting Bulletin (SAB) 107, the Company estimated the
expected volatility of its stock options, taking into account a combination of both historical and implied volatility. The expected volatility was determined by averaging the historical volatilities of its common stock since August 2003, the date of
the Companys follow-on offering, which resulted in a material change to the Companys shareholder base as well as a change in behavior of the Companys stock in the marketplace with our implied volatility rate, based on the
volatility of Lionbridges traded options with terms exceeding six months. This analysis resulted in an expected volatility of 50.8%.

On September 19, 2006, Lionbridge issued 300,000 stock option grants with a fair market value of $849,000 to its Chief Executive Officer. These stock option awards are subject to the following market-based vesting criteria: 33% of the
market-based award vests on the date that the Companys average closing stock price in a consecutive thirty calendar day period is greater than or equal to $10.00; an additional 33% of the market-based award vests on the date that the
Companys average closing stock price in a consecutive thirty calendar day period is greater than or equal to $13.50; and the remaining 34% of the market-based award vests on the date the Companys average closing stock price in a
consecutive thirty calendar day period is greater than or equal to $17.00. The Company uses the lattice model to value market condition awards. As noted above, the Company estimated the expected volatility of its stock options, taking into account a
combination of both historical and implied volatility. The expected volatility rates with respect to these market-based stock option awards were determined to be 46.2%, 47.5% and 52.0%, respectively, for each of the three derived service periods.

Fair Value Disclosures  Prior to SFAS 123R Adoption

The following table provides supplemental information for the three and nine-month periods ended September 30, 2005 as if stock-based compensation
expense had been computed under SFAS 123:



|                                                                                                                                      |  |                                       |            |   |                                      |   |            |  
|------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ---------- | - | ------------------------------------ | - | ---------- | -
|                                                                                                                                      |  | Three Months Ended September 30, 2005 |            |   | Nine Months Ended September 30, 2005 |  
|Net loss, as reported                                                                                                                 |  | $                                     | (2,444,000 | ) |                                      | $ | (1,275,000 | )
|Add: Stock-based employee compensation expense included in reported net income, net of related tax effects                            |  |                                       | 331,000    |   |                                      |   | 1,150,000  |  
|Deduct: Stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                                       | (1,171,000 | ) |                                      |   | (3,586,000 | )
|                                                                                                                                      |  |                                       |            |   |                                      |   |            |  
|Pro forma net loss                                                                                                                    |  | $                                     | (3,284,000 | ) |                                      | $ | (3,711,000 | )
|                                                                                                                                      |  |                                       |            |   |                                      |   |            |  
|Net loss per share:                                                                                                                   |  |                                       |            |   |                                      |   |            |  
|Basic, as reported                                                                                                                    |  | $                                     | (0.05      | ) |                                      | $ | (0.03      | )
|Basic, pro forma                                                                                                                      |  | $                                     | (0.07      | ) |                                      | $ | (0.08      | )
|Net loss per share:                                                                                                                   |  |                                       |            |   |                                      |   |            |  
|Diluted, as reported                                                                                                                  |  | $                                     | (0.05      | ) |                                      | $ | (0.03      | )
|Diluted, pro forma                                                                                                                    |  | $                                     | (0.07      | ) |                                      | $ | (0.08      | )

Stock Option Plans

In November 2005, the stockholders of Lionbridge Technologies, Inc. approved the Lionbridge 2005 Incentive Plan (the 2005 Plan), which had
been previously adopted by the Lionbridge Board of Directors on October 7, 2005, for officers, employees, non-employee directors and other key persons of Lionbridge and its subsidiaries. The maximum number of shares of common stock available
for issuance under the 2005 Plan is 4,000,000 shares. At September 30, 2006, there were 2,234,800 options available for future grant under the 2005 Plan. Options to purchase common stock are granted at the discretion of the Board of Directors
and the Nominating and Compensation Committee. Generally, stock options vest over a four-year period: 25% of the option shares vest one year from the date of grant and the remaining option shares vest at the rate of 12.5% each six month period
thereafter. Stock options generally expire five years from the date of grant under the 2005 Plan. Under the terms of the 2005 Plan, the exercise price of incentive and non-qualified stock option grants must not be less than 100% of the fair market
value of the common stock on the date of grant. Options are amortized using a straight line basis over the option vesting period.

Lionbridges 1998 Stock Option Plan (the Plan) provides for the issuance of incentive and nonqualified stock options. The maximum number of shares of common stock available for issuance under the Plan is 11,722,032 shares.
At



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##### Table of Contents

September 30, 2006 there were 1,161,824 options available for future grant under the Plan. Options to purchase
common stock are granted at the discretion of the Board of Directors and the Nominating and Compensation Committee. Generally, stock options vest over a four-year period: 25% of the option shares vest one year from the date of grant and the
remaining option shares vest at the rate of 12.5% each six month period thereafter. Stock options generally expire ten years (five years in certain cases) from the date of grant under the Plan. Under the terms of the Plan, the exercise price of
incentive stock options granted must not be less than 100% (110% in certain cases) of the fair market value of the common stock on the date of grant, as determined by the Board of Directors. The exercise price of nonqualified stock options may be
less than the fair market value of the common stock on the date of grant, as determined by the Board of Directors, but in no case may the exercise price be less than the statutory minimum, the par value per share of Lionbridges common stock.

Harvard Translations and INTL.com, both acquired in May 2000, also maintained stock option plans which were assumed by Lionbridge
and provided for grants of options to officers, consultants and employees that expire ten years (five years in certain cases) from date of grant. The stock option grants generally vest over four to five years except for certain options that have
acceleration clauses effective upon certain circumstances including a change of ownership or control. Upon the mergers of Harvard Translations and INTL.com into Lionbridge, Lionbridge assumed options for the purchase of 742,584 shares of
Lionbridge common stock. No further options will be granted under these plans.

Data Dimensions maintained stock option plans, which
provided for grants to employees and directors that generally expire five years from the date of grant. The stock options generally vest over four years. Upon the acquisition of Data Dimensions, Lionbridge assumed options for the purchase of 408,911
shares of Lionbridge common stock. No further options will be granted under these plans.

Stock Option Activity

The following table summarizes stock option activity for the nine months ended September 30, 2006:



|                                     |  |                   |   |  |                              |      |                                                  |     |                                          |   |       
|------------------------------------ |  | ----------------- | - |  | ---------------------------- | ---- | ------------------------------------------------ | --- | ---------------------------------------- | - | ------
|                                     |  | Number of Options |   |  | Weighted Avg. Exercise Price |      | Weighted Avg. Remaining Contractual Life (years) |     | Aggregate Intrinsic Value (in thousands)
|Outstanding as of December 31, 2005  |  | 5,278,224         |   |  | $                            | 5.38 |                                                  |     |                                          |   |       
|Granted                              |  | 1,268,500         |   |  | $                            | 7.20 |                                                  |     |                                          |   |       
|Exercised                            |  | (401,079          | ) |  | $                            | 2.68 |                                                  |     |                                          | $ | 1,878 
|Canceled (forfeited and expired)     |  | (447,708          | ) |  | $                            | 7.42 |                                                  |     |                                          |   |       
|                                     |  |                   |   |  |                              |      |                                                  |     |                                          |   |       
|Outstanding as of September 30, 2006 |  | 5,697,937         |   |  | $                            | 5.81 |                                                  | 5.8 |                                          | $ | 13,266
|Exercisable as of September 30, 2006 |  | 3,379,736         |   |  | $                            | 4.98 |                                                  | 5.4 |                                          | $ | 11,139

The aggregate intrinsic value in the table above represents the total intrinsic value, based on
the Companys common stock closing price of $7.63 as of September 30, 2006, which would have been received by the option holders had all in-the-money option holders exercised their options as of that date. The total number of in-the-money
options outstanding as of September 30, 2006 was 4,230,150. The total number of in-the-money options exercisable as of September 30, 2006 was 2,365,684.

The weighted average grant date fair value of options, as determined under SFAS 123R and SFAS 123, granted during the nine months ended September 30, 2006 and 2005 was $2.88 and $3.66 per share respectively. The
total intrinsic value of options exercised during the nine month periods ended September 30, 2006 and 2005 was approximately $1.9 million and $3.7 million, respectively. The total cash received from employees as a result of employee stock
option exercises during the nine months ended September 30, 2006 and 2005 was approximately $1.1 million and $1.7 million, respectively.

As of September 30, 2006, future compensation cost related to non-vested stock options, less estimated forfeitures, is approximately $6.9 million and will be recognized over an estimated weighted average period of approximately
1.3 years. The total fair value of shares vested during the nine month period ended September 30, 2006 was $5.7 million.

The Company
settles employee stock option exercises with newly issued shares of common stock.



8



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##### Table of Contents

Lionbridge currently expects to amortize the following amounts of stock-based compensation related to
stock options existing as of September 30, 2006 in the years ending:



|                         |  |   |          
|------------------------ |  | - | ---------
|Year ending December 31, |  |  
|2006                     |  | $ | 964,000  
|2007                     |  |   | 3,404,000
|2008                     |  |   | 1,645,000
|2009                     |  |   | 789,000  
|2010                     |  |   | 81,000   
|                         |  |   |          
|                         |  | $ | 6,883,000
|                         |  |   |          

Employee Stock Purchase Plan

Lionbridges 1999 Employee Stock Purchase Plan (the Purchase Plan) is a qualified employee stock purchase plan under Section 423 of
the Internal Revenue Code of 1986, as amended. The Purchase Plan allowed for the issuance of 1,000,000 shares of Lionbridges common stock to eligible employees. Under the Purchase Plan, Lionbridge was authorized to make a series of offerings
during which employees may purchase shares of common stock through payroll deductions made over the term of the offering. Prior to January 1, 2006, the per-share purchase price at the end of each offering was equal to 85% of the fair market
value of the common stock at the beginning or end of the offering period (as defined by the Purchase Plan), whichever was lower and effective January 1, 2006, the per-share purchase price at the end of each offering was equal to 95% of the fair
market value of the common stock at the end of the offering period (as defined by the Purchase Plan). There was no compensation expense in connection with the plan for the nine months ended September 30, 2006. During the nine months periods
ended September 30, 2006 and 2005, 8,206 and 33,601 shares were purchased under the employee stock purchase plan, respectively. Upon completion of the purchase period ended August 31, 2006, the Purchase Plan was terminated.

Restricted Stock Awards

On
January 26, 2006, Lionbridge issued 14,000 shares of restricted common stock and 12,000 restricted stock units with a fair market value of $109,000. On February 15, 2006, Lionbridge issued 221,200 shares of restricted common stock and
105,500 restricted stock units with a fair market value of $1.6 million. On May 4, 2006, Lionbridge issued 9,000 restricted stock units with a fair value of $76,000. On July 27, 2006, Lionbridge issued 8,000 shares of restricted common
stock with a fair market value of $45,000. Restrictions on disposition lapse over four years from the date of grant on each anniversary date.

On September 19, 2006, Lionbridge issued 200,000 shares of restricted common stock with a fair market value of $1.2 million to its Chief Executive Officer. This restricted stock award is subject to the following market-based vesting
criteria: 33% of the market-based award vests on the date that the Companys average closing stock price in a consecutive thirty calendar day period is greater than or equal to $10.00; an additional 33% of the market-based award vests on the
date that the Companys average closing stock price in a consecutive thirty calendar day period is greater than or equal to $13.50; and the remaining 34% of the market-based award vests on the date the Companys average closing stock price
in a consecutive thirty calendar day period is greater than or equal to $17.00. The Company uses the lattice model to value market condition awards. For awards with market conditions with a cliff vesting feature, as described above, the Company
recognizes stock based compensation on a straight line basis over the requisite service period.

Total compensation expense related to all
restricted stock awards was $602,000 and $331,000 for the three-month periods ended September 30, 2006 and 2005, respectively and $1.8 million and $1.2 million for the nine-month periods ended September 30, 2006 and 2005, respectively. The
weighted average grant date fair value of restricted stock awards granted during the nine months ended September 30, 2006 was $7.10.

The following table summarizes non-vested restricted stock awards activity for the nine months ended September 30, 2006:



|                                         |  |                                              |  
|---------------------------------------- |  | -------------------------------------------- | -
|                                         |  | Non-vested Number of Restricted Share Awards |  
|Non-vested balance at December 31, 2005  |  | 824,928                                      |  
|Granted at fair market value             |  | 569,700                                      |  
|Vested                                   |  | (131,679                                     | )
|Forfeited                                |  | (98,335                                      | )
|                                         |  |                                              |  
|Non-vested balance at September 30, 2006 |  | 1,164,614                                    |  
|                                         |  |                                              |  



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##### Table of Contents

Lionbridge currently expects to amortize $5,886,000 of unamortized compensation in connection with
restricted stock awards existing as of September 30, 2006.

3. BUSINESS ACQUISITIONS

Bowne Global Solutions

On
September 1, 2005, Lionbridge completed the acquisition of Bowne Global Solutions (BGS) pursuant to the terms of the Agreement and Plan of Merger dated as of June 27, 2005. After the acquisition, BGS became a wholly owned
subsidiary of Lionbridge. At the closing, each share of common stock of BGS was automatically converted into the right to receive a portion of the acquisition consideration. To fund a portion of the purchase price for its acquisition of BGS, the
Company entered into a Credit Agreement (Credit Agreement) dated as of September 1, 2005, together with certain of its U.S. and non-U.S. subsidiaries, the several banks and financial institutions as may become parties to the Credit
Agreement (Lenders) and Wachovia Bank, National Association, as administrative agent for the Lenders. The Credit Agreement provides for a five-year $25.0 million revolving credit facility and a six-year $100.0 million term facility.

The BGS acquisition was accounted for using the purchase method of accounting. The total purchase price was $188.4 million, consisting of
a cash payment of $128.5 million made at the closing, 9.4 million shares of Lionbridges common stock with a fair market value of $56.5 million, and an additional $3.4 million of direct acquisition costs. The market price used to value the
Lionbridge shares issued as partial consideration for BGS was $6.01, which represents the 5 day average closing price of the stock during the period beginning two days before and ending two days after June 28, 2005 the first trading day of the
Companys common stock following announcement of the acquisition on June 27, 2005. Lionbridge borrowed $2.5 million under the revolving credit facility component of the Credit Agreement and $97.7 million (net of $2.3 million of debt
financing fees) under the term facility component of the Credit Agreement, which amounts were used to pay a portion of the cash consideration at the closing.

Additionally, in connection with the acquisition of BGS, Lionbridge recorded $48.3 million of amortizable intangible assets, including customer contracts, technology and customer relationships. The estimated useful
life of acquired customer contracts ranges from 3.3 to 5.3 years and is being amortized on a straight-line basis. The estimated useful life of acquired technology ranges from 1 to 4 years and is being amortized on a straight-line basis. The
estimated useful life of acquired customer relationships is 12 years and is being amortized using the economic consumption method to reflect diminishing cash flows from these relationships in the future. In determining the fair value of the acquired
customer relationships, Lionbridge used a discounted cash flow model based upon the estimated future income streams associated with the customer relationships considering their estimated remaining period of benefit. As part of this model, Lionbridge
relied on historical attrition rates combined with a premium factor related to the inherent risk of attrition in the newly acquired BGS customer base.

The Company evaluates whether there has been an impairment in the carrying value of its long-lived assets, including other intangibles assets and property and equipment, in accordance with SFAS No. 144,
Accounting for Impairment of Long-Lived Assets, if circumstances indicate that a possible impairment may exist. An impairment in the carrying value of an asset is assessed when the undiscounted expected future operating cash flows
derived from the asset are less than its carrying value. If it is determined that the asset is impaired then it is written down to its estimated fair value. Long-lived assets, other than goodwill and other intangible assets, which are held for
disposal, are recorded at the lower of carrying value or fair market value less the estimated cost to sell. Factors that could lead to an impairment of acquired customer relationships include a worsening in customer attrition rates compared to
historical attrition rates, or lower than initially anticipated cash flows associated with customer relationships.



10



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The final allocation of the purchase price, including direct acquisition costs, was based on the fair
values of the assets and liabilities assumed as of December 31, 2005, as follows:



|                                    |  |   |             |  
|----------------------------------- |  | - | ----------- | -
|Current assets                      |  | $ | 78,541,000  |  
|Property and equipment              |  |   | 11,494,000  |  
|Other assets                        |  |   | 1,815,000   |  
|Acquired customer relationships     |  |   | 32,000,000  |  
|Acquired customer contracts         |  |   | 14,000,000  |  
|Acquired technology                 |  |   | 2,317,000   |  
|                                    |  |   |             |  
|Total assets                        |  |   | 140,167,000 |  
|Accrued restructuring, current      |  |   | (3,691,000  | )
|Other current liabilities           |  |   | (33,805,000 | )
|Accrued restructuring, long term    |  |   | (721,000    | )
|Deferred tax liabilities, long term |  |   | (7,734,000  | )
|Other non-current liabilities       |  |   | (1,894,000  | )
|                                    |  |   |             |  
|Total liabilities                   |  |   | (47,845,000 | )
|                                    |  |   |             |  
|Net assets                          |  |   | 92,322,000  |  
|Goodwill                            |  |   | 96,066,000  |  
|                                    |  |   |             |  
|Total purchase price                |  | $ | 188,388,000 |  
|                                    |  |   |             |  

At December 31, 2005, the Company reported goodwill of $96.1 million resulting from the
preliminary purchase price allocation. During the nine months ended September 30, 2006, the Company reversed certain estimates recorded as part of the fair value purchase accounting. The acquired incentive compensation reserve was reduced by
$520,000 and deferred tax assets were reduced by $247,000. In addition, the Company received a $2.5 million purchase price reimbursement from Bowne for pre-acquisition tax liabilities and recorded a $164,000 tax receivable for recovery of
pre-acquisition value added taxes. These purchase accounting adjustments resulted in a net decrease in goodwill of $3.0 million.

Additionally, the Company continued to exit certain activities of BGS as a part of the merger plan, resulting in charges of $2.7 million for severance, $262,000 for costs on vacated facilities and $28,000 for professional fees related to
valuation services. These additional liabilities are included in the purchase price allocation, and combined with the adjustments above, decreased goodwill by $91,000 to $96.0 million at September 30, 2006.

The goodwill of $96.0 million resulting from the purchase price allocation reflects the value of the underlying enterprise, as well as planned synergies
that Lionbridge expects to realize as the business is integrated into existing Lionbridge operations. The total $96.0 million of goodwill has been assigned to the Companys Global Language and Content (GLC) segment. Goodwill
allocated to domestic operations is expected to be deductible for tax purposes.

At September 30, 2006, management has finalized its
plan to exit certain activities of BGS.

Pro Forma Disclosures

The following unaudited pro forma consolidated results of operations for the three and nine months ended September 30, 2005 assume that the
acquisition of BGS occurred as of the beginning of each period presented:



|                           |  |                                       |        |   |                                      |   |         |  
|-------------------------- |  | ------------------------------------- | ------ | - | ------------------------------------ | - | ------- | -
|                           |  | Three Months Ended September 30, 2005 |        |   | Nine Months Ended September 30, 2005 |  
|Revenue                    |  | $                                     | 99,627 |   |                                      | $ | 303,924 |  
|Net loss                   |  |                                       | (4,882 | ) |                                      |   | (13,438 | )
|Basic net loss per share   |  | $                                     | (0.09  | ) |                                      | $ | (0.24   | )
|Diluted net loss per share |  | $                                     | (0.09  | ) |                                      | $ | (0.24   | )

These pro forma amounts do not purport to be indicative of the results that would have actually
been obtained if the acquisition had occurred as of the beginning of that period presented or that may be obtained in the future.



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Logoport Software GmbH

On February 1, 2005, Lionbridge acquired all of the capital stock of Logoport Software GmbH (Logoport). 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 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. For the year ended December 31, 2005 and the nine months ended September 30, 2006, according to the terms
of the purchase agreement, Lionbridge made contingent payments of $305,000 and $175,000, respectively, which were capitalized as internal use software and are 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

On September 1, 2005, Lionbridge
replaced its revolving credit facility originally entered into in December 2004 with a credit facility with Wachovia Bank, National Association and Wachovia Capital Markets, LLC (Credit Agreement). Under the Credit Agreement, Lionbridge
is able to borrow up to $125.0 million governed by certain financial covenants. Borrowings outstanding under the Credit Agreement are collateralized by the domestic assets of the Company and its U.S. subsidiaries and stock of certain foreign
subsidiaries. The Credit Agreement is further divided into two sub-facilities, a Term Loan Facility (Term Loan) and a Revolving Loan Facility (Revolver). The Term Loan and Revolver bear interest at prime or LIBOR (at the
Companys discretion) plus an applicable margin based on certain financial covenants.

The Term Loan had an aggregate outstanding
principal amount of $78.5 million and an interest rate of 8.6% as of September 30, 2006 and has a maturity date of June 30, 2011. The principal amount of the Term Loan is payable in installments. The total Term Loan principal payments by
fiscal period are as follows:



|                         |  |   |           
|------------------------ |  | - | ----------
|Year ending December 31, |  |  
|2006                     |  | $ | 197,732   
|2007                     |  |   | 790,928   
|2008                     |  |   | 790,928   
|2009                     |  |   | 790,928   
|2010                     |  |   | 19,377,746
|Thereafter               |  |   | 56,588,079
|                         |  |   |           
|                         |  | $ | 78,536,341
|                         |  |   |           

Additional contingent principal payments on the Term Loan and Revolver are also due based on a
percentage of the annual cash flows (as defined in the agreement) generated by the Company. These mandatory principal payments are payable within 90-days of the Companys year-end. The percentage due is governed by certain financial covenants.
Lionbridge must maintain a certain leverage ratio at each reporting date as defined in the financial covenants of the Credit Agreement. There are no mandatory principal payments due under these covenants at September 30, 2006. Lionbridge has an
interest payment of $161,000 due on October 31, 2006. Future interest payments will be determined based on the interest rate and term elected by the Company. The proceeds from the Term Loan were used exclusively to fund the purchase of BGS, and
were paid to Bowne and Co., Inc.

The Revolver had no outstanding borrowings as of September 30, 2006 and has a maturity date of
September 1, 2010. At September 30, 2006, Lionbridges borrowing capacity was $25.0 million and the Company would have elected an interest rate of 8.6% based on a 1-month LIBOR loan as of September 30, 2006 under the Revolver.
Interest is payable in arrears to a maximum of three-month increments depending on the terms under which the Revolver loans are made.

5. COMPREHENSIVE
INCOME (LOSS)

Total comprehensive income (loss) consists of net income (loss) and the net change in foreign currency translation
adjustment, which is the only component of accumulated other comprehensive income. Total comprehensive loss was $10,000 for the three-month period ended September 30, 2006 and total comprehensive income for the nine-month period ended
September 30, 2006 was $4.3 million. Total comprehensive loss was $524,000 and $2.6 million for the three and nine-month periods period ended September 30, 2005, respectively.



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##### Table of Contents

6. NET INCOME (LOSS) PER SHARE

Basic earnings per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding. For the 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.

Shares used in calculating basic and diluted earnings per share for the three and nine-month periods ended September 30, 2006 and
2005, respectively, are as follows:



|                                                                                     |  |                                  |  |                                 |  |            |  |           
|------------------------------------------------------------------------------------ |  | -------------------------------- |  | ------------------------------- |  | ---------- |  | ----------
|                                                                                     |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|                                                                                     |  | 2006                             |  | 2005                            |  | 2006       |  | 2005      
|Weighted average number of shares of common stock outstanding  basic                |  | 59,062,000                       |  | 50,362,000                      |  | 58,931,000 |  | 48,135,000
|Dilutive common stock equivalents relating to options, restricted stock and warrants |  |                                 |  |                                |  | 1,853,000  |  |          
|                                                                                     |  |                                  |  |                                 |  |            |  |           
|Weighted average number of shares of common stock outstanding  diluted              |  | 59,062,000                       |  | 50,362,000                      |  | 60,784,000 |  | 48,135,000
|                                                                                     |  |                                  |  |                                 |  |            |  |           

Options, unvested restricted stock and warrants to purchase 6,567,000 and 4,799,000 shares of
common stock for the three-month periods ended September 30, 2006 and 2005, respectively, and 3,021,000 and 4,749,000 for the nine-month periods ended September 30, 2006 and 2005, respectively, were not included in the calculation of
diluted net loss per share, as their effect would be anti-dilutive.

7. MERGER, RESTRUCTURING AND OTHER CHARGES

During the nine-month period ended September 30, 2006 Lionbridge recorded $3.5 million of restructuring and other charges. The $3.5 million recorded
in the nine-month period ended September 30, 2006 included $1.5 million for workforce reductions in the Netherlands, Ireland, Germany and the U.S. consisting of forty-three technical, four sales and two administrative staff, $301,000 for
anticipated losses on vacated facilities, a $25,000 reduction of anticipated costs recorded in a prior period on a vacated facility in order to reflect a new sublease arrangement, recorded pursuant to the guidance in SFAS No. 146,
Accounting for Costs associated with Exit or Disposal Activitiesand $1.7 million of other charges, principally professional services fees, related to the integration of BGS. Of these charges, $1.2 million related to the
Companys Global Development and Testing (GDT) segment, $870,000 related to Global Language and Content (GLC) segment and $1.3 million related to Corporate and Other. Of the $5.9 million of cash payments in the
nine-month period ended September 30, 2006, $4.5 million and $1.3 million related to the GLC and GDT segments, respectively, and $30,000 related to Corporate and Other.

During the nine-month period ended September 30, 2005, Lionbridge recorded $2.3 million of restructuring and other charges. Of this amount, $1.9
million was recorded in the quarter ended September 30, 2005 and primarily related to the acquisition of BGS. Additionally, $449,000 was recorded in the six months ended June 30, 2005 and related primarily to workforce reductions in France
and the U.S. The $2.3 million recorded in the nine-month period ended September 30, 2005 included $171,000 for anticipated losses on vacated facilities, $36,000 for the impairment of long-lived assets, $1.2 million for workforce reductions in
Germany, France and the U.S., consisting of fifty technical, twelve administrative and three sales staff recorded pursuant to the guidance in SFAS No. 146 and $945,000 of other charges, principally professional services fees, related to the
integration of BGS recorded pursuant to the guidance in emerging Issues Task Force Abstract 95-3, Recognition of Liabilities in Connection With a Purchase Business Combination (EITF 95-3), and related literature. Of these
charges, $1.3 million related to the Companys GLC segment, $77,000 to the GDT segment and $945,000 to Corporate and Other. Of the $1.4 million of cash payments during the nine-month period ended September 30, 2005, $1.0 million and
$262,000 related to the GLC and GDT segments, respectively, and $41,000 related to Corporate and Other.



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The following table summarizes the accrual activity for the nine months ended September 30, 2006 and
2005, respectively, by initiative:



|                                                                                 |  |      |            |   |      |   |            |  
|-------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                                                 |  | 2006 |            |   | 2005 |  
|Beginning balance, January 1                                                     |  | $    | 4,210,000  |   |      | $ | 784,000    |  
|Employee severance:                                                              |  |      |            |   |      |   |            |  
|Merger and restructuring charges recorded (1)                                    |  |      | 1,521,000  |   |      |   | 1,193,000  |  
|Reserves recorded on business combinations (2)                                   |  |      | 2,670,000  |   |      |   | 664,000    |  
|Cash payments related to reserves acquired and recorded on business combinations |  |      | (2,630,000 | ) |      |   | (316,000   | )
|Cash payments related to reserves recorded on exit or disposal activities        |  |      | (1,877,000 | ) |      |   | (1,078,000 | )
|                                                                                 |  |      |            |   |      |   |            |  
|                                                                                 |  |      | (316,000   | ) |      |   | 463,000    |  
|                                                                                 |  |      |            |   |      |   |            |  
|Vacated facility/Lease termination:                                              |  |      |            |   |      |   |            |  
|Merger and restructuring charges recorded (1)                                    |  |      | 301,000    |   |      |   | 171,000    |  
|Reserves recorded on business combinations (2)                                   |  |      | 262,000    |   |      |   | 1,835,000  |  
|Revision of estimated liabilities                                                |  |      | (25,000    | ) |      |   |           |  
|Cash payments related to reserves acquired and recorded on business combinations |  |      | (721,000   | ) |      |   | (67,000    | )
|Cash payments related to reserves recorded on exit or disposal activities        |  |      | (640,000   | ) |      |   | (233,000   | )
|                                                                                 |  |      |            |   |      |   |            |  
|                                                                                 |  |      | (823,000   | ) |      |   | 1,706,000  |  
|                                                                                 |  |      |            |   |      |   |            |  
|Ending balance, September 30                                                     |  | $    | 3,071,000  |   |      | $ | 2,953,000  |  
|                                                                                 |  |      |            |   |      |   |            |  

---

|(1) | Charges recorded pursuant to the guidance in SFAS No. 146
|--- | ---------------------------------------------------------

|(2) | Reserves recorded pursuant to the guidance in Emerging Issues Task Force Abstract 95-3, Recognition of Liabilities in Connection With a Purchase Business
Combination (EITF 95-3), and related literature.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

At September 30, 2006, the consolidated balance
sheet includes accruals totaling $3.1 million primarily related to employee termination costs and vacated facilities. Lionbridge currently anticipates that $1.8 million of these will be fully utilized in twelve months. The remaining $1.3 million
relates to lease obligations on unused facilities expiring through 2011 and is included in long-term liabilities.

8. INCOME TAXES

The components of the provision for income taxes are as follows for the three and nine-month periods ended September 30, 2006 and 2005:



|                                 |  |                                  |         |                                 |   |           |  |      |           |  |   |          
|-------------------------------- |  | -------------------------------- | ------- | ------------------------------- | - | --------- |  | ---- | --------- |  | - | ---------
|                                 |  | Three Months Ended September 30, |         | Nine Months Ended September 30,
|                                 |  | 2006                             |         | 2005                            |   | 2006      |  | 2005
|Current:                         |  |                                  |         |                                 |   |           |  |      |           |  |   |          
|Federal                          |  | $                                |        |                                 | $ |          |  | $    |          |  | $ |         
|State                            |  |                                  |        |                                 |   |          |  |      |          |  |   |         
|Foreign                          |  |                                  | 709,000 |                                 |   | 900,000   |  |      | 3,711,000 |  |   | 1,127,000
|                                 |  |                                  |         |                                 |   |           |  |      |           |  |   |          
|Total current provision          |  |                                  | 709,000 |                                 |   | 900,000   |  |      | 3,711,000 |  |   | 1,127,000
|Deferred:                        |  |                                  |         |                                 |   |           |  |      |           |  |   |          
|Federal                          |  | $                                | 157,000 |                                 | $ | 220,000   |  | $    | 586,000   |  | $ | 220,000  
|                                 |  |                                  |         |                                 |   |           |  |      |           |  |   |          
|Total provision for income taxes |  | $                                | 866,000 |                                 | $ | 1,120,000 |  | $    | 4,297,000 |  | $ | 1,347,000
|                                 |  |                                  |         |                                 |   |           |  |      |           |  |   |          

The tax provision for the nine-month period ended September 30, 2006 consisted primarily of
taxes on income in foreign jurisdictions of Lionbridge and BGS and the increase to deferred tax liabilities related to the tax deductible goodwill from the BGS acquisition. The tax provision includes non-cash tax expense that will be offset by
pre-acquisition foreign net operating loss carry forward amounts. The tax benefits from the utilization of pre-acquisition losses do not reduce the foreign element of the tax provision, but instead reduce goodwill. The effective tax rate does not
show a benefit from U.S. net operating loss carry forward amounts due to a full valuation reserve against the U.S. deferred tax asset.

Lionbridge is still evaluating certain purchase accounting adjustments and reserves specific to the acquisition of BGS which may have an impact on the deferred tax assets and liabilities of the Company.

At September 30, 2006, no provision for U.S. and foreign taxes has been made for all unrepatriated foreign earnings because it is expected that such
earnings will be reinvested indefinitely. However, there may be an opportunity in future periods to repatriate cash from our Indian subsidiary without incurring a significant tax consequence. Ongoing discussion and planning is necessary to determine
if this is possible.

Under the provisions of the Internal Revenue Code, certain substantial changes in Lionbridges ownership may
limit the future net operating loss carry forward amounts that could be used annually to offset future taxable income and income tax liability.



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9. SEGMENT INFORMATION

Lionbridge has determined that its operating segments are those that are based on its method of internal reporting. Following its acquisition of the BGS business in September 2005 and related changes to the
Companys overall business structure, the Company is reporting its results among the following three business segments:

Global
Language and Content (GLC)  This segment includes Lionbridges globalization, translation and localization services, as well as eLearning content development and technical documentation. The GLC segment includes product and
content globalization services. Globalization is the process of adapting content and products to meet the language and cultural requirements of users throughout the world. Lionbridge GLC solutions enable the translation, adaptation and
worldwide multilingual release of clients products, content and related technical support, training materials, and sales and marketing information. Lionbridge GLC solutions also include the development of eLearning content and
technical documentation.

Global Development and Testing (GDT)  This segment includes Lionbridges development,
engineering and testing services for software, hardware, websites and content. Specifically, GDT includes the development and maintenance of applications as well as testing to ensure the quality, interoperability, usability and performance of
clients software, hardware, consumer technology products, web sites and content. Lionbridges testing services also include product certification and competitive analysis. Lionbridge offers its testing services under the VeriTest brand.

Interpretation  This segment includes interpretation services provided by Lionbridge to government organizations and businesses that
require human interpreters.

The acquired BGS localization business is primarily reflected in Lionbridges GLC segment with the BGS
language interpretation business (Interpretation) included separately. All other unallocated enterprise costs are in the Corporate and Other category.

The table below presents information about the reported net income (loss) of the Company for the three and nine-month periods ended September 30,
2006 and 2005. Asset information by reportable segment is not reported, since the Company does not produce such information internally.



|                                   |  |                                  |             |   |                                 |   |            |      |  |   |             |   |  |   |             |  
|---------------------------------- |  | -------------------------------- | ----------- | - | ------------------------------- | - | ---------- | ---- |  | - | ----------- | - |  | - | ----------- | -
|                                   |  | Three Months Ended September 30, |             |   | Nine Months Ended September 30, |  
|                                   |  | 2006                             |             |   | 2005                            |   |            | 2006 |  |   | 2005        |  
|External revenue:                  |  |                                  |             |   |                                 |   |            |      |  |   |             |   |  |   |             |  
|Global Language and Content        |  | $                                | 86,454,000  |   |                                 | $ | 42,592,000 |      |  | $ | 254,096,000 |   |  | $ | 94,806,000  |  
|Global Development and Testing     |  |                                  | 16,044,000  |   |                                 |   | 14,089,000 |      |  |   | 45,974,000  |   |  |   | 42,033,000  |  
|Interpretation                     |  |                                  | 5,466,000   |   |                                 |   | 1,736,000  |      |  |   | 17,542,000  |   |  |   | 1,736,000   |  
|                                   |  |                                  |             |   |                                 |   |            |      |  |   |             |   |  |   |             |  
|                                   |  | $                                | 107,964,000 |   |                                 | $ | 58,417,000 |      |  | $ | 317,612,000 |   |  | $ | 138,575,000 |  
|                                   |  |                                  |             |   |                                 |   |            |      |  |   |             |   |  |   |             |  
|Net income (loss):                 |  |                                  |             |   |                                 |   |            |      |  |   |             |   |  |   |             |  
|Global Language and Content        |  | $                                | 10,259,000  |   |                                 | $ | 5,095,000  |      |  | $ | 33,283,000  |   |  | $ | 11,349,000  |  
|Global Development and Testing     |  |                                  | 2,878,000   |   |                                 |   | 2,054,000  |      |  |   | 8,488,000   |   |  |   | 5,615,000   |  
|Interpretation                     |  |                                  | 521,000     |   |                                 |   | (31,000    | )    |  |   | 1,720,000   |   |  |   | (31,000     | )
|Less: corporate and other expenses |  |                                  | (14,591,000 | ) |                                 |   | (9,562,000 | )    |  |   | (42,429,000 | ) |  |   | (18,208,000 | )
|                                   |  |                                  |             |   |                                 |   |            |      |  |   |             |   |  |   |             |  
|                                   |  | $                                | (933,000    | ) |                                 | $ | (2,444,000 | )    |  | $ | 1,062,000   |   |  | $ | (1,275,000  | )
|                                   |  |                                  |             |   |                                 |   |            |      |  |   |             |   |  |   |             |  

10. GOODWILL AND OTHER INTANGIBLE ASSETS

In connection with the September 1, 2005 acquisition of BGS, Lionbridge recorded $96.1 million of goodwill. Additionally, in connection with the
acquisition of BGS, Lionbridge recorded $48.3 million of amortizable intangible assets, including customer contracts, technology and customer relationships. The estimated useful life of acquired customer contracts ranges from 3.3 to 5.3 years and is
being amortized on a straight-line basis. The estimated useful life of acquired technology ranges from 1 to 4 years and is being amortized on a straight-line basis. The estimated useful life of acquired customer relationships is 12 years and is
being amortized using the economic consumption method to reflect diminishing cash flows from these relationships in the future. In determining the fair value of the acquired customer relationships, Lionbridge used a discounted cash flow model based
upon the estimated future income streams associated with the customer relationships considering their estimated remaining period of benefit. As part of this model, Lionbridge relied on historical attrition rates combined with a premium factor
related to the inherent risk of attrition in the newly acquired BGS customer base.



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The Company evaluates whether there has been an impairment in the carrying value of its long-lived
assets, including other intangibles assets and property and equipment, in accordance with SFAS No. 144, Accounting for Impairment of Long-Lived Assets, if circumstances indicate that a possible impairment may exist. An impairment in
the carrying value of an asset is assessed when the undiscounted expected future operating cash flows derived from the asset are less than its carrying value. If it is determined that the asset is impaired then it is written down to its estimated
fair value. Long-lived assets, other than goodwill and other intangible assets, which are held for disposal, are recorded at the lower of carrying value or fair market value less the estimated cost to sell. Factors that could lead to an impairment
of acquired customer relationships include a worsening in customer attrition rates compared to historical attrition rates, or lower than initially anticipated cash flows associated with customer relationships.

The following table summarizes other intangible assets at September 30, 2006 and December 31, 2005, respectively.



|                                       |  |                      |            |                          |   |           |  |                      |            |                          |   |            |  |   |           |  |   |           
|-------------------------------------- |  | -------------------- | ---------- | ------------------------ | - | --------- |  | -------------------- | ---------- | ------------------------ | - | ---------- |  | - | --------- |  | - | ----------
|                                       |  | September 30, 2006   |            | December 31, 2005       
|                                       |  | Gross Carrying Value |            | Accumulated Amortization |   | Balance   |  | Gross Carrying Value |            | Accumulated Amortization |   | Balance   
|Mentorix internally developed software |  | $                    | 110,000    |                          | $ | 110,000   |  | $                    |           |                          | $ | 110,000    |  | $ | 83,000    |  | $ | 27,000    
|BGS acquired customer relationships    |  |                      | 32,000,000 |                          |   | 5,051,000 |  |                      | 26,949,000 |                          |   | 32,000,000 |  |   | 1,441,000 |  |   | 30,559,000
|BGS acquired customer contracts        |  |                      | 14,000,000 |                          |   | 3,210,000 |  |                      | 10,790,000 |                          |   | 14,000,000 |  |   | 987,000   |  |   | 13,013,000
|BGS acquired technology                |  |                      | 2,317,000  |                          |   | 995,000   |  |                      | 1,322,000  |                          |   | 2,317,000  |  |   | 326,000   |  |   | 1,991,000 
|                                       |  |                      |            |                          |   |           |  |                      |            |                          |   |            |  |   |           |  |   |           
|                                       |  | $                    | 48,427,000 |                          | $ | 9,366,000 |  | $                    | 39,061,000 |                          | $ | 48,427,000 |  | $ | 2,837,000 |  | $ | 45,590,000
|                                       |  |                      |            |                          |   |           |  |                      |            |                          |   |            |  |   |           |  |   |           

Lionbridge currently expects to amortize the following remaining amounts of intangible assets held
at September 30, 2006 in the fiscal periods as follows:



|                         |  |   |           
|------------------------ |  | - | ----------
|Year ending December 31, |  |  
|2006                     |  | $ | 2,167,000 
|2007                     |  |   | 8,453,000 
|2008                     |  |   | 8,441,000 
|2009                     |  |   | 5,520,000 
|2010                     |  |   | 4,893,000 
|Thereafter               |  |   | 9,587,000 
|                         |  |   |           
|                         |  | $ | 39,061,000
|                         |  |   |           

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 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.



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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 the 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.

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 approval by the Court. On September 1, 2005, the Court preliminarily approved the proposed settlement and directed that notice of the terms of the proposed settlement be provided to all class members. Thereafter, the
Court held a fairness hearing on April 24, 2006, at which objections to the proposed settlement were heard. After the fairness hearing, the Court took under advisement 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.

The California Employment Development Department is investigating
the classification by Lionbridge Global Solutions II, Inc. of certain of its interpreters as independent contractors for the period from October 1, 2001 through December 31, 2004. On January 28, 2005, the Employment Development
Department issued a Notice of Assessment determining such interpreters to be common law employees and assessing personal income taxes in the amount of $20,824 and state disability insurance taxes in the amount of $8,213 for the fourth
quarter of 2001. The maximum estimated exposure for open quarters through September 30, 2006 is $1.8 million. Of this amount, Bowne & Co., Inc., under the terms of the Agreement and Plan of Merger between it and the Company dated as of
June 27, 2005, is obligated to indemnify the Company for such taxes and penalties incurred for periods on or prior to September 1, 2005, which are estimated to be $1.4 million. On February 14, 2005, Lionbridge Global Solutions II,
Inc. appealed for reassessment to the Office of the Chief Administrative Law Judge of the California Unemployment Insurance Appeals Board. The Company has estimated its exposure for the period commencing on September 1, 2005 through
September 30, 2006 at approximately $305,000. At September 30, 2006, the Companys consolidated balance sheet includes accruals for this $305,000 estimated exposure. The Company has appealed the decision before the California Appeals
Board, which has scheduled a hearing on this matter for January 2007. While Lionbridge cannot guarantee the outcome of these proceedings, it believes that a final determination will have no material effect on its consolidated financial condition,
results of operations, or cash flows.

12. RECENT ACCOUNTING PRONOUNCEMENTS

In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108 (SAB 108). SAB 108 addresses how the
effects of prior year uncorrected misstatements should be considered when quantifying misstatements in current year financial statements. SAB 108 requires companies to quantify misstatements using a balance sheet and income statement approach and to
evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. When the effect of initial adoption is material, companies will record the effect as a cumulative effect
adjustment to beginning of year retained earnings. The provisions of SAB 108 are effective for fiscal years beginning after November 15, 2006. The Company does not believe the adoption of SAB 108 will have a material impact on its financial
position or results of operations.

In September 2006, the FASB issued Statement of Accounting Standards (SFAS) No. 157,
Fair Value Measurementswhich defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This statement does not require
any new fair value measurements; rather, it applies under other accounting pronouncements that require or permit fair value measurements. The



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provisions of SFAS No. 157 are effective for fiscal years beginning after November 15, 2007. The Company is
currently assessing SFAS No. 157 and has not yet determined the impact, if any, that its adoption will have on its result of operations or financial position.

In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans  an amendment of FASB Statements No. 87, 88, 106 and
132(R). SFAS No. 158 requires an employer to recognize the funded status of a benefit plan, measured as the difference between plan assets at fair value and the projected benefit obligation, in its statement of financial position. SFAS No.
158 also requires an employer to measure defined benefit plan assets and obligations as of the date of the employers fiscal year-end statement of financial position. This statement is effective as of the end of the fiscal year ending after
December 15, 2006, except for the requirement to measure plan assets and obligations as of the date of the employers fiscal year-end statement of financial position, which is effective for fiscal years ending after December 15, 2008.
The Company is currently evaluating the impact of SFAS No. 158 on the Companys consolidated financial statements and has not yet determined the impact, if any, that its adoption will have on its financial position.

In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes, an interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the accounting for uncertainties in income taxes recognized in an enterprises financial statements. The interpretation requires
that the Company first determines whether it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authority. If a tax position meets the more likely than not recognition criteria, FIN 48 requires
the tax position be measured at the largest amount of benefit greater than 50 percent likely of being realized upon ultimate settlement. This accounting standard is effective for fiscal years beginning after December 15, 2006. The effect, if
any, of adopting FIN 48 on the Companys financial position and results of operations has not been finalized.

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 many of which Lionbridge has little or no control over. A number of important risks and uncertainties, including those identified under the caption Risk Factors in Lionbridges Annual Report on Form 10-K, filed
March 16, 2006 (SEC File No. 000-26933) and subsequent filings 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. 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, development and testing services that enable clients to develop, release, manage and maintain their enterprise content and technology applications globally. Following its acquisition of the BGS business in September 2005
and related changes to the Companys overall business structure, the Company has revised the business segments it uses to report financial performance and now uses the following three segments: Global Language and Content (GLC),
Global Development and Testing (GDT) and Interpretation.

Lionbridge Global Language and Content (GLC) solutions
enable the globalization and worldwide multilingual release of clients products, content and related technical support, training materials, and sales and marketing information. Globalization is the process of adapting content and
products to meet the language and cultural requirements of users throughout the world. Lionbridge GLC solutions are based on the Companys internet technology platform and global service delivery model which make the translation process more
efficient for Lionbridge clients and translators. As part of its GLC solutions, Lionbridge also develops eLearning content and technical documentation.

Lionbridges interpretation business (Interpretation) pertains to the Companys interpretation services for government organizations and businesses that require human interpreters for non-English
speaking individuals.

Through its Global Development and Testing (GDT) solutions, Lionbridge develops, re-engineers and
optimizes IT applications and performs testing to ensure the quality, interoperability, usability and performance of clients software, consumer technology products, web sites and content. Lionbridges testing services, which are offered
under the VeriTest brand, also include product certification and competitive analysis. Lionbridge has deep domain experience developing, testing and maintaining applications in a cost-efficient, blended on-site and offshore model.



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Lionbridge provides a full suite of globalization, testing and development outsourcing services to
businesses, particularly in the technology, consumer products, life sciences, publishing, financial services, manufacturing, government automotive and retail industries. Lionbridges solutions include product and content globalization; content
and eLearning courseware development; application development and maintenance; software and hardware testing; product certification and competitive analysis. Lionbridges services enable global organizations to increase market penetration and
speed adoption of global content and products, enhance return on enterprise application investments, increase workforce productivity and reduce costs.

On September 1, 2005, Lionbridge completed the acquisition of Bowne Global Solutions (BGS) pursuant to the terms of the Agreement and Plan of Merger dated as of June 27, 2005. After the
acquisition, BGS became a wholly owned subsidiary of Lionbridge. At the closing, each share of common stock of BGS was automatically converted into the right to receive a portion of the acquisition consideration. To fund a portion of the purchase
price for its acquisition of BGS, the Company entered into a Credit Agreement (Credit Agreement) dated as of September 1, 2005, together with certain of its U.S. and non-U.S. subsidiaries, the several banks and financial
institutions as may become parties to the Credit Agreement (Lenders) and Wachovia Bank, National Association, as administrative agent for the Lenders. The Credit Agreement provides for a five-year $25.0 million revolving credit facility
and a six-year $100.0 million term facility.

The BGS acquisition was accounted for using the purchase method of accounting. The total
purchase price was $188.4 million, consisting of a cash payment of $128.5 million made at the closing, 9.4 million shares of Lionbridges common stock with a fair market value of $56.5 million, and an additional $3.4 million of direct
acquisition costs. The market price used to value the Lionbridge shares issued as partial consideration for BGS was $6.01, which represents the 5 day average closing price of the stock during the period beginning two days before and ending two days
after June 28, 2005, the first trading day of the Companys common stock following announcement of the acquisition on June 27, 2005. Lionbridge borrowed $2.5 million under the revolving credit facility component of the Credit
Agreement and $97.7 million (net of $2.3 million of debt financing fees) under the term facility component of the Credit Agreement, which amounts were used to pay a portion of the cash consideration at the closing.

For the nine-month period ended September 30, 2006, Lionbridges income from operations was $13.9 million, with net income of $1.1 million. For
the year ended December 31, 2005, the Companys income from operations was $1.3 million with a net loss of $3.9 million. As of September 30, 2006, the Company had an accumulated deficit of $101.7 million.

Revenue Recognition

Lionbridge
recognizes revenue as services are performed and amounts are earned in accordance with the Securities and Exchange Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements, as amended by SAB
No. 104, Revenue Recognition. Lionbridge considers amounts to be earned when (1) persuasive evidence of an arrangement has been obtained; (2) services are delivered; (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 recorded from the provision of services to customers for GLC, GDT and Interpretation services
which include content development, product and content globalization, interpretation, software and hardware testing, product certification and application development and maintenance.

Content development, software and hardware testing, interpretations and application development and maintenance projects are normally time and expense
priced contracts, and revenue is recognized using a time and expense basis over the period of performance, primarily based 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. Depending on specific contractual provisions and nature of the
deliverable, revenue is recognized on (1) a proportional performance model based on level of effort, (2) as milestones are achieved or (3) when final deliverables have been met. Amounts billed in excess of revenue recognized are
recorded as deferred revenue.

The delivery of Lionbridges GLC services involve, and are dependent on, the translation of content by
subcontractors and in-house employees. As the time and cost 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 proportional performance in delivering such services. The use of a proportional performance 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.



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Lionbridges GLC 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.

Lionbridge provides integrated full-service offerings throughout a clients product and content lifecycle, including GLC
and GDT services. Such offerings may include the delivery of a combination of one or more of our service offerings in one arrangement and are governed by the Emerging Issues Task Force Issue 00-21, Accounting for Revenue Arrangements with
Multiple Deliverables. In these arrangements where the GLC and GDT services have independent value to the customer, and there is evidence of fair value for the services, the combined service arrangement is bifurcated into two separate units
for of accounting treatment. In instances where it is not possible to bifurcate a project, direct and incremental costs attributable to each component are deferred and recognized together with the service revenue upon delivery. The determination of
fair value requires the use of significant judgment. Lionbridge determines the fair value of service revenues based upon its recent pricing for those services when sold separately and/or prevailing market rates for similar services.

Revenue includes reimbursement of travel and out-of-pocket expenses with equivalent amounts of expense recorded in cost of revenue.

Valuation of Goodwill and Long-Lived Assets

Lionbridge assesses the impairment of goodwill and other intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors that Lionbridge considers important which could trigger
an impairment review include: significant underperformance relative to expected historical or projected future operating results; significant changes in the overall business strategy; and significant negative industry or economic trends. When
Lionbridge determines that the carrying value of intangibles and goodwill may not be recoverable based upon one or more of these indicators of impairment, the Company measures any impairment using projected discounted cash flow models. In addition
in accordance with SFAS No. 142, Goodwill and Other Intangible Assets, goodwill is reviewed for impairment on an annual basis. At December 31, 2005, the Company performed its annual test of goodwill to determine if an
impairment existed. This test determined that each reporting units fair value exceeded the carrying value of the net assets of each respective reporting unit, using projected discounted cash flow modeling. As a result, no impairment was
required to be recorded related to the Companys annual impairment testing. Estimating future cash flows requires management to make projections that can differ materially from actual results.

The Company evaluates whether there has been an impairment in the carrying value of its long-lived assets, including other intangibles assets and
property and equipment, in accordance with SFAS No. 144, Accounting for Impairment of Long-Lived Assets, if circumstances indicate that a possible impairment may exist. An impairment in the carrying value of an asset is assessed
when the undiscounted expected future operating cash flows derived from the asset are less than its carrying value. If it is determined that the asset is impaired then it is written down to its estimated fair value. Long-lived assets, other than
goodwill and other intangible assets, which are held for disposal, are recorded at the lower of carrying value or fair market value less the estimated cost to sell. Factors that could lead to an impairment of acquired customer relationships include
a worsening in customer attrition rates compared to historical attrition rates, or lower than initially anticipated cash flows associated with customer relationships.

Merger, Restructuring and Other Charges

During the nine-month period ended September 30, 2006
Lionbridge recorded $3.5 million of restructuring and other charges. The $3.5 million recorded in the nine-month period ended September 30, 2006 included $1.5 million for workforce reductions in the Netherlands, Ireland, Germany and the U.S.
consisting of forty-three technical, four sales and two administrative staff, $301,000 for anticipated losses on vacated facilities, a $25,000 reduction of anticipated costs recorded in a prior period on a vacated facility in order to reflect a new
sublease arrangement, recorded pursuant to the guidance in SFAS No. 146, Accounting for Costs associated with Exit or Disposal Activitiesand $1.7 million of other charges, principally professional services fees, related to
the integration of BGS. Of these charges, $1.2 million related to the Companys GDT segment, $870,000 related to the GLC segment and $1.3 million related to Corporate and Other. Of the $5.9 million of cash payments in the nine-month period
ended September 30, 2006, $4.5 million and $1.3 million related to the GLC and GDT segments, respectively, and $30,000 related to Corporate and Other.



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During the nine-month period ended September 30, 2005, Lionbridge recorded $2.3 million of
restructuring and other charges. Of this amount, $1.9 million was recorded in the quarter ended September 30, 2005 and primarily related to the acquisition of BGS. Additionally, $449,000 was recorded in the six months ended June 30, 2005
and related primarily to workforce reductions in France and the U.S. The $2.3 million recorded in the nine-month period ended September 30, 2005 included $171,000 for anticipated losses on vacated facilities, $36,000 for the impairment of
long-lived assets, $1.2 million for workforce reductions in Germany, France and the U.S., consisting of fifty technical, twelve administrative and three sales staff recorded pursuant to the guidance in SFAS No. 146 and $945,000 of other
charges, principally professional services fees, related to the integration of BGS recorded pursuant to the guidance in emerging Issues Task Force Abstract 95-3, Recognition of Liabilities in Connection With a Purchase Business
Combination (EITF 95-3), and related literature. Of these charges, $1.3 million related to the Companys GLC segment, $77,000 to the GDT segment and $945,000 to Corporate and Other. Of the $1.4 million of cash payments during
the nine-month period ended September 30, 2005, $1.0 million and $262,000 related to the GLC and GDT segments, respectively, and $41,000 related to Corporate and Other.

Adoption of SFAS 123R, Share-Based Payment

The Company has stock-based compensation plans for salaried employees and non-employee members of the Board of Directors. The plans provide for discretionary grants of stock options, restricted stock and stock units, and other stock-based
awards. The plans are administered by the Nominating and Compensation Committee of the Board of Directors, which consists of non-employee directors.

Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (SFAS 123R), utilizing the modified prospective
method whereby prior periods were not restated for comparability. SFAS 123R requires recognition of stock-based compensation expense in the statement of operations over the vesting period based on the fair value of the award at the grant date.
Previously, the Company used the intrinsic value method under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), as amended by related interpretations of the Financial
Accounting Standards Board (FASB).

Under APB 25, no compensation cost was recognized for stock options if the quoted market
price of the stock at the grant date was equal to the amount per share the employee had to pay to acquire the stock after fulfilling the vesting period. SFAS 123R supersedes APB 25 as well as Statement of Financial Accounting Standard No. 123
Accounting for Stock-Based Compensation (SFAS 123), which permitted pro forma footnote disclosures to report the difference between the fair value method and the intrinsic value method.

The Company recognized expense for restricted stock grants under the previous guidance, thus the impact from adopting SFAS 123R pertains to its
requirement to expense the value of stock option and market-based awards. In the three and nine months ended September 30, 2006, the Company expensed $994,000 and $2.6 million, respectively, for stock options, and market-based awards classified
in the statement of operations line items as follows:



|                                                                                        |  |                                                       |         |  |   |          
|--------------------------------------------------------------------------------------- |  | ----------------------------------------------------- | ------- |  | - | ---------
|                                                                                        |  | For the Three and NineMonths Ended September 30, 2006
|Cost of revenue                                                                         |  | $                                                     | 33,000  |  | $ | 83,000   
|Sales and marketing                                                                     |  |                                                       | 198,000 |  |   | 569,000  
|General and administrative                                                              |  |                                                       | 749,000 |  |   | 1,865,000
|Research and development                                                                |  |                                                       | 14,000  |  |   | 36,000   
|                                                                                        |  |                                                       |         |  |   |          
|Total stock-based compensation expense related to stock options and market-based awards |  | $                                                     | 994,000 |  | $ | 2,553,000
|                                                                                        |  |                                                       |         |  |   |          

The impact of recording stock-based compensation expense related to stock options was a reduction
in basic and diluted earnings per share during the three and nine month periods ended September 30, 2006 of $0.02 and $0.04, respectively. The Company has reclassified $331,000 and $1.2 million of stock-based compensation recognized under APB
25 in the three and nine month periods ended September 30, 2005, respectively, from the previously reported stock-based compensation line item into the operating expense line items to conform to the current period presentation. The
adoption of SFAS 123R had no impact on cash flows from operating or financing activities.

Valuation Assumptions for Stock Options

During the three-month periods ended September 30, 2006 and 2005, 330,500 and 160,000 stock options were granted, respectively.
During the nine months periods ended September 30, 2006 and 2005, 1,268,500 and 904,000 stock options were granted, respectively. During the three-month period ended September 30, 2006, 8,206 shares were purchased under the employee stock
purchase plan. During the nine months periods ended September 30, 2006 and 2005, 8,206 and 33,601 shares were purchased under the employee stock purchase plan, respectively. The fair value of each option (excluding market-based awards discussed
below) was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:



|                        |  |                                  |   |  |                                 |   |  |              |   |  |              |  
|----------------------- |  | -------------------------------- | - |  | ------------------------------- | - |  | ------------ | - |  | ------------ | -
|                        |  | Three Months Ended September 30, |   |  | Nine Months Ended September 30, |  
|                        |  | 2006                             |   |  | 2005                            |   |  | 2006         |   |  | 2005         |  
|Risk-free interest rate |  | 5.02                             | % |  | 4.09                            | % |  | 4.36 to 5.02 | % |  | 3.41 to 4.09 | %
|Expected volatility     |  | 50.8                             | % |  | 84.0                            | % |  | 50.8         | % |  | 84.0         | %
|Expected life (years)   |  | 3.3                              |   |  | 4.0                             |   |  | 3.3          |   |  | 4.0          |  
|Dividend yield          |  | 0                                | % |  | 0                               | % |  | 0            | % |  | 0            | %



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Expected volatilities are based on historical volatilities of Lionbridges common stock; the
expected life represents the weighted average period of time that options granted are expected to be outstanding giving consideration to vesting schedules and the Companys historical exercise patterns; and the risk-free rate is based on the
U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option. In accordance with the Securities and Exchange Staff Accounting Bulletin (SAB) 107, the Company estimated the
expected volatility of its stock options, taking into account a combination of both historical and implied volatility. The expected volatility was determined by averaging the historical volatilities of its common stock since August 2003, the date of
the Companys follow-on offering, which resulted in a material change to the Companys shareholder base as well as a change in behavior of the Companys stock in the marketplace with our implied volatility rate, based on the
volatility of Lionbridges traded options with terms exceeding six months. This analysis resulted in an expected volatility rate of 50.8%.

On September 19, 2006, Lionbridge issued 300,000 stock option grants with a fair market value of $849,000 to its Chief Executive Officer. These stock option awards are subject to the following market-based vesting criteria: 33% of the
market-based award vests on the date that the Companys average closing stock price in a consecutive thirty calendar day period is greater than or equal to $10.00; an additional 33% of the market-based award vests on the date that the
Companys average closing stock price in a consecutive thirty calendar day period is greater than or equal to $13.50; and the remaining 34% of the market-based award vests on the date the Companys average closing stock price in a
consecutive thirty calendar day period is greater than or equal to $17.00. The Company uses the lattice model to value market condition awards. As noted above, the Company estimated the expected volatility of its stock options, taking into account a
combination of both historical and implied volatility. The expected volatility rates with respect to these market-based stock option awards were determined to be 46.2%, 47.5% and 52.0%, respectively, for each of the three derived service periods.

Stock Option Activity

The following table summarizes stock option activity for the nine months ended September 30, 2006:



|                                     |  |                   |   |  |                              |      |                                                  |     |                                          |   |       
|------------------------------------ |  | ----------------- | - |  | ---------------------------- | ---- | ------------------------------------------------ | --- | ---------------------------------------- | - | ------
|                                     |  | Number of Options |   |  | Weighted Avg. Exercise Price |      | Weighted Avg. Remaining Contractual Life (years) |     | Aggregate Intrinsic Value (in thousands)
|Outstanding as of December 31, 2005  |  | 5,278,224         |   |  | $                            | 5.38 |                                                  |     |                                          |   |       
|Granted                              |  | 1,268,500         |   |  | $                            | 7.20 |                                                  |     |                                          |   |       
|Exercised                            |  | (401,079          | ) |  | $                            | 2.68 |                                                  |     |                                          | $ | 1,878 
|Canceled (forfeited and expired)     |  | (447,708          | ) |  | $                            | 7.42 |                                                  |     |                                          |   |       
|                                     |  |                   |   |  |                              |      |                                                  |     |                                          |   |       
|Outstanding as of September 30, 2006 |  | 5,697,937         |   |  | $                            | 5.81 |                                                  | 5.8 |                                          | $ | 13,266
|Exercisable as of September 30, 2006 |  | 3,379,736         |   |  | $                            | 4.98 |                                                  | 5.4 |                                          | $ | 11,139

The aggregate intrinsic value in the table above represents the total intrinsic value, based on
the Companys common stock closing price of $7.63 as of September 30, 2006, which would have been received by the option holders had all in-the-money option holders exercised their options as of that date. The total number of in-the-money
options outstanding as of September 30, 2006 was 4,230,150. The total number of in-the-money options exercisable as of September 30, 2006 was 2,365,684.

The weighted average grant date fair value of options, as determined under SFAS 123R and SFAS 123, granted during the nine months ended September 30, 2006 and 2005 was $2.88 and $3.66 per share respectively. The
total intrinsic value of options exercised during the nine month periods ended September 30, 2006 and 2005 was approximately $1.9 million and $3.7 million, respectively. The total cash received from employees as a result of employee stock
option exercises during the nine months ended September 30, 2006 and 2005 was approximately $1.1 million and $1.7 million, respectively.

As of September 30, 2006, future compensation cost related to non-vested stock options, less estimated forfeitures, is approximately $6.9 million and will be recognized over an estimated weighted average period of approximately
1.3 years. The total fair value of shares vested during the nine month period ended September 30, 2006 was $5.7 million.

The Company
settles employee stock option exercises with newly issued shares of common stock.

Lionbridge currently expects to amortize the following
amounts of stock-based compensation related to stock options existing as of September 30, 2006 in the years ending:



|                         |  |   |          
|------------------------ |  | - | ---------
|Year ending December 31, |  |  
|2006                     |  | $ | 964,000  
|2007                     |  |   | 3,404,000
|2008                     |  |   | 1,645,000
|2009                     |  |   | 789,000  
|2010                     |  |   | 81,000   
|                         |  |   |          
|                         |  | $ | 6,883,000
|                         |  |   |          

Employee Stock Purchase Plan

Lionbridges 1999 Employee Stock Purchase Plan (the Purchase Plan) is a qualified employee stock purchase plan under Section 423 of
the Internal Revenue Code of 1986, as amended. The Purchase Plan allowed for the issuance of 1,000,000 shares of Lionbridges common stock to eligible employees. Under the Purchase Plan, Lionbridge was authorized to make a series of offerings
during which employees may purchase shares of common stock through payroll deductions



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made over the term of the offering. Prior to January 1, 2006, the per-share purchase price at the end of each
offering was equal to 85% of the fair market value of the common stock at the beginning or end of the offering period (as defined by the Purchase Plan), whichever was lower and effective January 1, 2006, the per-share purchase price at the end
of each offering was equal to 95% of the fair market value of the common stock at the end of the offering period (as defined by the Purchase Plan). There was no compensation expense in connection with the plan for the nine months ended
September 30, 2006. During the nine months periods ended September 30, 2006 and 2005, 8,206 and 33,601 shares were purchased under the employee stock purchase plan, respectively. Upon completion of the purchase period ended August 31,
2006, the Purchase Plan was terminated.

Restricted Stock Awards

On January 26, 2006, Lionbridge issued 14,000 shares of restricted common stock and 12,000 restricted stock units with a fair market value of
$109,000. On February 15, 2006, Lionbridge issued 221,200 shares of restricted common stock and 105,500 restricted stock units with a fair market value of $1.6 million. On May 4, 2006, Lionbridge issued 9,000 restricted stock units with a
fair value of $76,000. On July 27, 2006, Lionbridge issued 8,000 shares of restricted common stock with a fair market value of $45,000. Restrictions on disposition lapse over four years from the date of grant on each anniversary date.

On September 19, 2006, Lionbridge issued 200,000 shares of restricted common stock with a fair market value of $1.2 million to its
Chief Executive Officer. This restricted stock award is subject to the following market-based vesting criteria: 33% of the market-based award vests on the date that the Companys average closing stock price in a consecutive thirty calendar day
period is greater than or equal to $10.00; an additional 33% of the market-based award vests on the date that the Companys average closing stock price in a consecutive thirty calendar day period is greater than or equal to $13.50; and the
remaining 34% of the market-based award vests on the date the Companys average closing stock price in a consecutive thirty calendar day period is greater than or equal to $17.00. The Company uses the lattice model to value market condition
awards. For awards with market conditions with a cliff vesting feature, as described above, the Company recognizes stock based compensation on a straight line basis over the requisite service period.

Total compensation expense related to all restricted stock awards was $602,000 and $331,000 for the three-month periods ended September 30, 2006 and
2005, respectively and $1.8 million and $1.2 million for the nine-month periods ended September 30, 2006 and 2005, respectively. The weighted average grant date fair value of restricted stock awards granted during the nine months ended
September 30, 2006 was $7.10.

Lionbridge currently expects to amortize $5,886,000 of unamortized compensation in connection with
restricted stock awards existing as of September 30, 2006.

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 Ended September 30, |    |  | Nine Months Ended September 30, |   
|                                                                            |  | 2006                             |    |  | 2005                            |    |  | 2006  |   |  | 2005  |   
|Revenue                                                                     |  | 100.0                            | %  |  | 100.0                           | %  |  | 100.0 | % |  | 100.0 | % 
|Operating expenses:                                                         |  |                                  |    |  |                                 |    |  |       |   |  |       |   
|Cost of revenue (exclusive of depreciation and amortization included below) |  | 67.1                             |    |  | 65.4                            |    |  | 65.9  |   |  | 65.5  |   
|Sales and marketing                                                         |  | 6.8                              |    |  | 8.8                             |    |  | 7.0   |   |  | 9.5   |   
|General and administrative                                                  |  | 17.5                             |    |  | 20.1                            |    |  | 17.5  |   |  | 20.2  |   
|Research and development                                                    |  | 0.6                              |    |  | 0.8                             |    |  | 0.7   |   |  | 0.6   |   
|Depreciation and amortization                                               |  | 1.2                              |    |  | 1.5                             |    |  | 1.3   |   |  | 1.5   |   
|Amortization of acquisition-related intangible assets                       |  | 2.0                              |    |  | 1.1                             |    |  | 2.1   |   |  | 0.5   |   
|Merger, restructuring and other charges                                     |  | 1.9                              |    |  | 3.2                             |    |  | 1.1   |   |  | 1.7   |   
|                                                                            |  |                                  |    |  |                                 |    |  |       |   |  |       |   
|Total operating expenses                                                    |  | 97.1                             |    |  | 100.9                           |    |  | 95.6  |   |  | 99.5  |   
|                                                                            |  |                                  |    |  |                                 |    |  |       |   |  |       |   
|Income (loss) from operations                                               |  | 2.9                              |    |  | (0.9                            | )  |  | 4.4   |   |  | 0.5   |   
|Interest expense:                                                           |  |                                  |    |  |                                 |    |  |       |   |  |       |   
|Interest in outstanding debt                                                |  | 1.9                              |    |  | 1.1                             |    |  | 1.9   |   |  | 0.5   |   
|Amortization of deferred financing costs                                    |  | 0.2                              |    |  | 0.1                             |    |  | 0.2   |   |  | 0.0   |   
|Interest income                                                             |  | 0.1                              |    |  | 0.2                             |    |  | 0.1   |   |  | 0.4   |   
|Other expense, net                                                          |  | 1.0                              |    |  | 0.4                             |    |  | 0.7   |   |  | 0.3   |   
|                                                                            |  |                                  |    |  |                                 |    |  |       |   |  |       |   
|Income before income taxes                                                  |  | (0.1                             | )  |  | (2.3                            | )  |  | 1.7   |   |  | 0.1   |   
|Provision for income taxes                                                  |  | 0.8                              |    |  | 1.9                             |    |  | 1.4   |   |  | 1.0   |   
|                                                                            |  |                                  |    |  |                                 |    |  |       |   |  |       |   
|Net income (loss)                                                           |  | (0.9                             | )% |  | (4.2                            | )% |  | 0.3   | % |  | (0.9  | )%
|                                                                            |  |                                  |    |  |                                 |    |  |       |   |  |       |   



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Revenue. The following table shows Global Language and Content (GLC), Global
Development and Testing (GDT), and Interpretation revenues in dollars and as a percentage of total revenue for the three and nine months ended September 30, 2006 and 2005, respectively:



|               |  |                                  |             |  |                                 |   |  |      |            |  |      |   |  |   |             |  |     |   |  |   |             |  |     |  
|-------------- |  | -------------------------------- | ----------- |  | ------------------------------- | - |  | ---- | ---------- |  | ---- | - |  | - | ----------- |  | --- | - |  | - | ----------- |  | --- | -
|               |  | Three Months Ended September 30, |             |  | Nine Months Ended September 30, |  
|               |  | 2006                             |             |  | 2005                            |   |  | 2006 |            |  | 2005 |  
|GLC            |  | $                                | 86,454,000  |  | 80                              | % |  | $    | 42,592,000 |  | 73   | % |  | $ | 254,096,000 |  | 80  | % |  | $ | 94,806,000  |  | 68  | %
|GDT            |  |                                  | 16,044,000  |  | 15                              | % |  |      | 14,089,000 |  | 24   | % |  |   | 45,974,000  |  | 14  | % |  |   | 42,033,000  |  | 30  | %
|Interpretation |  |                                  | 5,466,000   |  | 5                               | % |  |      | 1,736,000  |  | 3    | % |  |   | 17,542,000  |  | 6   | % |  |   | 1,736,000   |  | 2   | %
|               |  |                                  |             |  |                                 |   |  |      |            |  |      |   |  |   |             |  |     |   |  |   |             |  |     |  
|Total revenue  |  | $                                | 107,964,000 |  | 100                             | % |  | $    | 58,417,000 |  | 100  | % |  | $ | 317,612,000 |  | 100 | % |  | $ | 138,575,000 |  | 100 | %
|               |  |                                  |             |  |                                 |   |  |      |            |  |      |   |  |   |             |  |     |   |  |   |             |  |     |  

Revenue for the quarter ended September 30, 2006 was $108.0 million, an increase of $49.5
million, or 84.8%, from $58.4 million for the quarter ended September 30, 2005. Revenue for the quarters ended September 30, 2006 and 2005 included three months and one month of revenue from the legacy BGS operations, respectively. Due to
the near completion of the integration of the legacy Lionbridge and BGS GLC service and sales operations during the quarter ended September 30, 2006, it is no longer possible to separately attribute revenue increases specifically to legacy
Lionbridge and BGS sales and operations. The Company has concluded that the revenue increase during the third quarter of 2006 is attributable to both the additional two months of BGS revenue and the synergies of the combined, integrated sales and
operational model. The increase consists of $43.9 million, $2.0 million and $3.7 million of revenue growth in GLC, GDT and Interpretation, respectively.

Revenue from the Companys GDT business was $16.0 million for the quarter ended September 30, 2006, an increase of $2.0 million, or 13.9%, from $14.1 million for the quarter ended September 30, 2005.
The year-on-year increase in GDT revenue was primarily due to increased revenue from the Companys lower cost development centers located in India and China, partially offset by a reduction in testing revenues from the Companys higher
cost development centers located in the United States and Europe, as compared to the quarter ended September 30, 2005. Over the last year, several testing projects have moved from execution at the Companys U.S. and Europe based testing
laboratories to its testing laboratories located in lower cost areas, including India and China.

Revenue from the Companys
Interpretation business for the quarter ended September 30, 2006 increased $3.7 million, or 214.9%, to $5.5 million from $1.7 million for the quarter ended September 30, 2005. This increase in revenue is attributable to Lionbridges
acquisition of BGS, as compared to the quarter ended September 30, 2005. Revenue for the quarters ended September 30, 2006 and 2005 included three months and one month of revenue from the legacy BGS operations, respectively.

Revenue for the nine months ended September 30, 2006 was $317.6 million, an increase of $179.0 million, or 129.2%, from $138.6 million for the nine
months ended September 30, 2005. As noted, above, due to the near completion of the integration of the legacy Lionbridge and BGS GLC service and sales operations, it is no longer possible to separately attribute revenue increases specifically
to legacy Lionbridge and BGS sales and operations. The Company has concluded that the revenue increase during the nine months ended September 30, 2006 is attributable to both the additional BGS revenue and the synergies of the combined,
integrated sales and operational model. The increase consists of $159.3 million, $3.9 million and $15.8 million of revenue growth in GLC, GDT and Interpretation, respectively.

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 GLC, GDT and Interpretation cost of revenues, the percentage variance from the three month period of
the prior year and as a percentage of revenue for the three and nine months ended September 30, 2006 and 2005, respectively:



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|                      |  |                                       |            |   |                         |       |   |                                       |   |            |                                      |  |   |                                           |   |  |                                      |   |  |   |            |  
|--------------------- |  | ------------------------------------- | ---------- | - | ----------------------- | ----- | - | ------------------------------------- | - | ---------- | ------------------------------------ |  | - | ----------------------------------------- | - |  | ------------------------------------ | - |  | - | ---------- | -
|                      |  | Three Months Ended September 30, 2006 |            |   | % Change Q3 05 to Q3 06 |       |   | Three Months Ended September 30, 2005 |   |            | Nine Months Ended September 30, 2006 |  |   | % Change Nine Months 05 to Nine Months 06 |   |  | Nine Months Ended September 30, 2005 |  
|GLC:                  |  |                                       |            |   |                         |       |   |                                       |   |            |                                      |  |   |                                           |   |  |                                      |   |  |   |            |  
|Cost of revenue       |  | $                                     | 58,063,000 |   |                         | 105.8 | % |                                       | $ | 28,210,000 |                                      |  | $ | 166,846,000                               |   |  | 163.7                                | % |  | $ | 63,278,000 |  
|Percentage of revenue |  |                                       | 67.2       | % |                         |       |   |                                       |   | 66.2       | %                                    |  |   | 65.7                                      | % |  |                                      |   |  |   | 66.7       | %
|GDT:                  |  |                                       |            |   |                         |       |   |                                       |   |            |                                      |  |   |                                           |   |  |                                      |   |  |   |            |  
|Cost of revenue       |  |                                       | 10,014,000 |   |                         | 16.8  | % |                                       |   | 8,572,000  |                                      |  |   | 28,328,000                                |   |  | 8.9                                  | % |  |   | 26,011,000 |  
|Percentage of revenue |  |                                       | 62.4       | % |                         |       |   |                                       |   | 60.8       | %                                    |  |   | 61.6                                      | % |  |                                      |   |  |   | 61.9       | %
|Interpretation:       |  |                                       |            |   |                         |       |   |                                       |   |            |                                      |  |   |                                           |   |  |                                      |   |  |   |            |  
|Cost of revenue       |  |                                       | 4,368,000  |   |                         | 205.7 | % |                                       |   | 1,429,000  |                                      |  |   | 14,045,000                                |   |  | 882.9                                | % |  |   | 1,429,000  |  
|Percentage of revenue |  |                                       | 79.9       | % |                         |       |   |                                       |   | 82.3       | %                                    |  |   | 80.1                                      | % |  |                                      |   |  |   | 82.3       | %
|                      |  |                                       |            |   |                         |       |   |                                       |   |            |                                      |  |   |                                           |   |  |                                      |   |  |   |            |  
|Total cost of revenue |  | $                                     | 72,445,000 |   |                         |       |   |                                       | $ | 38,211,000 |                                      |  | $ | 209,219,000                               |   |  |                                      |   |  | $ | 90,718,000 |  
|                      |  |                                       |            |   |                         |       |   |                                       |   |            |                                      |  |   |                                           |   |  |                                      |   |  |   |            |  
|Percentage of revenue |  |                                       | 67.1       | % |                         |       |   |                                       |   | 65.4       | %                                    |  |   | 65.9                                      | % |  |                                      |   |  |   | 65.5       | %

For the quarter ended September 30, 2006, as a percentage of revenue, cost of revenue
increased to 67.1% as compared to 65.4% for the same quarter of 2005. The increase was primarily due to the changes in the revenue and service mix discussed below, year over year, as a result of the impact of the acquisition of BGS. Each segment
provides distinctive services, with different gross margins. For the quarter ended September 30, 2005, including one month of combined results after the acquisition of BGS, GLC, GDT and Interpretation accounted for approximately 72.9%, 24.1%
and 3.0% of the total revenue, respectively. For the three months ended September 30, 2006 which includes three months of combined results of BGS, GLC, GDT and Interpretation accounted for 80.1%, 14.9% and 5.1 of the total revenue,
respectively. This change in revenue mix and the addition of higher cost ratios in the acquired Interpretation business results in an increase in the weighted average cost of revenue ratio for the Company for the three months ended
September 30, 2006 as compared to the same period in 2005. For the quarter ended September 30, 2006, cost of revenue increased $34.2 million, or 89.6%, to $72.4 million compared to $38.2 million for the same quarter of the prior year. This
increase was primarily in support of $49.5 million incremental revenue as compared to the quarter ended September 30, 2005. As noted above, due to the near completion of the integration of the legacy Lionbridge and BGS GLC service and sales
operations during the quarter ended September 30, 2006, it is no longer possible to separately attribute increases in the cost of revenue specifically to legacy Lionbridge and BGS sales and operations. The Company has concluded that the cost of
revenue increase during the third quarter of 2006 is substantially attributable to the additional two months of cost of revenue related to the legacy BGS operations and that this increased expense was partially offset by the synergies of the
combined, integrated sales and operational model.

Cost of revenue as a percentage of revenue in the Companys GLC business increased
to 67.2% for the quarter ended September 30, 2006, as compared to 66.2% for the same period of the prior year. This increase reflects higher costs for translation services, mainly due variation in work mix and the impact of the implementation
of new contract management system during the quarter. These increases were partially offset by benefits realized from the deployment and use of Logoport, Lionbridges language management technology platform, and lower internal operating costs
resulting from certain restructuring and cost reduction actions initiated in 2005. For the quarter ended September 30, 2006, GLC cost of revenue increased $29.9 million, or 105.8%, to $58.1 million as compared to $28.2 million for the
corresponding quarter of the prior year. This increase was primarily in support of $43.9 million incremental revenue, as compared to the quarter ended September 30, 2005.

Cost of revenue as a percentage of revenue in the Companys GDT business increased to 62.4% for the quarter ended September 30, 2006, as
compared to 60.8% for the corresponding quarter of the prior year. This increase reflects the unfavorable impact of work mix and scope variations in services provided and cost related to the closure of the Galway operation and transition of service
production to the Companys offshore delivery centers in India. For the quarter ended September 30, 2006, GDT cost of revenue increased $1.4 million or 16.8 %, to $10.0 million as compared to $8.6 million for the corresponding quarter
of the prior year. This increase was primarily in support of a $2.0 million increase in revenue year-over-year, and the factors noted above, as compared to the prior year.

Cost of revenue as a percentage of revenue in the Companys Interpretation business decreased to 79.9% for the quarter ended September 30,
2006, as compared to 82.3% for the corresponding quarter of the prior year. This increase reflects the favorable impact of work mix and scope variations in services provided as compared to the prior year.

For the nine months ended September 30, 2006, as a percentage of revenue, cost of revenue increased to 65.9% as compared to 65.5% for the
corresponding period of the prior year. Cost of revenue was $209.2 million for the nine months ended September 30, 2006, an increase of $118.5 million, or 130.6%, as compared to $90.7 million for the same period of



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##### Table of Contents

2005. This increase was primarily in support of $179.0 million incremental revenue, as compared to the nine months ended
September 30, 2005. As noted, above, due to the near completion of the integration of the legacy Lionbridge and BGS GLC service and sales operations, it is no longer possible to separately attribute increases in the cost of revenue specifically
to legacy Lionbridge and BGS sales and operations. The Company has concluded that the cost of revenue increase during the nine months ended September 30, 2006 is substantially attributable to the additional cost of revenue related to the legacy
BGS operations and that this increased expense was partially offset by the synergies of the combined, integrated sales and operational model.

For the nine months ended September 30, 2006, cost of revenue in the Companys GLC business decreased to 65.7% as compared to 66.7% for the corresponding period of the prior year, primarily due to lower costs for translation
services, mainly due to the benefit realized from the deployment and use of Logoport, Lionbridges language management technology platform, and lower internal operating costs. The decrease in the internal cost reflects the cost saving benefits
of certain merger restructuring and cost reduction actions initiated in 2005. The GLC cost ratio improvement also reflects the advantage of lower cost resulting from the transfer of a higher percentage of service production to the Companys
offshore delivery centers in India and China.

Cost of revenue in the Companys GLC business was $166.8 million for the nine months
ended September 30, 2006, an increase of $103.6 million, or 163.7%, from $63.3 million in the comparable period of 2005, primarily due to support the growth in related revenue. These increases were partially offset by to lower costs for
translation services, mainly due to the benefit realized from the deployment and use of Logoport, Lionbridges language management technology platform, and the cost saving benefits of certain merger restructuring and cost reduction actions
initiated in 2005.

For the nine months ended September 30, 2006 cost of revenue in the Companys GDT business decreased to 61.6%
as compared to 61.9 % for the corresponding period of the prior year. This decrease reflects the favorable impact of cost savings resulting from continuing restructuring activities, partially offset by certain transition costs incurred as the
Company shifts service production to its offshore delivery centers in India and China. For the nine months ended September 30, 2006 GDT cost of revenue increased $2.3 million, or 8.9%, to $28.3 million as compared to $26.0 million for the
corresponding period of the prior year. This increase was primarily in support of a $3.9 million increase in revenue year-over-year, the factors noted above, and work mix and scope variations in services provided as compared to the prior year.

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, sales force automation/CRM system expense, training, 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 nine months ended September 30, 2006 and 2005,
respectively:



|                                   |  |                                  |           |   |                                 |   |           |      |  |   |            |   |  |   |            |  
|---------------------------------- |  | -------------------------------- | --------- | - | ------------------------------- | - | --------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                   |  | Three Months Ended September 30, |           |   | Nine Months Ended September 30, |  
|                                   |  | 2006                             |           |   | 2005                            |   |           | 2006 |  |   | 2005       |  
|Total sales and marketing expenses |  | $                                | 7,274,000 |   |                                 | $ | 5,136,000 |      |  | $ | 22,463,000 |   |  | $ | 13,135,000 |  
|Increase from prior year           |  |                                  | 2,138,000 |   |                                 |   |           |      |  |   | 9,328,000  |   |  |   |            |  
|Percentage of revenue              |  |                                  | 6.8       | % |                                 |   | 8.8       | %    |  |   | 7.0        | % |  |   | 9.5        | %

For the quarter ended September 30, 2006, sales and marketing expenses increased $2.1 million
to $7.3 million from $5.1 million in the corresponding quarter of 2005. This increase is primarily due to higher employee-related expenses and travel costs in the sales organization to support the $49.5 million increase in revenue, year over year.
As part of the integration and merger, sales and marketing departments were combined and restructured. Additionally new employees have been added and revised compensation plans have been implemented. These employees sell and place work in all
locations, as a result the exact increase in cost attributable to the BGS acquisition is indeterminable. For the nine months ended September 30, 2006, sales and marketing expenses increased $9.3 million to $22.5 million from $13.1 million in
the corresponding period of 2005. This increase is primarily due to expense attributable to Lionbridges acquisition of BGS, the result of higher employee-related expenses and travel costs in the sales organization to support the increase in
revenue, including a major upgrade and deployment of a sales force automation and customer relationship management system and training expenses.

As a percentage of revenue, sales and marketing expenses decreased to 6.8% in the quarter ended September 30, 2006 from 8.8% in the corresponding period in 2005, reflecting the benefit of the integration and restructuring of the sales
and marketing organization, and the increased revenue levels from period to period.



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##### Table of Contents

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 nine months ended September 30, 2006 and 2005,
respectively:



|                                          |  |                                  |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|----------------------------------------- |  | -------------------------------- | ---------- | - | ------------------------------- | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                          |  | Three Months Ended September 30, |            |   | Nine Months Ended September 30, |  
|                                          |  | 2006                             |            |   | 2005                            |   |            | 2006 |  |   | 2005       |  
|Total general and administrative expenses |  | $                                | 18,882,000 |   |                                 | $ | 11,728,000 |      |  | $ | 55,664,000 |   |  | $ | 28,020,000 |  
|Increase from prior year                  |  |                                  | 7,154,000  |   |                                 |   |            |      |  |   | 27,644,000 |   |  |   |            |  
|Percentage of revenue                     |  |                                  | 17.5       | % |                                 |   | 20.1       | %    |  |   | 17.5       | % |  |   | 20.2       | %

General and administrative expenses increased $7.2 million, or 61.0%, to $18.9 million for the
quarter ended September 30, 2006 as compared to $11.7 million for the quarter ended September 30, 2005. This increase is primarily due to the expenses attributable to Lionbridges integration of BGS, with the remainder of the increase
resulting from higher employee costs, professional fees and certain other costs incurred in connection with the consolidation of BGS, as compared to the corresponding period of the prior year. As part of the integration, merger and restructuring,
the responsibilities of many general and administrative employees were changed, certain employees were terminated and others hired. Additionally, certain facilities were combined and operating expenses adjusted in order to accommodate the combined
Company as compared to two separate entities. These employees, facilities and expenses support the combined Companys operations and, as a result, the exact increase in cost attributable to the BGS consolidation is indeterminable. For the nine
months ended September 30, 2006 general and administrative expenses increased $27.6 million, or 98.7% to $55.7 million as compared to $28.0 million for the nine months ended September 30, 2005, for the reasons noted above.

Additionally, general and administrative expense includes approximately $749,000 and $1.9 million of additional stock-based compensation expense
associated with the adoption of SFAS 123R on January 1, 2006 for the three and nine months ended September 30, 2006, respectively, as compared to the corresponding periods of the prior year.

As a percentage of revenue, general and administrative expenses decreased to 17.5% for the quarter ended September 30, 2006 as compared to 20.1%,
for the same period of the prior year, and decreased to 17.5% for the nine months ended September 30, 2006 as compared to 20.2%, for the nine months ended September 30, 2005 due primarily to the items noted above, as well as the impact of
the increase in revenue from period to period.

Research and Development. Research and development expenses relate primarily to
the Companys Logoport and Freeway technologies used in the globalization process and the research and development of a globalization management system. The cost consists 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 nine months ended September 30, 2006 and
2005, respectively:



|                                       |  |                                  |         |   |                                 |   |         |      |  |   |           |   |  |   |         |  
|-------------------------------------- |  | -------------------------------- | ------- | - | ------------------------------- | - | ------- | ---- |  | - | --------- | - |  | - | ------- | -
|                                       |  | Three Months Ended September 30, |         |   | Nine Months Ended September 30, |  
|                                       |  | 2006                             |         |   | 2005                            |   |         | 2006 |  |   | 2005      |  
|Total research and development expense |  | $                                | 689,000 |   |                                 | $ | 449,000 |      |  | $ | 2,173,000 |   |  | $ | 832,000 |  
|Increase from prior year               |  |                                  | 240,000 |   |                                 |   |         |      |  |   | 1,341,000 |   |  |   |         |  
|Percentage of revenue                  |  |                                  | 0.6     | % |                                 |   | 0.8     | %    |  |   | 0.7       | % |  |   | 0.6     | %

Research and development expense increased 53.5% to $689,000 for the quarter ended
September 30, 2006 as compared to $449,000 for the quarter ended September 30, 2005. For the nine months ended September 30, 2006, research and development expense increased 161.2% to $2.2 million from $832,000 for the nine months
ended September 30, 2005. The increases for the three and nine month periods ended September 30, 2006 are primarily attributable to research and development costs incurred in development of a web-based hosted language management technology
platform and, to a lesser degree, attributable to additional research and development activities acquired from BGS.

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 nine months ended September 30, 2006 and 2005, respectively:



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##### Table of Contents

|                                            |  |                                  |           |   |                                 |   |         |      |  |   |           |   |  |   |           |  
|------------------------------------------- |  | -------------------------------- | --------- | - | ------------------------------- | - | ------- | ---- |  | - | --------- | - |  | - | --------- | -
|                                            |  | Three Months Ended September 30, |           |   | Nine Months Ended September 30, |  
|                                            |  | 2006                             |           |   | 2005                            |   |         | 2006 |  |   | 2005      |  
|Total depreciation and amortization expense |  | $                                | 1,323,000 |   |                                 | $ | 916,000 |      |  | $ | 4,228,000 |   |  | $ | 2,144,000 |  
|Increase from prior year                    |  |                                  | 407,000   |   |                                 |   |         |      |  |   | 2,084,000 |   |  |   |           |  
|Percentage of revenue                       |  |                                  | 1.2       | % |                                 |   | 1.5     | %    |  |   | 1.3       | % |  |   | 1.5       | %

Depreciation and amortization expense increased 44.4% to $1.3 million for the quarter ended
September 30, 2006 as compared to $916,000 for the quarter ended September 30, 2005. For the nine months ended September 30, 2006, depreciation and amortization expense increased 97.2% to $4.2 million from $2.1 million for the nine
months ended September 30, 2005. The increases for the three and nine month periods ended September 30, 2006 are primarily the result of incremental depreciation and amortization expense attributable to Lionbridges consolidation of
BGS partially offset by lower depreciation expense due to the culmination of depreciable lives of certain assets acquired in prior years.

Amortization of Acquisition-related Intangible Assets.Amortization of acquisition-related intangible assets consists of the amortization of identifiable intangible assets resulting from acquired businesses. Amortization expense for
the three and nine months ended September 30, 2006 of $2.2 million and $6.5 million, respectively, and for the three and nine months ended September 30, 2005 of $630,000 and $648,000, respectively, relates solely to the amortization of
identifiable intangible assets. The increase is the result of the amortization of acquisition-related intangible assets attributable to the acquisition of BGS.

Interest Expense.Interest expense represents interest paid or payable on debt, the amortization of deferred financing costs and the accretion of discounts on debt. Interest expense for the three and nine
months ended September 30, 2006 of $2.2 million and $6.6 million, respectively, and for the three and nine months ended September 30, 2005 of $693,000, primarily represents interest paid or payable on debt and the amortization of deferred
financing costs on the original $100.0 million term loan entered into by the Company in the third quarter of 2005 to fund a portion of the purchase price for its acquisition of BGS.

Other Expense, Net.Other expense, net primarily reflects the foreign currency transaction gains or losses arising from exchange rate fluctuations
on transactions denominated in currencies other than the functional currencies of the countries in which the transactions are recorded. The Company recognized $1.1 million in other expense, net in the quarter ended September 30, 2006, as
compared to $246,000 in other expense, net in the corresponding quarter of the prior year. The other expense, net of $1.1 million recorded in the three months ended September 30, 2006 includes $9,000 in unrealized foreign currency gains related
to forward contracts outstanding in the amount of $24.3 million at September 30, 2006 and $465,000 in realized foreign currency net losses on forward contracts settled during the quarter. For the nine months ended September 30, 2006, other
expense, net increased to $2.2 million from $468,000 in the nine months ended September 30, 2005. These increases were primarily attributable to the larger (due to the BGS acquisition) net position of U.S. dollar and Euro denominated assets and
liabilities, combined with the net variance of the Euro and other currencies against the U.S. dollar in the three and nine month periods ended September 30, 2006, as compared to the net position and variance during the corresponding periods of
the prior year, as well as the impact of the net losses recorded for forward contracts as noted above.

Provision for Income
Taxes. The following table shows the provision for income taxes expense in dollars, the dollar variance as compared to the prior year and as a percentage of revenue for the three and nine months ended September 30, 2006 and 2005,
respectively:



|                                    |  |                                  |          |   |                                 |   |           |      |  |   |           |   |  |   |           |  
|----------------------------------- |  | -------------------------------- | -------- | - | ------------------------------- | - | --------- | ---- |  | - | --------- | - |  | - | --------- | -
|                                    |  | Three Months Ended September 30, |          |   | Nine Months Ended September 30, |  
|                                    |  | 2006                             |          |   | 2005                            |   |           | 2006 |  |   | 2005      |  
|Provision for income taxes          |  | $                                | 866,000  |   |                                 | $ | 1,120,000 |      |  | $ | 4,297,000 |   |  | $ | 1,347,000 |  
|Increase (decrease) from prior year |  |                                  | (254,000 | ) |                                 |   |           |      |  |   | 2,950,000 |   |  |   |           |  
|Percentage of revenue               |  |                                  | 0.8      | % |                                 |   | 1.9       | %    |  |   | 1.4       | % |  |   | 1.0       | %

The provision for income taxes consists primarily of taxes resulting from profits in foreign
jurisdictions and the increase in deferred tax liabilities related to the tax deductible goodwill from the BGS acquisition. The tax provision decreased $254,000 to $866,000 for the quarter ended September 30, 2006 from $1.1 million in the
corresponding quarter of the prior year due to the shift in profit throughout the foreign jurisdictions. For the nine months ended September 30, 2006, the provision for income taxes increased to $4.3 million from $1.3 million in the nine months
ended September 30, 2005. These increases are primarily attributable to the inclusion of the BGS operations in the three and nine months ended September 30, 2006 as compared to the corresponding periods of the prior year. Additionally, the
combination of a mix of countries where profits were earned in the three and nine month periods ended September 30, 2005 and the tax rates in those countries resulted in minimal taxes for those periods.



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##### Table of Contents

Liquidity and Capital Resources

On September 1, 2005, Lionbridge replaced its revolving credit facility originally entered into in December 2004 with a credit facility with Wachovia Bank, National Association and Wachovia Capital Markets, LLC
(Credit Agreement). Under the Credit Agreement, Lionbridge is able to borrow up to $125.0 million governed by certain financial covenants. Borrowings outstanding under the Credit Agreement are collateralized by the domestic assets of the
Company and its U.S. subsidiaries and stock of certain foreign subsidiaries. The Credit Agreement is further divided into two sub-facilities, a Term Loan Facility (Term Loan) and a Revolving Loan Facility (Revolver). The Term
Loan and Revolver bear interest at prime or LIBOR (at the Companys discretion) plus an applicable margin based on certain financial covenants.

The Term Loan had an aggregate outstanding principal amount of $78.5 million and an interest rate of 8.6% as of September 30, 2006 and has a maturity date of June 30, 2011. The principal amount of the Term
Loan is payable in installments. The total Term Loan principal payments by fiscal period are as follows:



|                         |  |   |           
|------------------------ |  | - | ----------
|Year ending December 31, |  |  
|2006                     |  | $ | 197,732   
|2007                     |  |   | 790,928   
|2008                     |  |   | 790,928   
|2009                     |  |   | 790,928   
|2010                     |  |   | 19,377,746
|Thereafter               |  |   | 56,588,079
|                         |  |   |           
|                         |  | $ | 78,536,341
|                         |  |   |           

Additional contingent principal payments on the Term Loan and Revolver are also due based on a
percentage of the annual cash flows (as defined in the agreement) generated by the Company. These mandatory principal payments are payable within 90-days of the Companys year-end. The percentage due is governed by certain financial covenants.
Lionbridge must maintain a certain leverage ratio at each reporting date as defined in the financial covenants of the Wachovia Facility. There are no mandatory principal payments due under these covenants at September 30, 2006. Lionbridge has
an interest payment of $161,000 due on October 31, 2006. Future interest payments will be determined based on the interest rate and term elected by the Company. The proceeds from the Term Loan were used exclusively to fund the purchase of BGS,
and were paid to Bowne and Co., Inc.

The Revolver had no outstanding borrowings as of September 30, 2006 and has a maturity date of
September 1, 2010. At September 30, 2006, Lionbridges borrowing capacity was $25.0 million and the Company would have elected an interest rate of 8.6% based on a 1-month LIBOR loan as of September 30, 2006 under the Revolver.
Interest is payable in arrears to a maximum of three-month increments depending on the terms under which the Revolver loans are made.

The
following table shows cash and cash equivalents and working capital at September 30, 2006 and at December 31, 2005:



|                          |  |                    |            |                   |   |           
|------------------------- |  | ------------------ | ---------- | ----------------- | - | ----------
|                          |  | September 30, 2006 |            | December 31, 2005
|Cash and cash equivalents |  | $                  | 21,877,000 |                   | $ | 25,147,000
|Working capital           |  |                    | 60,574,000 |                   |   | 57,182,000

Lionbridges working capital increased $3.4 million to $60.6 million at September 30,
2006 as compared to $57.2 million at December 31, 2005. The increase was driven by the growth of the business during the nine months ended September 30, 2006. As of September 30, 2006, cash and cash equivalents totaled $21.9 million,
a decrease of $3.3 million from $25.1 million at December 31, 2005, primarily due to $14.3 million in payments of long-term debt and $2.9 million for purchases of property and equipment, partially offset by $9.6 million net cash provided by
operating activities of the business, a $2.5 million purchase price reimbursement from Bowne , and $1.1 million of proceeds from the issuance of common stock under option plans during the nine months ended September 30, 2006. Accounts
receivable and work in process totaled $102.8 million, an increase of $9.0 million as compared to $93.8 million at December 31, 2005. Other current assets increased $1.3 million to $8.8 million as compared to $7.4 million at December 31,
2005. Current liabilities totaled $72.8 million at September 30, 2006, an increase of $3.6 million as compared to $69.2 million at December 31, 2005.

The following table shows the net cash provided by operating activities, net cash used in investing activities, and net cash provided by (used in) financing activities for the nine months ended September 30, 2006
and 2005, respectively:



|                                                    |  |                                 |             |   |      |   |              |  
|--------------------------------------------------- |  | ------------------------------- | ----------- | - | ---- | - | ------------ | -
|                                                    |  | Nine Months Ended September 30, |            
|                                                    |  | 2006                            |             |   | 2005 |  
|Net cash provided by operating activities           |  | $                               | 9,647,000   |   |      | $ | 3,526,000    |  
|Net cash used in investing activities               |  |                                 | (336,000    | ) |      |   | (119,701,000 | )
|Net cash provided by (used in) financing activities |  |                                 | (13,201,000 | ) |      |   | 99,260,000   |  



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Net cash provided by operating activities was $9.6 million for the nine months ended September 30,
2006, as compared to $3.5 million for the corresponding period of the prior year. The $9.6 million cash provided by operating activities was due to the net income of $1.1 million (inclusive of $16.5 million in depreciation, amortization, stock based
compensation and other non-cash expenses), a $3.2 million decrease in accounts receivable and other operating assets, a $1.2 million increase in accounts payable, accrued expenses and other operating liabilities, partially offset by a $9.2 million
increase in work-in-process and a $3.1 million decrease in deferred revenue.

In the nine months ended September 30, 2005, net cash
provided by operating activities was $3.5 million. The primary source of cash in the nine months ended September 30, 2005 was a $10.3 million increase in accounts payable and accrued expenses and a $1.2 million increase in deferred revenue,
partially offset by other changes including an $8.2 million increase in accounts receivable, and a $2.7 million increase in certain other operating assets, including work-in-process.

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, and the impact of the BGS acquisition. 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 decreased $119.4 million to $336,000 for the nine months ended September 30, 2006, from $119.7 million for the
corresponding period of the prior year. The primary investing activity in the nine months ended September 30, 2006 was $2.9 million, for the purchase of property and equipment. Net cash provided by investing activities in the nine-month period
ended September 30, 2006 included a purchase price reimbursement from Bowne of $2.5 million. In the nine months ended September 30, 2005, net cash used in investing activities was $119.7 million. The primary investing activities in the
nine-month period ended September were the $120.5 million payment, net of cash acquired, to acquire BGS, and the purchase and sale of $77.3 million and $81.3 million of short-term investments, respectively.

Net cash used in financing activities for the nine months ended September 30, 2006 was $13.2 million, an increase of $112.5 million as compared to
$99.3 million net cash provided by financing activities for the corresponding period of 2005. Cash provided by financing activities consisted of $9.5 million in proceeds from the issuance of short term debt and $1.1 million of proceeds from the
issuance of common stock under option plans. Cash used for financing activities included $14.3 million of payments of long term debt, $9.5 million of payments of short-term debt and $79,000 for payments of capital lease obligations, in the nine
month period ended September 30, 2006. In the nine months ended September 30, 2005, net cash provided by financing activities was $99.3 million. Net cash provided by financing activities, were primarily to fund the acquisition of BGS and
consisted of the $97.7 million proceeds from the issuance of long-term debt. In addition, the Company raised $1.7 million 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 success of the merger with BGS. Lionbridge anticipates that its present cash position and available financing should provide adequate cash to fund its
currently anticipated cash needs for the next twelve months and foreseeable future.

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 (SEC File No. 333-122698), covering the registration of common stock (the Securities), in an aggregate amount
of $130.0 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 September 30,
2006, the Company had forward exchange contracts outstanding with a notional value of $24.3 million as compared to no forward contracts outstanding at December 31, 2005. Except for the forward contracts, as noted, 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, 2005.



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##### Table of Contents

Off-Balance Sheet Arrangements

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

Recent Accounting
Pronouncements

In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108 (SAB
108). SAB 108 addresses how the effects of prior year uncorrected misstatements should be considered when quantifying misstatements in current year financial statements. SAB 108 requires companies to quantify misstatements using a balance
sheet and income statement approach and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. When the effect of initial adoption is material, companies will
record the effect as a cumulative effect adjustment to beginning of year retained earnings. The provisions of SAB 108 are effective for the Companys interim reporting period beginning August 1, 2007. The Company does not believe the
adoption of SAB 108 will have a material impact on its financial position or results of operations.

In September 2006, the FASB issued
Statement of Accounting Standards (SFAS) No. 157, Fair Value Measurementswhich defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands
disclosures about fair value measurements. This statement does not require any new fair value measurements; rather, it applies under other accounting pronouncements that require or permit fair value measurements. The provisions of SFAS No. 157
are effective for fiscal years beginning after November 15, 2007. The Company is currently assessing SFAS No. 157 and has not yet determined the impact, if any, that its adoption will have on its result of operations or financial position.

In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement
Plans  an amendment of FASB Statements No. 87, 88, 106 and 132(R). SFAS No. 158 requires an employer to recognize the funded status of a benefit plan, measured as the difference between plan assets at fair value and the
projected benefit obligation, in its statement of financial position. SFAS No. 158 also requires an employer to measure defined benefit plan assets and obligations as of the date of the employers fiscal year-end statement of financial
position. This statement is effective as of the end of the fiscal year ending after December 15, 2006, except for the requirement to measure plan assets and obligations as of the date of the employers fiscal year-end statement of
financial position, which is effective for fiscal years ending after December 15, 2008. The Company is currently evaluating the impact of SFAS No. 158 on the Companys consolidated financial statements and has not yet determined the
impact, if any, that its adoption will have on its financial position.

In June 2006, the Financial Accounting Standards Board
(FASB) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the accounting for uncertainties in
income taxes recognized in an enterprises financial statements. The interpretation requires that the Company first determines whether it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing
authority. If a tax position meets the more likely than not recognition criteria, FIN 48 requires the tax position be measured at the largest amount of benefit greater than 50 percent likely of being realized upon ultimate settlement. This
accounting standard is effective for fiscal years beginning after December 15, 2006. The effect, if any, of adopting FIN 48 on the Companys financial position and results of operations has not been finalized.

Item 3.Quantitative and Qualitative Disclosures about Market Risk

Lionbridge conducts its
business globally and its earnings and cash flows are exposed to market risk from changes in interest rates and currency exchange rates. Lionbridge does not currently manage its risk to changes in interest rates. The Company addresses its risk to
foreign currency exchange fluctuation through a risk management program that includes the use of derivative financial instruments. Lionbridge operates that program pursuant to documented corporate risk management policies. Lionbridge does not enter
into any derivative transactions for speculative purposes. Gains and losses on derivative financial instruments partially offset gains and losses on underlying hedged exposures and were immaterial for all periods presented.

Interest Rate Risk. Lionbridge is exposed to market risk from changes in interest rates with respect to its term loan facility and revolving
loan facility which bear interest at Prime or LIBOR (at the Companys discretion) plus an applicable margin based on certain financial covenants. As of September 30, 2006, $78.5 million was outstanding under the term loan facility and
there was no outstanding balance on the revolving loan facility. A hypothetical 10% increase or decrease in interest rates would have a $678,000 impact on the Companys interest expense based on the $78.5 million outstanding on the term loan at
September 30, 2006 with an interest rate of 8.6%. Additionally, Lionbridge is exposed to market risk through its investing activities. The Companys portfolio consists primarily of investments in high quality 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 immediately available liquidity.



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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, 63% and 49% of its costs and expenses for the nine-month periods ended September 30, 2006 and 2005, respectively, were
denominated in foreign currencies. In addition, 18% of the Companys assets were subject to foreign currency exchange fluctuations as of September 30, 2006 and December 31, 2005, while 5% and 23% of its liabilities were subject to
foreign currency exchange fluctuations as of September 30, 2006 and December 31, 2005, respectively. The principal foreign currencies applicable to our business are the Euro, the Yen and the Indian Rupee. 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. The Company manages its risk to changes in foreign currency exchange rates through a risk management
program that includes the use of derivative financial instruments. The Company had forward contracts outstanding in the amount of $24.3 million at September 30, 2006 and recorded $9,000 of other assets to recognize the fair value of these
forward contracts. A 10% appreciation or depreciation in the U.S. dollars value relative to the hedge currencies would increase or decrease the forward contracts fair value by $1.5 million at September 30, 2006. Any increase or
decrease in the fair value of the Companys currency exchange rate sensitive forward contracts would be substantially offset by a corresponding decrease or increase in the fair value of the hedged underlying asset or liability. There were no
derivative instruments outstanding at December 31, 2005.

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 and that such information is accumulated and communicated to management as appropriate, to allow timely decisions regarding
required disclosure. 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 and Chief Financial Officer, 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 September 30, 2006.

Changes in internal control over financial reporting. There were no
changes in the Companys internal control over financial reporting that occurred during the quarter ended September 30, 2006 that materially affected, or are reasonably likely to materially affect, the Companys internal control over
financial reporting.

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 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.



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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 the 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.

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 approval by the Court. On September 1, 2005, the Court preliminarily approved the proposed settlement and directed that notice of the terms of the proposed settlement be provided to all class members. Thereafter, the
Court held a fairness hearing on April 24, 2006, at which objections to the proposed settlement were heard. After, the Court took under advisement 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.

The California Employment Development Department is investigating the classification by Lionbridge
Global Solutions II, Inc. of certain of its interpreters as independent contractors for the period from October 1, 2001 through December 31, 2004. On January 28, 2005, the Employment Development Department issued a Notice of
Assessment determining such interpreters to be common law employees and assessing personal income taxes in the amount of $20,824 and state disability insurance taxes in the amount of $8,213 for the fourth quarter of 2001. The maximum estimated
exposure for open quarters through September 30, 2006 is $1.8 million. Of this amount, Bowne & Co., Inc., under the terms of the Agreement and Plan of Merger between it and the Company dated as of June 27, 2005, is obligated to
indemnify the Company for such taxes and penalties incurred for periods on or prior to September 1, 2005, which are estimated to be $1.4 million. On February 14, 2005, Lionbridge Global Solutions II, Inc. appealed for reassessment to the
Office of the Chief Administrative Law Judge of the California Unemployment Insurance Appeals Board. The Company has estimated its exposure for the period commencing on September 1, 2005 through September 30, 2006 at approximately
$305,000. At September 30, 2006, the Companys consolidated balance sheet includes accruals for this $305,000 estimated exposure. The Company has appealed the decision before the California Appeals Board, which has scheduled a hearing on
this matter for January 2007. While Lionbridge cannot guarantee the outcome of these proceedings, it believes that a final determination will have no material effect on its consolidated financial condition, results of operations, or cash flows.

Item 1A.Risk Factors

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 many of which Lionbridge has little or no control over. A number
of important risks and uncertainties, including those identified under the caption Risk Factors in Lionbridges Annual Report on Form 10-K, filed March 16, 2006 (SEC File No. 000-26933) and Lionbridges Quarterly Reports
on Form 10-Q filed on May 10, 2006 and August 9, 2006, 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.



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Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

During the quarter
ended September 30, 2006, the Company purchased 10,004 restricted shares from certain employees, to cover certain withholding taxes due from the employees at the time the shares vested. The following table provides information about
Lionbridges purchases of equity securities for the quarter ended September 30, 2006:



|                                       |  |                                  |  |                              |     
|-------------------------------------- |  | -------------------------------- |  | ---------------------------- | ----
|Period                                 |  | Total Number of Shares Purchased |  | Average Price Paid Per Share
|August 1, 2006  August 31, 2006       |  | 280                              |  | $                            | 7.14
|September 1, 2006  September 30, 2006 |  | 9,724                            |  | $                            | 7.18

In addition, upon the termination of employees during the quarter ended September 30, 2006,
32,871 unvested restricted shares were forfeited. The following table provides information about Lionbridges forfeited restricted shares for the quarter ended September 30, 2006:



|                                 |  |                                 
|-------------------------------- |  | --------------------------------
|Period                           |  | Total Number of Shares Forfeited
|July 1, 2006  July 31, 2006     |  | 6,848                           
|August 1, 2006  August 31, 2006 |  | 26,023                          
|                                 |  |                                 
|                                 |  | 32,871                          
|                                 |  |                                 

Item 6. Exhibits

(a) Exhibits.



|       |  |                                                                                                                                                                                                                                                                                               
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1 * |  | Lease dated as of July 7, 2006 between Britphil & Co. (US) Ltd. and Lionbridge Technologies, Inc.                                                                                                                                                                                             
|       | 
|10.2 * |  | Lease dated as of July 10, 2006 between Urbaco Urbanizacao E Empreendimentos Limitada and Lionbridge Participacoes, Ltda.                                                                                                                                                                     
|       | 
|10.3 * |  | Lease dated as of July 11, 2006 between Taifun Real sp. zo.o and and Lionbridge Poland sp. zo.o.                                                                                                                                                                                              
|       | 
|10.4   |  | Share Pledge Agreement by and between Lionbridge Holdings Luxembourg Sarl and Wachovia Bank, National Association. (filed as Exhibit 10.2 to the Registrants 8-K dated August 11, 2006 and
incorporated by reference herein).                                                                
|       | 
|10.5   |  | Share Pledge Agreement by and between Lionbridge Luxembourg Sarl and Wachovia Bank, National Association. (filed as Exhibit 10.3 to the Registrants 8-K dated August 11, 2006 and
incorporated by reference herein).                                                                         
|       | 
|10.6   |  | Charge on Share Agreement dated as of August 8, 2006 by and among Lionbridge Luxembourg Sarl, Lionbridge Global Solutions Companies, Inc. and Wachovia Bank, National Association. (filed as
Exhibit 10.4 to the Registrants 8-K dated August 11, 2006 and incorporated by reference herein).
|       | 
|10.7   |  | Joinder Agreement dated as of August 8, 2006 among Lionbridge of Europe B.V., Wachovia Bank, National, Association, and the other parties named therein. (filed as Exhibit 10.5 to the
Registrants 8-K dated August 11, 2006 and incorporated by reference herein).                          
|       | 
|10.8   |  | Joinder Agreement dated as of August 8, 2006 among Lionbridge Luxembourg Sarl, Wachovia Bank, National, Association, and the other parties named therein. (filed as Exhibit 10.6 to the
Registrants 8-K dated August 11, 2006 and incorporated by reference herein).                         
|       | 
|10.9   |  | Joinder Agreement dated as of August 8, 2006 among Lionbridge Holdings Luxembourg Sarl, Wachovia Bank, National, Association, and the other parties named therein. (filed as Exhibit 10.7 to the
Registrants 8-K dated August 11, 2006 and incorporated by reference herein).                
|       | 
|10.10  |  | Employment Agreement dated as of September 19, 2006 between the Company and Rory Cowan. (filed as Exhibit 10.1 to the Registrants 8-K dated September 20, 2006 and incorporated by reference
herein).                                                                                        
|       | 
|10.11  |  | Performance-Based Restricted Stock Award Agreement dated as of September 19, 2006 between the Company and Rory Cowan. (filed as Exhibit 10.2 to the Registrants 8-K dated September 20, 2006
and incorporated by reference herein).                                                          
|       | 
|10.12  |  | Performance-Based Stock Option Agreements dated as of September 19, 2006 between the Company and Rory Cowan. (filed as Exhibit 10.3 to the Registrants 8-K dated September 20, 2006 and
incorporated by reference herein).                                                                   
|       | 
|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 Stephen 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.                                     

---

|* | Filed herewith.
|- | ---------------



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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. LifshatzSenior Vice President, Chief Financial Officer(Duly Authorized Officer and Principal Financial Officer)


Dated: November 9, 2006



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##### Table of Contents

Exhibit Index



|               |  |                                                                                                                                                                                                                                                                                                |  | 
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
|Exhibit Number |  | Description                                                                                                                                                                                                                                                                                   
|10.1 *         |  | Lease dated as of July 7, 2006 between Britphil & Co. (US) Ltd. and Lionbridge Technologies, Inc.                                                                                                                                                                                             
|               | 
|10.2 *         |  | Lease dated as of July 10, 2006 between Urbaco Urbanizacao E Empreendimentos Limitada and Lionbridge Participacoes, Ltda.                                                                                                                                                                     
|               | 
|10.3 *         |  | Lease dated as of July 11, 2006 between Taifun Real sp. zo.o and and Lionbridge Poland sp. zo.o.                                                                                                                                                                                              
|               | 
|10.4           |  | Share Pledge Agreement by and between Lionbridge Holdings Luxembourg Sarl and Wachovia Bank, National Association. (filed as Exhibit 10.2 to the Registrants 8-K dated August
11, 2006 and incorporated by reference herein).                                                                
|               | 
|10.5           |  | Share Pledge Agreement by and between Lionbridge Luxembourg Sarl and Wachovia Bank, National Association. (filed as Exhibit 10.3 to the Registrants 8-K dated August 11, 2006
and incorporated by reference herein).                                                                         
|               | 
|10.6           |  | Charge on Share Agreement dated as of August 8, 2006 by and among Lionbridge Luxembourg Sarl, Lionbridge Global Solutions Companies, Inc. and Wachovia Bank, National Association.
(filed as Exhibit 10.4 to the Registrants 8-K dated August 11, 2006 and incorporated by reference herein).
|               | 
|10.7           |  | Joinder Agreement dated as of August 8, 2006 among Lionbridge of Europe B.V., Wachovia Bank, National, Association, and the other parties named therein. (filed as Exhibit 10.5 to the
Registrants 8-K dated August 11, 2006 and incorporated by reference herein).                          
|               | 
|10.8           |  | Joinder Agreement dated as of August 8, 2006 among Lionbridge Luxembourg Sarl, Wachovia Bank, National, Association, and the other parties named therein. (filed as Exhibit 10.6 to
the Registrants 8-K dated August 11, 2006 and incorporated by reference herein).                         
|               | 
|10.9           |  | Joinder Agreement dated as of August 8, 2006 among Lionbridge Holdings Luxembourg Sarl, Wachovia Bank, National, Association, and the other parties named therein. (filed as Exhibit
10.7 to the Registrants 8-K dated August 11, 2006 and incorporated by reference herein).                
|               | 
|10.10          |  | Employment Agreement dated as of September 19, 2006 between the Company and Rory Cowan. (filed as Exhibit 10.1 to the Registrants 8-K dated September 20, 2006 and incorporated
by reference herein).                                                                                        
|               | 
|10.11          |  | Performance-Based Restricted Stock Award Agreement dated as of September 19, 2006 between the Company and Rory Cowan. (filed as Exhibit 10.2 to the Registrants 8-K dated
September 20, 2006 and incorporated by reference herein).                                                          
|               | 
|10.12          |  | Performance-Based Stock Option Agreements dated as of September 19, 2006 between the Company and Rory Cowan. (filed as Exhibit 10.3 to the Registrants 8-K dated September 20,
2006 and incorporated by reference herein).                                                                   
|               | 
|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 Stephen 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.                                     

---

|* | Filed herewith.
|- | ---------------



36