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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q







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

For the quarterly period ended September 30, 2008

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





LIONBRIDGE TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)







|                         |  |                                     
|------------------------ |  | ------------------------------------
|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





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, a non-accelerated filer, or a smaller reporting
company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  | x
|                        |  |                                                  | 
|Non-accelerated filer   |  |  ̈  (Do not check if a smaller reporting company) |  | Smaller reporting company |  |  ̈

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, 2008 was 57,219,799.









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LIONBRIDGE TECHNOLOGIES, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD
ENDED SEPTEMBER 30, 2008

TABLE OF CONTENTS



|                              |  |                                                                                                                             |  |     
|----------------------------- |  | --------------------------------------------------------------------------------------------------------------------------- |  | ----
|                              |  |                                                                                                                             |  | Page
|PART I: FINANCIAL INFORMATION |  |                                                                                                                            
|                              |  |                                                                                                                            
|ITEM 1.                       |  | Condensed Consolidated Financial Statements:                                                                                |  | 3   
|                              |  |                                                                                                                            
|                              |  | Condensed Consolidated Balance Sheets (unaudited) as of September 30, 2008 and December 31, 2007                            |  | 3   
|                              |  |                                                                                                                            
|                              |  | Condensed Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2008 and 2007 |  | 4   
|                              |  |                                                                                                                            
|                              |  | Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2008 and 2007           |  | 5   
|                              |  |                                                                                                                            
|                              |  | Notes to Condensed Consolidated Financial Statements (unaudited)                                                            |  | 6   
|                              |  |                                                                                                                            
|ITEM 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                       |  | 14  
|                              |  |                                                                                                                            
|ITEM 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                                                  |  | 26  
|                              |  |                                                                                                                            
|ITEM 4.                       |  | Controls and Procedures                                                                                                     |  | 27  
|                              | 
|PART II: OTHER INFORMATION    |  |                                                                                                                            
|                              |  |                                                                                                                            
|ITEM 1.                       |  | Legal Proceedings                                                                                                           |  | 28  
|                              |  |                                                                                                                            
|ITEM 1A.                      |  | Risk Factors                                                                                                                |  | 29  
|                              |  |                                                                                                                            
|ITEM 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                 |  | 29  
|                              |  |                                                                                                                            
|ITEM 6.                       |  | Exhibits                                                                                                                    |  | 30  
|                              | 
|SIGNATURE                     |  | 31                                                                                                                         
|                              | 
|EXHIBIT INDEX                 |  | 32                                                                                                                         



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PART I. FINANCIAL INFORMATION



|Item 1. | Consolidated Financial Statements
|------- | ---------------------------------

LIONBRIDGE TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data)



|                                                                                                                                                                                |  |                   |          |   |                  |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | -------- | - | ---------------- | - | -------- | -
|                                                                                                                                                                                |  | September 30,2008 |          |   | December 31,2007 |  
|                                                                                                                                                                                |  | (unaudited)       |          |   |                  |  
|ASSETS                                                                                                                                                                          |  |                   |          |   |                  |   |          |  
|Current assets:                                                                                                                                                                 |  |                   |          |   |                  |   |          |  
|Cash and cash equivalents                                                                                                                                                       |  | $                 | 24,930   |   |                  | $ | 32,248   |  
|Accounts receivable, net of allowance of $685 and $689 at September 30, 2008 and December 31, 2007, respectively                                                                |  |                   | 69,147   |   |                  |   | 83,611   |  
|Work in process                                                                                                                                                                 |  |                   | 25,590   |   |                  |   | 23,335   |  
|Other current assets                                                                                                                                                            |  |                   | 12,089   |   |                  |   | 12,329   |  
|                                                                                                                                                                                |  |                   |          |   |                  |   |          |  
|Total current assets                                                                                                                                                            |  |                   | 131,756  |   |                  |   | 151,523  |  
|Property and equipment, net                                                                                                                                                     |  |                   | 16,695   |   |                  |   | 13,449   |  
|Goodwill                                                                                                                                                                        |  |                   | 130,770  |   |                  |   | 131,213  |  
|Other intangible assets, net                                                                                                                                                    |  |                   | 22,111   |   |                  |   | 28,441   |  
|Other assets                                                                                                                                                                    |  |                   | 7,804    |   |                  |   | 8,437    |  
|                                                                                                                                                                                |  |                   |          |   |                  |   |          |  
|Total assets                                                                                                                                                                    |  | $                 | 309,136  |   |                  | $ | 333,063  |  
|                                                                                                                                                                                |  |                   |          |   |                  |   |          |  
|                                                                                                                                                                                |  |                  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                            |  |                   |          |   |                  |   |          |  
|Current liabilities:                                                                                                                                                            |  |                   |          |   |                  |   |          |  
|Short-term debt and current portion of long-term debt                                                                                                                           |  | $                 | 135      |   |                  | $ | 304      |  
|Accounts payable                                                                                                                                                                |  |                   | 19,735   |   |                  |   | 20,217   |  
|Accrued compensation and benefits                                                                                                                                               |  |                   | 20,582   |   |                  |   | 21,164   |  
|Accrued outsourcing                                                                                                                                                             |  |                   | 11,781   |   |                  |   | 12,150   |  
|Accrued merger and restructuring                                                                                                                                                |  |                   | 862      |   |                  |   | 1,878    |  
|Income taxes payable                                                                                                                                                            |  |                   | 273      |   |                  |   | 3,042    |  
|Accrued expenses and other current liabilities                                                                                                                                  |  |                   | 13,660   |   |                  |   | 12,294   |  
|Deferred revenue                                                                                                                                                                |  |                   | 8,755    |   |                  |   | 16,014   |  
|                                                                                                                                                                                |  |                   |          |   |                  |   |          |  
|Total current liabilities                                                                                                                                                       |  |                   | 75,783   |   |                  |   | 87,063   |  
|                                                                                                                                                                                |  |                   |          |   |                  |   |          |  
|Long-term debt, less current portion                                                                                                                                            |  |                   | 59,748   |   |                  |   | 71,751   |  
|Deferred income taxes, long-term                                                                                                                                                |  |                   | 5,708    |   |                  |   | 7,504    |  
|Other long-term liabilities                                                                                                                                                     |  |                   | 10,993   |   |                  |   | 10,591   |  
|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; 57,113,799 and 57,592,936 shares issued and outstanding at September 30,
2008 and December 31, 2007, respectively |  |                   | 572      |   |                  |   | 576      |  
|Additional paid-in capital                                                                                                                                                      |  |                   | 254,027  |   |                  |   | 253,924  |  
|Accumulated deficit                                                                                                                                                             |  |                   | (112,463 | ) |                  |   | (112,101 | )
|Accumulated other comprehensive income                                                                                                                                          |  |                   | 14,768   |   |                  |   | 13,755   |  
|                                                                                                                                                                                |  |                   |          |   |                  |   |          |  
|Total stockholders equity                                                                                                                                                      |  |                   | 156,904  |   |                  |   | 156,154  |  
|                                                                                                                                                                                |  |                   |          |   |                  |   |          |  
|Total liabilities and stockholders equity                                                                                                                                      |  | $                 | 309,136  |   |                  | $ | 333,063  |  
|                                                                                                                                                                                |  |                   |          |   |                  |   |          |  

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 EndedSeptember 30, |         |   | Nine Months EndedSeptember 30, |  
|                                                                            |  | 2008                            |         |   | 2007                           |   |         | 2008 |  |   | 2007    |  
|Revenue                                                                     |  | $                               | 114,290 |   |                                | $ | 111,544 |      |  | $ | 356,813 |   |  | $ | 334,751 |  
|Operating expenses:                                                         |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Cost of revenue (exclusive of depreciation and amortization included below) |  |                                 | 78,640  |   |                                |   | 74,820  |      |  |   | 245,436 |   |  |   | 221,844 |  
|Sales and marketing                                                         |  |                                 | 8,059   |   |                                |   | 7,729   |      |  |   | 25,779  |   |  |   | 24,251  |  
|General and administrative                                                  |  |                                 | 21,737  |   |                                |   | 20,807  |      |  |   | 67,719  |   |  |   | 62,708  |  
|Research and development                                                    |  |                                 | 1,634   |   |                                |   | 851     |      |  |   | 4,083   |   |  |   | 2,353   |  
|Depreciation and amortization                                               |  |                                 | 1,242   |   |                                |   | 1,300   |      |  |   | 3,653   |   |  |   | 3,918   |  
|Amortization of acquisition-related intangible assets                       |  |                                 | 2,104   |   |                                |   | 2,113   |      |  |   | 6,330   |   |  |   | 6,340   |  
|Merger, restructuring and other charges                                     |  |                                 |        |   |                                |   | 359     |      |  |   | 427     |   |  |   | 1,609   |  
|                                                                            |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Total operating expenses                                                    |  |                                 | 113,416 |   |                                |   | 107,979 |      |  |   | 353,427 |   |  |   | 323,023 |  
|                                                                            |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Income from operations                                                      |  |                                 | 874     |   |                                |   | 3,565   |      |  |   | 3,386   |   |  |   | 11,728  |  
|Interest expense:                                                           |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Interest on outstanding debt                                                |  |                                 | 917     |   |                                |   | 1,324   |      |  |   | 3,010   |   |  |   | 4,130   |  
|Amortization of deferred financing costs and discount on debt               |  |                                 | 44      |   |                                |   | 48      |      |  |   | 133     |   |  |   | 143     |  
|Interest income                                                             |  |                                 | 141     |   |                                |   | 164     |      |  |   | 390     |   |  |   | 489     |  
|Other (income) expense, net                                                 |  |                                 | (1,265  | ) |                                |   | 1,335   |      |  |   | 1,624   |   |  |   | 2,424   |  
|                                                                            |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Income (loss) before income taxes                                           |  |                                 | 1,319   |   |                                |   | 1,022   |      |  |   | (991    | ) |  |   | 5,520   |  
|Provision for (benefit from) income taxes                                   |  |                                 | (1,846  | ) |                                |   | 1,688   |      |  |   | (629    | ) |  |   | 5,767   |  
|                                                                            |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Net income (loss)                                                           |  | $                               | 3,165   |   |                                | $ | (666    | )    |  | $ | (362    | ) |  | $ | (247    | )
|                                                                            |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Net income (loss) per share of common stock:                                |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Basic                                                                       |  | $                               | 0.06    |   |                                | $ | (0.01   | )    |  | $ | (0.01   | ) |  | $ | 0.00    |  
|Diluted                                                                     |  | $                               | 0.06    |   |                                | $ | (0.01   | )    |  | $ | (0.01   | ) |  | $ | 0.00    |  
|Weighted average number of common shares outstanding:                       |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Basic                                                                       |  |                                 | 55,636  |   |                                |   | 59,614  |      |  |   | 55,891  |   |  |   | 59,496  |  
|Diluted                                                                     |  |                                 | 56,167  |   |                                |   | 59,614  |      |  |   | 55,891  |   |  |   | 59,496  |  

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 EndedSeptember 30, |        
|                                                                                |  | 2008                           |         |   | 2007 |  
|Cash flows from operating activities:                                           |  |                                |         |   |      |   |         |  
|Net loss                                                                        |  | $                              | (362    | ) |      | $ | (247    | )
|Adjustments to reconcile net loss to net cash provided by operating activities: |  |                                |         |   |      |   |         |  
|Stock-based compensation                                                        |  |                                | 4,338   |   |      |   | 5,451   |  
|Amortization of deferred financing charges                                      |  |                                | 133     |   |      |   | 143     |  
|Depreciation and amortization                                                   |  |                                | 3,653   |   |      |   | 3,918   |  
|Amortization of acquisition-related intangible assets                           |  |                                | 6,330   |   |      |   | 6,340   |  
|Deferred income taxes                                                           |  |                                | (1,696  | ) |      |   | 250     |  
|Net realized and unrealized foreign currency (gain)/loss on forward contracts   |  |                                | 324     |   |      |   | (1,848  | )
|Other                                                                           |  |                                | 159     |   |      |   | 97      |  
|Changes in operating assets and liabilities:                                    |  |                                |         |   |      |   |         |  
|Accounts receivable                                                             |  |                                | 14,817  |   |      |   | (6,638  | )
|Work in process                                                                 |  |                                | (2,034  | ) |      |   | 769     |  
|Other current assets                                                            |  |                                | (104    | ) |      |   | (5,535  | )
|Other assets                                                                    |  |                                | 701     |   |      |   | (4,022  | )
|Accounts payable                                                                |  |                                | 1,732   |   |      |   | 2,180   |  
|Income tax payable                                                              |  |                                | (2,827  | ) |      |   | 2,153   |  
|Accrued compensation and benefits                                               |  |                                | (2,272  | ) |      |   | (1,774  | )
|Accrued outsourcing                                                             |  |                                | (504    | ) |      |   | 2,752   |  
|Accrued merger and restructuring                                                |  |                                | (1,035  | ) |      |   | (267    | )
|Accrued expenses and other liabilities                                          |  |                                | 2,887   |   |      |   | 2,283   |  
|Deferred revenue                                                                |  |                                | (7,462  | ) |      |   | 2,684   |  
|                                                                                |  |                                |         |   |      |   |         |  
|Net cash provided by operating activities                                       |  |                                | 16,778  |   |      |   | 8,689   |  
|                                                                                |  |                                |         |   |      |   |         |  
|Cash flows from investing activities:                                           |  |                                |         |   |      |   |         |  
|Purchases of property and equipment                                             |  |                                | (6,767  | ) |      |   | (3,777  | )
|Purchase price adjustment for businesses acquired                               |  |                                | 444     |   |      |   |        |  
|Net proceeds from (payment of) foreign currency forward contracts               |  |                                | (49     | ) |      |   | 1,760   |  
|                                                                                |  |                                |         |   |      |   |         |  
|Net cash used in investing activities                                           |  |                                | (6,372  | ) |      |   | (2,017  | )
|                                                                                |  |                                |         |   |      |   |         |  
|Cash flows from financing activities:                                           |  |                                |         |   |      |   |         |  
|Proceeds from issuance of short-term debt                                       |  |                                | 8,900   |   |      |   | 15,100  |  
|Payments of short-term debt                                                     |  |                                | (8,900  | ) |      |   | (15,100 | )
|Payments of long-term debt                                                      |  |                                | (12,054 | ) |      |   | (6,083  | )
|Proceeds from issuance of common stock under stock option plans                 |  |                                | 378     |   |      |   | 354     |  
|Shares repurchased                                                              |  |                                | (4,345  | ) |      |   |        |  
|Proceeds from issuance of capital lease obligations                             |  |                                |        |   |      |   | 260     |  
|Payments of capital lease obligations                                           |  |                                | (76     | ) |      |   | (233    | )
|                                                                                |  |                                |         |   |      |   |         |  
|Net cash used in financing activities                                           |  |                                | (16,097 | ) |      |   | (5,702  | )
|                                                                                |  |                                |         |   |      |   |         |  
|Net increase (decrease) in cash and cash equivalents                            |  |                                | (5,691  | ) |      |   | 970     |  
|Effects of exchange rate changes on cash and cash equivalents                   |  |                                | (1,627  | ) |      |   | 3,047   |  
|Cash and cash equivalents at beginning of period                                |  |                                | 32,248  |   |      |   | 27,354  |  
|                                                                                |  |                                |         |   |      |   |         |  
|Cash and cash equivalents at end of period                                      |  | $                              | 24,930  |   |      | $ | 31,371  |  
|                                                                                |  |                                |         |   |      |   |         |  

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. The year-end
condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the U.S. These statements should be read in conjunction with the
Companys Annual Report on Form 10-K for the year ended December 31, 2007.

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 proportional performance 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

Stock Option Plans

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.

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 2005 Plan was amended on
May 21, 2007, to adjust the vesting schedule of future automatic equity grants to non-employee directors of the Company from four years to two years. The maximum number of shares of common stock available for issuance under the 2005 Plan is
4,000,000 shares. At September 30, 2008, there were 539,476 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. In the nine months ended September 30, 2008, Lionbridge awarded 62,272 stock option grants under the 2005 Plan.

Lionbridges 1998 Stock Plan (the 1998 Plan) provides for the issuance of incentive and nonqualified stock options. The maximum number
of shares of common stock available for issuance under the 1998 Plan was 11,722,032 shares and the 1998 Plan expired on January 26, 2008. Accordingly, at September 30, 2008 there were no options available for future grant under the 1998
Plan. Options to purchase common stock had been 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 1998 Plan. Under the terms of the 1998
Plan, the exercise price of incentive stock options granted could not have been 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. In the nine months ended September 30, 2008, Lionbridge awarded 297,728 stock option grants under the 1998 Plan, all of which were made prior to its expiration on January 26, 2008.



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Restricted Stock Awards

Lionbridge issued 65,940 and 948,500 shares of restricted common stock and restricted stock units under the Companys 2005 Incentive Plan and the 1998 Stock Plan, respectively, in the nine-month period ended
September 30, 2008 with a fair market value of $3.1 million. Of the total 1,014,440 shares of restricted common stock and restricted stock units issued in the nine-month period ended September 30, 2008, 963,000 have restrictions on
disposition which lapse over four years from the date of grant on each anniversary date and 51,440 have restrictions on disposition which lapse over thirteen months from the date of grant.

The Company recognizes expense for stock options, market-based restricted stock awards and time-based restricted stock awards pursuant to the guidance of
Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 123, Share-Based Payment (SFAS 123R). Total compensation expense related to stock options,
market-based restricted stock awards and time-based restricted stock awards was $1.2 million and $1.7 million for the three-month periods ended September 30, 2008 and 2007, respectively, and $4.3 million and $5.5 million for the nine-month
periods ended September 30, 2008 and 2007, respectively, classified in the statement of operations line items as follows:



|                                       |  |                                 |           |                                |   |           |  |      |           |  |   |          
|-------------------------------------- |  | ------------------------------- | --------- | ------------------------------ | - | --------- |  | ---- | --------- |  | - | ---------
|                                       |  | Three Months EndedSeptember 30, |           | Nine Months EndedSeptember 30,
|                                       |  | 2008                            |           | 2007                           |   | 2008      |  | 2007
|Cost of revenue                        |  | $                               | 23,000    |                                | $ | 45,000    |  | $    | 77,000    |  | $ | 106,000  
|Sales and marketing                    |  |                                 | 182,000   |                                |   | 267,000   |  |      | 602,000   |  |   | 853,000  
|General and administrative             |  |                                 | 971,000   |                                |   | 1,343,000 |  |      | 3,552,000 |  |   | 4,381,000
|Research and development               |  |                                 | 33,000    |                                |   | 39,000    |  |      | 107,000   |  |   | 111,000  
|                                       |  |                                 |           |                                |   |           |  |      |           |  |   |          
|Total stock-based compensation expense |  | $                               | 1,209,000 |                                | $ | 1,694,000 |  | $    | 4,338,000 |  | $ | 5,451,000
|                                       |  |                                 |           |                                |   |           |  |      |           |  |   |          

3. WORK IN PROCESS

Work in process represents revenue not yet billed. Work in process is calculated for each individual project based on the proportional delivery of services at each balance sheet date.

4. DEBT

On December 21, 2006, the Company
entered into a revolving credit facility (the Credit Agreement) with HSBC Bank USA, National Association. The Credit Agreement was subsequently amended on January 22, 2007 to add certain additional non-U.S. subsidiaries of the
Company as Borrowers or Guarantors. The Credit Agreement replaced the Companys Term Loan B and Revolving Credit Facility with Wachovia Bank, National Association that had been in place since September 1, 2005. The Credit Agreement
provides for a five-year $100.0 million revolving credit facility. At September 30, 2008, $59.7 million was outstanding under the Credit Agreement with an interest rate of 5.5%.

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 primary component of accumulated other comprehensive income. Total comprehensive loss was $3.8 million for the three-month period ended September 30, 2008 and total
comprehensive income was $631,000 for the nine-month period ended September 30, 2008. Total comprehensive income was $3.2 million and $5.1 million for the three and nine-month periods ended September 30, 2007, respectively.

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.



7



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Shares used in calculating basic and diluted earnings per share for the three and nine-month periods
ended September 30, 2008 and 2007, respectively, are as follows:



|                                                                                     |  |                                 |  |                                |  |            |  |           
|------------------------------------------------------------------------------------ |  | ------------------------------- |  | ------------------------------ |  | ---------- |  | ----------
|                                                                                     |  | Three Months EndedSeptember 30, |  | Nine Months EndedSeptember 30,
|                                                                                     |  | 2008                            |  | 2007                           |  | 2008       |  | 2007      
|Weighted average number of shares of common stock outstandingbasic                  |  | 55,636,000                      |  | 59,614,000                     |  | 55,891,000 |  | 59,496,000
|Dilutive common stock equivalents relating to options, restricted stock and warrants |  | 531,000                         |  |                               |  |           |  |          
|                                                                                     |  |                                 |  |                                |  |            |  |           
|Weighted average number of shares of common stock outstandingdiluted                |  | 56,167,000                      |  | 59,614,000                     |  | 55,891,000 |  | 59,496,000
|                                                                                     |  |                                 |  |                                |  |            |  |           

Options, unvested restricted stock and warrants to purchase 7,038,000 and 7,867,000 shares of
common stock for the three-month periods ended September 30, 2008 and 2007, respectively, and 7,772,000 and 7,382,000 for the nine-month periods ended September 30, 2008 and 2007, respectively, were not included in the calculation of
diluted net income per share, as their effect would be anti-dilutive.

7. MERGER, RESTRUCTURING AND OTHER CHARGES

During the nine-month period ended September 30, 2008 Lionbridge recorded $427,000 of restructuring and other charges. The $427,000 of restructuring
and other charges recorded in the nine-month period ended September 30, 2008 included $278,000 for workforce reductions in Europe consisting of seven technical staff and one administrative staff, $96,000 recorded for vacated facilities, $53,000
of additional costs recorded for a previously vacated facility in order to reflect a new sublease arrangement, recorded pursuant to the guidance in FASB Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated
with Exit or Disposal Activities (SFAS No. 146), and related literature. Of these charges, $357,000 related to the Companys Global Language and Content (GLC) segment, $45,000 related to the Interpretation
segment and $25,000 related to the Global Development and Testing (GDT) segment. The Company made $1.6 million of cash payments in the nine-month period ended September 30, 2008; $1.5 million, $119,000 and $45,000 related to the
GLC, GDT and Interpretation segments, respectively.

During the nine-month period ended September 30, 2007 Lionbridge recorded $1.6
million of restructuring and other charges. The $1.6 million of restructuring and other charges recorded in the nine-month period ended September 30, 2007 included $1.0 million for workforce reductions in Europe and South America consisting of
sixteen technical and seven administrative staff, $157,000 recorded for vacated facilities, $121,000 of additional costs recorded for a previously vacated facility in order to reflect a new sublease arrangement, recorded pursuant to the guidance in
SFAS No. 146 and related literature, and $288,000 of other charges, principally expenses related to integrating financial systems used by the acquired Bowne Global Solutions (BGS) sites to a common general ledger financial system.
Of these charges, $1.2 million related to the Companys GLC segment, $92,000 related to the GDT segment and $288,000 related to Corporate and Other. The Company made $2.0 million of cash payments in the nine-month period ended
September 30, 2007; $1.6 million and $321,000 related to the GLC and GDT segments, respectively.

The following table summarizes the
accrual activity for the nine months ended September 30, 2008 and 2007, respectively, by initiative:



|                                                                                   |  |      |           |   |      |   |           |  
|---------------------------------------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | -
|                                                                                   |  | 2008 |           |   | 2007 |  
|Beginning balance, January 1                                                       |  | $    | 2,365,000 |   |      | $ | 2,388,000 |  
|Employee severance:                                                                |  |      |           |   |      |   |           |  
|Merger and restructuring charges recorded (1)                                      |  |      | 278,000   |   |      |   | 1,043,000 |  
|Cash payments related to liabilities assumed and recorded on business combinations |  |      |          |   |      |   | (3,000    | )
|Cash payments related to liabilities recorded on exit or disposal activities       |  |      | (837,000  | ) |      |   | (699,000  | )
|                                                                                   |  |      |           |   |      |   |           |  
|                                                                                   |  |      | (559,000  | ) |      |   | 341,000   |  
|                                                                                   |  |      |           |   |      |   |           |  
|Vacated facility/Lease termination:                                                |  |      |           |   |      |   |           |  
|Merger and restructuring charges recorded (1)                                      |  |      | 92,000    |   |      |   | 157,000   |  
|Revision of estimated liabilities                                                  |  |      | (43,000   | ) |      |   | 121,000   |  
|Cash payments related to liabilities assumed and recorded on business combinations |  |      | (571,000  | ) |      |   | (410,000  | )
|Cash payments related to liabilities recorded on exit or disposal activities       |  |      | (225,000  | ) |      |   | (855,000  | )
|                                                                                   |  |      |           |   |      |   |           |  
|                                                                                   |  |      | (747,000  | ) |      |   | (987,000  | )
|                                                                                   |  |      |           |   |      |   |           |  
|Ending balance, September 30                                                       |  | $    | 1,059,000 |   |      | $ | 1,742,000 |  
|                                                                                   |  |      |           |   |      |   |           |  



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

At September 30, 2008, the Companys consolidated balance sheet includes accruals totaling $1.1 million primarily related to employee termination costs and vacated facilities. Lionbridge currently
anticipates that $862,000 of these will be fully utilized within twelve months. The remaining $197,000 relates to lease obligations on unused facilities expiring through 2011 and is included in long-term liabilities.



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##### Table of Contents

8. INCOME TAXES

On January 1, 2007, Lionbridge adopted Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), and recognized a $185,000
increase in the liability for unrecognized tax benefits, which was accounted for as a reduction to retained earnings. The balance of unrecognized tax benefits at September 30, 2008, including interest and penalties, was $3.6 million, of which
$3.6 million would affect earnings if recognized. Lionbridge recognizes interest accrued related to unrecognized tax benefits in tax expense. Penalties, if incurred, would also be recognized as a component of tax expense. At September 30, 2008,
Lionbridge had approximately $721,000 of interest and penalties accrued related to unrecognized tax benefits. The net increase in the liability during the nine months ended September 30, 2008 was as follows:



|                                                             |  |   |           |  
|------------------------------------------------------------ |  | - | --------- | -
|Balance at January 1, 2008                                   |  | $ | 2,498,000 |  
|Additions based on tax positions related to the current year |  |   | 989,000   |  
|Additions for tax positions of prior years                   |  |   | 238,000   |  
|Reductions for tax positions of prior years                  |  |   |          |  
|Settlements                                                  |  |   |          |  
|Reductions due to lapse of applicable statute of limitations |  |   | (168,000  | )
|                                                             |  |   |           |  
|Balance at September 30, 2008                                |  | $ | 3,557,000 |  
|                                                             |  |   |           |  

In addition to the above, in connection with the acquisition of Bowne Global Solutions
(BGS), Bowne & Co., Inc. (Bowne) agreed to indemnify the Company for any tax liabilities accruing on or prior to the acquisition date of September 1, 2005. The Company determined that its gross unrecognized tax
affected benefits related to the acquisition of BGS and subject to indemnification were approximately $4.0 million. Accordingly, the Company adjusted its balance sheet by recording a long-term Indemnification Receivable and related FIN 48 liability
as of January 1, 2007 for this amount. A change in interest rate and penalties assumptions in 2007 resulted in a net reduction to the FIN 48 liability and Indemnification Receivable of $428,000 to $3.5 million, respectively. At
September 30, 2008 the gross unrecognized tax affected benefits are $3.5 million.

The components of the provision for (benefit from) income taxes are
as follows for the three and nine-month periods ended September 30, 2008 and 2007:



|                                                |  |                                 |            |   |                                |   |           |      |  |   |            |   |  |   |          
|----------------------------------------------- |  | ------------------------------- | ---------- | - | ------------------------------ | - | --------- | ---- |  | - | ---------- | - |  | - | ---------
|                                                |  | Three Months EndedSeptember 30, |            |   | Nine Months EndedSeptember 30,
|                                                |  | 2008                            |            |   | 2007                           |   |           | 2008 |  |   | 2007      
|Current:                                        |  |                                 |            |   |                                |   |           |      |  |   |            |   |  |   |          
|Federal                                         |  | $                               |           |   |                                | $ |          |      |  | $ |           |   |  | $ |         
|State                                           |  |                                 | 508,000    |   |                                |   | (14,000   | )    |  |   | 537,000    |   |  |   | 74,000   
|Foreign                                         |  |                                 | (2,472,000 | ) |                                |   | 1,684,000 |      |  |   | (1,521,000 | ) |  |   | 5,443,000
|                                                |  |                                 |            |   |                                |   |           |      |  |   |            |   |  |   |          
|Total current provision                         |  |                                 | (1,964,000 | ) |                                |   | 1,670,000 |      |  |   | (984,000   | ) |  |   | 5,517,000
|Deferred:                                       |  |                                 |            |   |                                |   |           |      |  |   |            |   |  |   |          
|Federal                                         |  | $                               | 118,000    |   |                                | $ | 18,000    |      |  | $ | 355,000    |   |  | $ | 250,000  
|                                                |  |                                 |            |   |                                |   |           |      |  |   |            |   |  |   |          
|Total provision for (benefit from) income taxes |  | $                               | (1,846,000 | ) |                                | $ | 1,688,000 |      |  | $ | (629,000   | ) |  | $ | 5,767,000
|                                                |  |                                 |            |   |                                |   |           |      |  |   |            |   |  |   |          

The tax provision for the three and nine-month periods ended September 30, 2008 consists
primarily of current taxes on income in foreign jurisdictions, taxes, interest and penalties accrued in relation to the Companys uncertain tax positions, and a deferred tax provision of $118,000 and $355,000, respectively, related to
tax-deductible goodwill from the BGS acquisition. The Company reasonably anticipates that the unrecognized tax benefit relative to FIN 48 will not change significantly within the next twelve months. The tax provision for the three and nine-month
periods ended September 30, 2007 consists primarily of taxes on income in foreign jurisdictions and deferred taxes related to tax deductible goodwill acquired from the BGS acquisition.

The foreign tax benefit reported for the three and nine-month periods ended September 30, 2008 is primarily the result of the reversal of a tax
liability related to accrued interest. The reversal was based on a July 2008 ruling from the Irish Office of the Revenue Commissioners granting the Companys request relating to the deductibility of interest expense associated with certain
interest-bearing inter-company loans that had generated taxable income in Ireland.

The tax provisions for both periods include non-cash
tax expense that will be offset by pre-acquisition foreign net operating loss carryforwards. The tax benefits from utilization of pre-acquisition losses do not reduce the foreign element of the tax provision, but instead reduce goodwill. The
effective rate does not reflect a benefit of U.S. operating loss carryforward amounts due to a full valuation reserve against the U.S. deferred asset.



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At September 30, 2008, no provision for U.S. income and foreign withholding taxes has been made for
unrepatriated foreign earnings because it is expected that such earnings will be reinvested indefinitely or the distribution of any remaining amount would be principally offset by foreign tax credits.

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

The Company conducts
business globally and in the normal course of business is subject to examination by local, state and federal jurisdictions in the United States as well as in multiple foreign jurisdictions. Currently, no Internal Revenue Service audits are underway
and audits in foreign jurisdictions are in varying stages of completion. Open audit years are dependent upon the tax jurisdiction and range from 1998 to 2007.

9. SEGMENT INFORMATION

Lionbridge has determined that its operating segments are those that are based on its method of
internal reporting, which separately presents its business based on the service performed. 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 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, search engines 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.

Lionbridge has
determined its operating segments based on the service performed. While the Company allocates revenue and costs according to these operating segments to the best of its ability, in some cases, customers may select Lionbridge to provide multiple
services that span the Companys operating segments. During 2007 a large client expanded an existing program with the Company. While this program had historically been managed by the Companys GLC segment due to the nature of the work the
Company had previously performed for this client, in 2008 the Company determined the nature of this new, expanded program with the client more accurately reflects the nature of work performed in its GDT segment and moved the management of the
program to its GDT segment. As a result, the Company has reclassified $1.2 million and $4.7 million of revenue for the three and nine-month periods ended September 30, 2007, respectively, and $201,000 and $843,000 of net income for the three
and nine-month periods ended September 30, 2007, respectively, associated with this client program from its GLC segment into its GDT segment.

The Companys internal reporting does not include the allocation of certain expenses to the operating segments but instead includes those other expenses in unallocated other expense. Unallocated expenses consist of depreciation and
amortization, interest expense and income tax. Other unallocated items primarily include corporate expenses, such as merger and restructuring, foreign exchange gains and losses and governance expenses, as well as finance, information technology,
human resources, legal, sales administration, treasury and marketing expenses. The Company determines whether a cost is charged to a particular business segment or is retained as an unallocated cost based on whether the cost relates to a corporate
function or to a direct expense associated with the particular business segment. For example, corporate finance, corporate information technology and corporate human resource expenses are unallocated, whereas operating segment finance, information
technology and human resource expenses are charged to the applicable operating segment.

The table below presents information about the
reported net income (loss) of the Company for the three and nine-month periods ended September 30, 2008 and 2007. Asset information by reportable segment is not reported, since the Company does not produce such information internally.



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|                                          |  |     |             |     |   |                |  |                    |            |  |       |             |   |  |   |             |  
|----------------------------------------- |  | --- | ----------- | --- | - | -------------- |  | ------------------ | ---------- |  | ----- | ----------- | - |  | - | ----------- | -
|                                          |  | GLC |             | GDT |   | Interpretation |  | Corporate andOther |            |  | Total |            
|Three Months Ended September 30, 2008     |  |     |             |     |   |                |  |                    |            |  |       |             |   |  |   |             |  
|External revenue                          |  | $   | 81,839,000  |     | $ | 25,919,000     |  | $                  | 6,532,000  |  | $     |            |   |  | $ | 114,290,000 |  
|                                          |  |     |             |     |  
|Income (loss) before income taxes         |  |     | 3,538,000   |     |   | 6,189,000      |  |                    | 654,000    |  |       | (9,062,000  | ) |  |   | 1,319,000   |  
|Provision for (benefit from) income taxes |  |     |            |     |   |               |  |                    |           |  |       | (1,846,000  | ) |  |   | (1,846,000  | )
|                                          |  |     |             |     |   |                |  |                    |            |  |       |             |   |  |   |             |  
|Net income (loss)                         |  | $   | 3,538,000   |     | $ | 6,189,000      |  | $                  | 654,000    |  | $     | (7,216,000  | ) |  | $ | 3,165,000   |  
|                                          |  |     |             |     |   |                |  |                    |            |  |       |             |   |  |   |             |  
|Three Months Ended September 30, 2007     |  |     |             |     |   |                |  |                    |            |  |       |             |   |  |   |             |  
|External revenue                          |  | $   | 85,954,000  |     | $ | 19,896,000     |  | $                  | 5,694,000  |  | $     |            |   |  | $ | 111,544,000 |  
|                                          |  |     |             |     |  
|Income (loss) before income taxes         |  |     | 11,199,000  |     |   | 2,525,000      |  |                    | 668,000    |  |       | (13,370,000 | ) |  |   | 1,022,000   |  
|Provision for income taxes                |  |     |            |     |   |               |  |                    |           |  |       | 1,688,000   |   |  |   | 1,688,000   |  
|                                          |  |     |             |     |   |                |  |                    |            |  |       |             |   |  |   |             |  
|Net income (loss)                         |  | $   | 11,199,000  |     | $ | 2,525,000      |  | $                  | 668,000    |  | $     | (15,058,000 | ) |  | $ | (666,000    | )
|                                          |  |     |             |     |   |                |  |                    |            |  |       |             |   |  |   |             |  
|Nine Months Ended September 30, 2008      |  |     |             |     |   |                |  |                    |            |  |       |             |   |  |   |             |  
|External revenue                          |  | $   | 262,837,000 |     | $ | 73,228,000     |  | $                  | 20,748,000 |  | $     |            |   |  | $ | 356,813,000 |  
|                                          |  |     |             |     |  
|Income (loss) before income taxes         |  |     | 15,170,000  |     |   | 15,669,000     |  |                    | 2,667,000  |  |       | (34,497,000 | ) |  |   | (991,000    | )
|Provision for (benefit from) income taxes |  |     |            |     |   |               |  |                    |           |  |       | (629,000    | ) |  |   | (629,000    | )
|                                          |  |     |             |     |   |                |  |                    |            |  |       |             |   |  |   |             |  
|Net income (loss)                         |  | $   | 15,170,000  |     | $ | 15,669,000     |  | $                  | 2,667,000  |  | $     | (33,868,000 | ) |  | $ | (362,000    | )
|                                          |  |     |             |     |   |                |  |                    |            |  |       |             |   |  |   |             |  
|Nine Months Ended September 30, 2007      |  |     |             |     |   |                |  |                    |            |  |       |             |   |  |   |             |  
|External revenue                          |  | $   | 258,183,000 |     | $ | 58,932,000     |  | $                  | 17,636,000 |  | $     |            |   |  | $ | 334,751,000 |  
|                                          |  |     |             |     |  
|Income (loss) before income taxes         |  |     | 32,498,000  |     |   | 10,080,000     |  |                    | 2,285,000  |  |       | (39,343,000 | ) |  |   | 5,520,000   |  
|Provision for income taxes                |  |     |            |     |   |               |  |                    |           |  |       | 5,767,000   |   |  |   | 5,767,000   |  
|                                          |  |     |             |     |   |                |  |                    |            |  |       |             |   |  |   |             |  
|Net income (loss)                         |  | $   | 32,498,000  |     | $ | 10,080,000     |  | $                  | 2,285,000  |  | $     | (45,110,000 | ) |  | $ | (247,000    | )
|                                          |  |     |             |     |   |                |  |                    |            |  |       |             |   |  |   |             |  

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.

Lionbridge assesses the impairment of goodwill and
other intangible assets on an annual basis or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Such events or conditions could include an economic downturn in the industries to which Lionbridge
provides services; increased competition; an increase in operating or other costs; additional volatility in international currencies; the pace of technological improvements; or other information regarding Lionbridges market value, such as a
reduction in stock price to a price near or below the book value of the Company for an extended period of time. When Lionbridge determines that the carrying value of intangible assets or goodwill may not be recoverable based upon one or more of
these indicators of impairment, the Company initially assesses any impairment using fair value measurements based on projected discounted cash flow valuation models. In addition, in accordance with SFAS No. 142, Goodwill and Other
Intangible Assets (SFAS No. 142), goodwill is reviewed for impairment on an annual basis. At December 31, 2007, 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. Estimating future cash flows requires
management to make projections that can differ materially from actual results.

At the end of the third quarter of 2008, there was
increasing evidence of an economic downturn and increased volatility in world-wide financial markets and a decline in the Companys stock price during a portion of the third quarter to a price below book value. However, Lionbridge determined,
based on its judgment and assumptions regarding market conditions, that the events or conditions that existed at the end of the third quarter did not warrant an interim assessment of impairment of goodwill and other intangible assets. However, in
the event such circumstances and events continue or intensify during the fourth quarter, including but not limited to a continued economic downturn, sustained reduction in the Companys stock price near or below book value, or future adverse
declines in revenues or operating results for any reportable segment, a non-cash impairment charge may result in the future. The Company performs its annual goodwill impairment test during the fourth quarter.



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The Company evaluates whether there has been an impairment in the carrying value of its other intangible
assets, 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. Factors that could lead to an impairment
of acquired customer relationships (recorded with the BGS acquisition) 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, 2008 and December 31, 2007, respectively.



|                                    |  |                    |            |                         |   |            |  |                    |            |                         |   |            |  |   |            |  |   |           
|----------------------------------- |  | ------------------ | ---------- | ----------------------- | - | ---------- |  | ------------------ | ---------- | ----------------------- | - | ---------- |  | - | ---------- |  | - | ----------
|                                    |  | September 30, 2008 |            | December 31, 2007      
|                                    |  | GrossCarryingValue |            | AccumulatedAmortization |   | Balance    |  | GrossCarryingValue |            | AccumulatedAmortization |   | Balance   
|BGS acquired customer relationships |  | $                  | 32,000,000 |                         | $ | 14,879,000 |  | $                  | 17,121,000 |                         | $ | 32,000,000 |  | $ | 11,071,000 |  | $ | 20,929,000
|BGS acquired customer contracts     |  |                    | 14,000,000 |                         |   | 9,133,000  |  |                    | 4,867,000  |                         |   | 14,000,000 |  |   | 6,912,000  |  |   | 7,088,000 
|BGS acquired technology             |  |                    | 2,317,000  |                         |   | 2,194,000  |  |                    | 123,000    |                         |   | 2,317,000  |  |   | 1,893,000  |  |   | 424,000   
|                                    |  |                    |            |                         |   |            |  |                    |            |                         |   |            |  |   |            |  |   |           
|                                    |  | $                  | 48,317,000 |                         | $ | 26,206,000 |  | $                  | 22,111,000 |                         | $ | 48,317,000 |  | $ | 19,876,000 |  | $ | 28,441,000
|                                    |  |                    |            |                         |   |            |  |                    |            |                         |   |            |  |   |            |  |   |           

Lionbridge currently expects to amortize the following remaining amounts of intangible assets held
at September 30, 2008 in the fiscal periods as follows:



|                         |  |   |           
|------------------------ |  | - | ----------
|Year ending December 31, |  |  
|2008                     |  | $ | 2,110,000 
|2009                     |  |   | 5,520,000 
|2010                     |  |   | 4,893,000 
|2011                     |  |   | 2,332,000 
|2012                     |  |   | 1,921,000 
|Thereafter               |  |   | 5,335,000 
|                         |  |   |           
|                         |  | $ | 22,111,000
|                         |  |   |           

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, 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. On July 15, 2002, the Company, together with the other issuers named as defendants in these coordinated
proceedings, filed a collective motion to dismiss the complaint on various legal grounds common to all or most of the issuer defendants. In October 2002, the claims against officers and directors were dismissed without prejudice. In February 2003,
the Court issued its ruling on the motion to dismiss, ruling that the claims under the antifraud provisions of the securities laws could proceed against the Company and a majority of the other issuer defendants.

In June 2003, Lionbridge elected to participate in a proposed settlement agreement with the plaintiffs in this litigation. If the proposed settlement had
been approved by the Court, it would have resulted in the dismissal, with prejudice, of all claims in the litigation against Lionbridge and against any other of the issuer defendants who elected to participate in the proposed settlement, together
with the current or former officers and directors of participating issuers who were named as individual defendants. This



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proposed settlement was conditioned on, among other things, a ruling by the District Court that the claims against Lionbridge and against the other issuers
who had agreed to the settlement would be certified for class action treatment for purposes of the proposed settlement, such that all investors included in the proposed classes in these cases would be bound by the terms of the settlement unless an
investor opted to be excluded from the settlement.

On December 5, 2006, the U.S. Court of Appeals for the Second Circuit issued a
decision in In re Initial Public Offering Securities Litigation that six purported class action lawsuits containing allegations substantially similar to those asserted against the Company may not be certified as class actions due, in part, to
the Appeals Courts determination that individual issues of reliance and knowledge would predominate over issues common to the proposed classes. On January 8, 2007, the plaintiffs filed a petition seeking rehearing en banc of the
Second Circuit Court of Appeals decision. On April 6, 2007 the Court of Appeals denied the plaintiffs petition for rehearing of the Courts December 5, 2006 ruling but noted that the plaintiffs remained free to ask the
District Court to certify classes different from the ones originally proposed which might meet the standards for class certification that the Court of Appeals articulated in its December 5, 2006 decision. The plaintiffs thereafter moved for
certification of different classes in the District Court.

In light of the Court of Appeals December 5, 2006 decision regarding
certification of the plaintiffs claims, the District Court entered an order on June 25, 2007 terminating the proposed settlement between the plaintiffs and the issuers, including Lionbridge. On August 14, 2007, the plaintiffs filed
amended complaints in the six focus cases. The issuer defendants and the underwriter defendants separately moved to dismiss the claims against them in the amended complaints in the six focus cases. On March 26, 2008, the District Court issued
an order in which it denied in substantial part the motions to dismiss the amended complaints in the six focus cases. In addition, on October 1, 2007, the plaintiffs submitted their briefing in support of their motions to certify different
classes in the six focus cases. The issuer defendants and the underwriter defendants have separately opposed those motions. The plaintiffs have voluntarily withdrawn their motions for class certification without prejudice.

We intend to continue to defend the litigation vigorously. The litigation process is inherently uncertain and unpredictable, however, and there can be no
guarantee as to the ultimate outcome of this pending lawsuit. The Company believes that the underwriters may have an obligation to indemnify Lionbridge for the legal fees and other costs of defending this suit. While Lionbridge cannot guarantee the
outcome of these proceedings, the Company believes that the final result of this lawsuit will have no material effect on its consolidated financial condition, results of operations, or cash flows.

12. FAIR VALUE MEASUREMENTS

On January 1, 2008,
Lionbridge adopted SFAS No. 157, Fair Value Measurements (SFAS No. 157), for the Companys financial assets and liabilities. The adoption of SFAS No. 157 did not materially impact Lionbridges
financial position, results of operations or liquidity. In accordance with FASB Staff Position No. FAS 157-2, Effective Date of FASB Statement No. 157 (FSP FAS 157-2), Lionbridge elected to defer until January 1,
2009 the adoption of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities that are not recognized or disclosed at fair value in the financial statements on a recurring basis. The adoption of SFAS No. 157 for those assets
and liabilities within the scope of FSP FAS 157-2 is not expected to have a material impact on Lionbridges financial position, results of operations or liquidity. Lionbridge did not have any nonfinancial assets or nonfinancial liabilities that
would be recognized or disclosed on a recurring basis as of September 30, 2008.

SFAS No. 157 provides a framework for measuring
fair value and requires expanded disclosures regarding fair value measurements. SFAS No. 157 defines fair value as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or
most advantageous market in an orderly transaction between market participants on the measurement date. SFAS No. 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available. The
following summarizes the three levels of inputs required by the standard that Lionbridge uses to measure fair value, as well as the assets and liabilities that the Company values using those levels of inputs.



|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Level 1: |  | Quoted prices in active markets for identical assets or liabilities. Lionbridge does not have any financial assets or liabilities as of September 30, 2008 designated as Level
1.                                                                                                                                                                                                                                                                                                                                      
|         | 
|Level 2: |  | Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the full term of the related assets or liabilities. Lionbridges Level 2 assets and liabilities are an interest rate swap and foreign exchange forward contracts whose fair value we
determine using pricing models predicated upon observable market inputs.
|         | 
|Level 3: |  | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Lionbridge does not have any financial assets and
liabilities as of September 30, 2008 designated as Level 3.                                                                                                                                                                                                                                                          

The following table sets forth the financial assets and liabilities as of September 30, 2008 that Lionbridge
measured at fair value on a recurring basis by level within the fair value hierarchy. As required by SFAS No. 157, assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is
significant to their fair value measurement.



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|                                   |  |         |   |         |   |         |  |                                 |   |  |   |        
|---------------------------------- |  | ------- | - | ------- | - | ------- |  | ------------------------------- | - |  | - | -------
|                                   |  | Level 1 |   | Level 2 |   | Level 3 |  | Balance as ofSeptember 30, 2008
|Assets:                            |  |         |   |         |   |         |  |                                 |   |  |   |        
|Foreign exchange forward contracts |  | $       |  |         | $ | 45,000  |  | $                               |  |  | $ | 45,000 
|Liabilities:                       |  |         |   |         |   |         |  |                                 |   |  |   |        
|Interest rate swap                 |  | $       |  |         | $ | 459,000 |  | $                               |  |  | $ | 459,000
|Foreign exchange forward contracts |  |         |  |         |   | 22,000  |  |                                 |  |  |   | 22,000 

13. RECENT ACCOUNTING PRONOUNCEMENTS

In March 2008, the Financial Accounting Standards Board (FASB) issued Statement of Accounting Standards (SFAS) No. 161,
Disclosures about Derivative Instruments and Hedging Activities,an amendment of FASB Statement No. 133 (SFAS No. 161). SFAS No. 161 requires enhanced disclosures regarding an entitys derivative and hedging
activities. These enhanced disclosures include information regarding how and why an entity uses derivative instruments; how derivative instruments and related hedge items are accounted for under SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, and its related interpretations; and how derivative instruments and related hedge items affect an entitys financial position, financial performance and cash flows. SFAS No. 161 is effective
for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The adoption of SFAS No. 161 will not have a material impact on our financial position, results of operations or liquidity.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS No. 141R). This statement
establishes principles and requirements for how the acquirer in a business combination (i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree, (ii) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, and (iii) determines what information to disclose to enable users of the financial statements to evaluate the
nature and financial effects of the business combination. SFAS No. 141R is effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating the potential impact of SFAS No. 141R on its financial
position and results of operations.

In September 2006, the FASB issued SFAS No. 157, which establishes a framework for measuring fair
value and requires expanded disclosures regarding fair value measurements. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2 (FSP FAS 157-2), Effective Date of FASB Statement No. 157, which allows for
the deferral of the adoption date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. We have elected to defer
the adoption of SFAS No. 157 for the assets and liabilities within the scope of FSP FAS 157-2. Refer to Note 12, Fair Value Measurements, of this Form 10-Q, for our disclosures pursuant to the effective portion of SFAS No. 157. The
adoption of SFAS No. 157 for those assets and liabilities within the scope of FSP FAS 157-2 is not expected to have a material impact on our financial position, results of operations or liquidity.



|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 14, 2008 (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. The Company reports financial
performance in 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.



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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, search engines 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.

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.

For the nine-month period ended September 30, 2008, Lionbridges income from operations was $3.4 million, with a net loss of
$362,000. For the year ended December 31, 2007, the Companys income from operations was $9.0 million with a net loss of $4.2 million. As of September 30, 2008, the Company had an accumulated deficit of $112.5 million.

The world-wide economic slowdown and related uncertainties in the financial markets and access to credit which emerged during the third quarter has
resulted in reduced demand for the Companys service offerings, particularly its GLC services. Some of the Companys customers have scaled-back, and are likely to continue to scale-back, content and product development initiatives and the
frequency of release cycles, which may result in a reduction in the demand for the Companys GLC services in particular. Continued tightening of credit in the financial markets may also adversely affect our customers ability to obtain
financing for their operations and may also result in reduced demand for the Companys service offerings.

Certain segments of
Lionbridges business, its GLC segment in particular, are sensitive to fluctuations in the value of the U.S. Dollar relative to the Euro, as a large portion of its cost of revenue and general and administrative expenses are payable in
Euros, while the majority of its revenues are recorded in U.S. Dollars. Over the past year, there has been a decline in the value of the U.S. Dollar relative to the Euro. There was an 8% and 13% decline in the value of the U.S. Dollar
relative to the Euro for the three and nine-month periods ended September 30, 2008, respectively, from the same periods of the prior year. The impact of this significant decline in the value of the U.S. Dollar relative to the Euro is
reflected in the Companys financial results for the nine-month period ended September 30, 2008 when compared to the corresponding period in 2007. While the depreciation in the U.S. Dollar has contributed to increased revenue for the
quarter ended September 30, 2008, particularly in the GLC segment, the Companys operating income and net income were negatively impacted due to higher costs related to Euro-denominated payment obligations to third party outsourcers, lease
obligations and compensation when compared to the corresponding period in 2007. The higher costs associated with the depreciation of the U.S. Dollar during the quarter ended September 30, 2008 when compared to the corresponding period in
2007 offset the benefits of the incremental revenue and of cost reduction initiatives undertaken by the Company during the period. Since July 2008, and particularly since September 30, 2008, the U.S. Dollar has strengthened against any
foreign currencies, including the Euro. If this trend continues, a portion of the negative impacts of Lionbridges results of operations discussed above will be ameliorated.

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.



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The delivery of Lionbridges GLC services involves and is 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.

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 multiple-element service offerings are governed by the Emerging Issues Task Force Issue 00-21, Accounting for Revenue
Arrangements with Multiple Deliverables. For these arrangements where the GLC and GDT services have independent value to the customer, and there is evidence of fair value for each service, the combined service arrangement is bifurcated into
separate units for 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 Other Intangible Assets

Lionbridge assesses the impairment of goodwill and other intangible assets on an annual basis or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Such events or
conditions could include an economic downturn in the industries to which Lionbridge provides services; increased competition; an increase in operating or other costs; additional volatility in international currencies; the pace of technological
improvements; or other information regarding Lionbridges market value, such as a reduction in stock price to a price near or below the book value of the Company for an extended period of time. When Lionbridge determines that the carrying value
of intangible assets or goodwill may not be recoverable based upon one or more of these indicators of impairment, the Company initially assesses any impairment using fair value measurements based on projected discounted cash flow valuation models.
In addition, in accordance with SFAS No. 142, Goodwill and Other Intangible Assets (SFAS No. 142), goodwill is reviewed for impairment on an annual basis. At December 31, 2007, 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. Estimating future cash flows requires management to make projections that can differ materially from actual results.

At the end of the third quarter of 2008, there was increasing evidence of an economic downturn and increased volatility in world-wide financial markets and a decline in the Companys stock price during a portion
of the third quarter to a price below book value. However, Lionbridge determined, based on its judgment and assumptions regarding market conditions, that the events or conditions that existed at the end of the third quarter did not warrant an
interim assessment of impairment of goodwill and other intangible assets. However, in the event such circumstances and events continue or intensify during the fourth quarter, including but not limited to a continued economic downturn, sustained
reduction in the Companys stock price near or below book value, or future adverse declines in revenues or operating results for any reportable segment, a non-cash impairment charge may result in the future. The Company performs its annual
impairment test during the fourth quarter.

The Company evaluates whether there has been an impairment in the carrying value of its other
intangible assets, 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. Factors that could lead to an impairment
of acquired customer relationships (recorded with the BGS acquisition) include a worsening in customer attrition rates compared to historical attrition rates, or lower than initially anticipated cash flows associated with customer relationships.



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Merger, Restructuring and Other Charges

During the nine-month period ended September 30, 2008 Lionbridge recorded $427,000 of restructuring and other charges. The $427,000 of restructuring
and other charges recorded in the nine-month period ended September 30, 2008 included $278,000 for workforce reductions in Europe consisting of seven technical staff and one administrative staff, $96,000 recorded for vacated facilities, $53,000
of additional costs recorded for a previously vacated facility in order to reflect a new sublease arrangement, recorded pursuant to the guidance in FASB Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated
with Exit or Disposal Activities (SFAS No. 146), and related literature. Of these charges, $357,000 related to the Companys Global Language and Content (GLC) segment, $45,000 related to the Interpretation
segment and $25,000 related to the Global Development and Testing (GDT) segment. The Company made $1.6 million of cash payments in the nine-month period ended September 30, 2008; $1.5 million, $119,000 and $45,000 related to the
GLC, GDT and Interpretation segments, respectively.

During the nine-month period ended September 30, 2007 Lionbridge recorded $1.6
million of restructuring and other charges. The $1.6 million of restructuring and other charges recorded in the nine-month period ended September 30, 2007 included $1.0 million for workforce reductions in Europe and South America consisting of
sixteen technical and seven administrative staff, $157,000 recorded for vacated facilities, $121,000 of additional costs recorded for a previously vacated facility in order to reflect a new sublease arrangement, recorded pursuant to the guidance in
SFAS No. 146, and related literature, and $288,000 of other charges, principally expenses related to integrating financial systems used by the acquired BGS sites to a common general ledger financial system. Of these charges, $1.2 million
related to the Companys GLC segment, $92,000 related to the GDT segment and $288,000 related to Corporate and Other. The Company made $2.0 million of cash payments in the nine-month period ended September 30, 2007; $1.6 million and
$321,000 related to the GLC and GDT segments, respectively.

Stock-based Compensation

Stock Option Plans

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.

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 2005 Plan was amended on May 21, 2007, to adjust the vesting schedule of future automatic equity grants to non-employee directors of the Company from four years to two years. The maximum number of shares of
common stock available for issuance under the 2005 Plan is 4,000,000 shares. At September 30, 2008, there were 539,476 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. In the nine months ended September 30, 2008, Lionbridge awarded 62,272 stock option grants under the
2005 Plan.

Lionbridges 1998 Stock Plan (the 1998 Plan) provides for the issuance of incentive and nonqualified stock
options. The maximum number of shares of common stock available for issuance under the 1998 Plan was 11,722,032 shares and the 1998 Plan expired on January 26, 2008. Accordingly, at September 30, 2008 there were no options available for
future grant under the 1998 Plan. Options to purchase common stock had been 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 1998
Plan. Under the terms of the 1998 Plan, the exercise price of incentive stock options granted could not have been 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. In the nine months ended September 30, 2008, Lionbridge awarded 297,728 stock option grants under the 1998 Plan, all of which were granted prior to its expiration on
January 26, 2008.



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Restricted Stock Awards

Lionbridge issued 65,940 and 948,500 shares of restricted common stock and restricted stock units under the Companys 2005 Incentive Plan and the 1998 Stock Plan, respectively, in the nine-month period ended
September 30, 2008 with a fair market value of $3.1 million. Of the total 1,014,440 shares of restricted common stock and restricted stock units issued in the nine-month period ended September 30, 2008, 963,000 have restrictions on
disposition which lapse over four years from the date of grant on each anniversary date and 51,440 have restrictions on disposition which lapse over thirteen months from the date of grant.

The Company recognizes expense for stock options, market-based restricted stock awards and time-based restricted stock awards pursuant to the guidance of
Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 123, Share-Based Payment (SFAS 123R). Total compensation expense related to stock options,
market-based restricted stock awards and time-based restricted stock awards was $1.2 million and $1.7 million for the three-month periods ended September 30, 2008 and 2007, respectively, and $4.3 million and $5.5 million for the nine-month
periods ended September 30, 2008 and 2007, respectively, classified in the statement of operations line items as follows:



|                                       |  |                                 |           |                                |   |           |  |      |           |  |   |          
|-------------------------------------- |  | ------------------------------- | --------- | ------------------------------ | - | --------- |  | ---- | --------- |  | - | ---------
|                                       |  | Three Months EndedSeptember 30, |           | Nine Months EndedSeptember 30,
|                                       |  | 2008                            |           | 2007                           |   | 2008      |  | 2007
|Cost of revenue                        |  | $                               | 23,000    |                                | $ | 45,000    |  | $    | 77,000    |  | $ | 106,000  
|Sales and marketing                    |  |                                 | 182,000   |                                |   | 267,000   |  |      | 602,000   |  |   | 853,000  
|General and administrative             |  |                                 | 971,000   |                                |   | 1,343,000 |  |      | 3,552,000 |  |   | 4,381,000
|Research and development               |  |                                 | 33,000    |                                |   | 39,000    |  |      | 107,000   |  |   | 111,000  
|                                       |  |                                 |           |                                |   |           |  |      |           |  |   |          
|Total stock-based compensation expense |  | $                               | 1,209,000 |                                | $ | 1,694,000 |  | $    | 4,338,000 |  | $ | 5,451,000
|                                       |  |                                 |           |                                |   |           |  |      |           |  |   |          

Results of Operations

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



|                                                                            |  |                                 |   |  |                                |    |  |       |    |  |       |   
|--------------------------------------------------------------------------- |  | ------------------------------- | - |  | ------------------------------ | -- |  | ----- | -- |  | ----- | --
|                                                                            |  | Three Months EndedSeptember 30, |   |  | Nine Months EndedSeptember 30, |   
|                                                                            |  | 2008                            |   |  | 2007                           |    |  | 2008  |    |  | 2007  |   
|Revenue                                                                     |  | 100.0                           | % |  | 100.0                          | %  |  | 100.0 | %  |  | 100.0 | % 
|Operating expenses:                                                         |  |                                 |   |  |                                |    |  |       |    |  |       |   
|Cost of revenue (exclusive of depreciation and amortization included below) |  | 68.8                            |   |  | 67.1                           |    |  | 68.8  |    |  | 66.3  |   
|Sales and marketing                                                         |  | 7.1                             |   |  | 6.9                            |    |  | 7.2   |    |  | 7.2   |   
|General and administrative                                                  |  | 19.0                            |   |  | 18.7                           |    |  | 19.0  |    |  | 18.7  |   
|Research and development                                                    |  | 1.4                             |   |  | 0.7                            |    |  | 1.2   |    |  | 0.7   |   
|Depreciation and amortization                                               |  | 1.1                             |   |  | 1.2                            |    |  | 1.0   |    |  | 1.2   |   
|Amortization of acquisition-related intangible assets                       |  | 1.8                             |   |  | 1.9                            |    |  | 1.8   |    |  | 1.9   |   
|Merger, restructuring and other charges                                     |  |                                |   |  | 0.3                            |    |  | 0.1   |    |  | 0.5   |   
|                                                                            |  |                                 |   |  |                                |    |  |       |    |  |       |   
|Total operating expenses                                                    |  | 99.2                            |   |  | 96.8                           |    |  | 99.1  |    |  | 96.5  |   
|                                                                            |  |                                 |   |  |                                |    |  |       |    |  |       |   
|Income from operations                                                      |  | 0.8                             |   |  | 3.2                            |    |  | 0.9   |    |  | 3.5   |   
|Interest expense:                                                           |  |                                 |   |  |                                |    |  |       |    |  |       |   
|Interest in outstanding debt                                                |  | 0.8                             |   |  | 1.2                            |    |  | 0.8   |    |  | 1.2   |   
|Amortization of deferred financing costs                                    |  |                                |   |  |                               |    |  |      |    |  | 0.1   |   
|Interest income                                                             |  | 0.1                             |   |  | 0.1                            |    |  | 0.1   |    |  | 0.1   |   
|Other (income) expense, net                                                 |  | (1.1                            | ) |  | 1.2                            |    |  | 0.5   |    |  | 0.7   |   
|                                                                            |  |                                 |   |  |                                |    |  |       |    |  |       |   
|Income (loss) before income taxes                                           |  | 1.2                             |   |  | 0.9                            |    |  | (0.3  | )  |  | 1.6   |   
|Provision for (benefit from) income taxes                                   |  | (1.6                            | ) |  | 1.5                            |    |  | (0.2  | )  |  | 1.7   |   
|                                                                            |  |                                 |   |  |                                |    |  |       |    |  |       |   
|Net income (loss)                                                           |  | 2.8                             | % |  | (0.6                           | )% |  | (0.1  | )% |  | (0.1  | )%
|                                                                            |  |                                 |   |  |                                |    |  |       |    |  |       |   

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, 2008 and 2007, respectively:



|               |  |                                 |             |  |                                |   |  |      |             |  |      |   |  |   |             |  |     |   |  |   |             |  |     |  
|-------------- |  | ------------------------------- | ----------- |  | ------------------------------ | - |  | ---- | ----------- |  | ---- | - |  | - | ----------- |  | --- | - |  | - | ----------- |  | --- | -
|               |  | Three Months EndedSeptember 30, |             |  | Nine Months EndedSeptember 30, |  
|               |  | 2008                            |             |  | 2007                           |   |  | 2008 |             |  | 2007 |  
|GLC            |  | $                               | 81,839,000  |  | 72                             | % |  | $    | 85,954,000  |  | 77   | % |  | $ | 262,837,000 |  | 74  | % |  | $ | 258,183,000 |  | 77  | %
|GDT            |  |                                 | 25,919,000  |  | 23                             | % |  |      | 19,896,000  |  | 18   | % |  |   | 73,228,000  |  | 20  | % |  |   | 58,932,000  |  | 18  | %
|Interpretation |  |                                 | 6,532,000   |  | 5                              | % |  |      | 5,694,000   |  | 5    | % |  |   | 20,748,000  |  | 6   | % |  |   | 17,636,000  |  | 5   | %
|               |  |                                 |             |  |                                |   |  |      |             |  |      |   |  |   |             |  |     |   |  |   |             |  |     |  
|Total revenue  |  | $                               | 114,290,000 |  | 100                            | % |  | $    | 111,544,000 |  | 100  | % |  | $ | 356,813,000 |  | 100 | % |  | $ | 334,751,000 |  | 100 | %
|               |  |                                 |             |  |                                |   |  |      |             |  |      |   |  |   |             |  |     |   |  |   |             |  |     |  



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Revenue for the quarter ended September 30, 2008 was $114.3 million, an increase of $2.7 million, or
2.5%, from $111.5 million for the quarter ended September 30, 2007. Revenue growth during the third quarter of 2008 in the GDT and Interpretation segments of $6.0 million and $838,000, respectively, was partially offset by a decline in revenue
of $4.1 million in the GLC business, as compared to the quarter ended September 30, 2007.

Lionbridge conducts a large portion of its
business in international markets. Approximately 48.0% of its revenue for the quarter ended September 30, 2008 is denominated in foreign currencies. The principal foreign currency applicable to Lionbridges business is the Euro.
Approximately 35.5% of revenue for the quarter ended September 30, 2008 was denominated in Euro, and a majority of this revenue is concentrated in the GLC business. Accordingly, a fluctuation in foreign currency exchange rates primarily affects
the GLC business. During the quarter ended September 30, 2008, the U.S. Dollar was weaker against most foreign currencies, in particular the Euro, as compared to the quarter ended September 30, 2007. The Companys revenue
increased approximately $3.2 million, or 2.9%, as the result of the decline in the exchange rate of the U.S. Dollar against most foreign currencies as compared to the quarter ended September 30, 2007. Organic growth declined approximately
$935,000 in the quarter ended September 30, 2008, as compared to the quarter ended September 30, 2007, primarily a result of the impact of the emerging global economic slowdown which resulted in project delays and volume decreases
including reductions in the scale and scope of projects from customers in the GLC business, as well as delays in purchasing decisions for GLC services among prospective customers. This decrease was partially offset by an approximate $501,000
decrease in deferred revenue in the GLC segment in the quarter ended September 30, 2008, as compared to the quarter ended September 30, 2007. If the global economic slowdown continues through the fourth quarter and into 2009, Lionbridge
expects that its customers may delay or decrease previously planned projects or product releases requiring GLC services. In addition, customers, particularly technology customers, may scale-back product development and the development of new product
or technology releases, which may also result in a further reduction in the demand for GLC services.

Revenue for the nine months ended
September 30, 2008 was $356.8 million, an increase of $22.1 million, or 6.6%, from $334.8 million for the nine months ended September 30, 2007. The increase of $22.1 million consists of $4.7 million, $14.3 million and $3.1 million of
revenue growth in GLC, GDT, and Interpretation, respectively. As compared to the nine months ended September 30, 2007, revenue increased approximately $4.6 million, or 1.4%, as the result of organic growth and approximately $16.9 million, or
5.1%, due to the impact of foreign exchange, primarily affecting the GLC business, as the U.S. Dollar was significantly weaker against certain foreign currencies, in particular the Euro. As noted above, this increase is inclusive of the
decrease in deferred revenue in the GLC business. During the second and third quarters, the Company implemented measures designed to moderate the effect of currency fluctuations, particularly with respect to the GLC segment. Among these initiatives
are contractual terms with customers to periodically adjust rates relative to fluctuations in currency and pricing increases to reflect the depreciation of the U.S. Dollar during the term of the contractual arrangement.

Revenue from the Companys GLC business for the quarter ended September 30, 2008 decreased $4.1 million, or 4.8%, to $81.8 million from $86.0
million for the quarter ended September 30, 2007. As compared to the quarter ended September 30, 2007, revenue increased approximately $3.0 million due to the decline in the foreign exchange rate between the U.S. Dollar and other
currencies, in particular the Euro. During this same comparative period, organic growth declined approximately $7.7 million during the quarter ended September 30, 2008, which was partially offset by a decrease of $501,000 in deferred revenue in
the GLC business. The decline in organic growth of approximately $7.7 million in the quarter ended September 30, 2008, as compared to the quarter ended September 30, 2007, is primarily a result of the impact of the emerging global economic
slowdown and resulting project delays and volume decreases from GLC customers. For the nine months ended September 30, 2008, revenue from the Companys GLC business was $262.8 million, an increase of $4.7 million, or 1.8%, from $258.2
million for the nine months ended September 30, 2007. As compared to the nine months ended September 30, 2007, revenue increased approximately $16.1 million due to the impact of foreign exchange, particularly the weakened U.S. Dollar,
as noted above, while organic growth declined by approximately $11.9 million during the nine months ended September 30, 2008. This decrease in revenue was partially offset by a decrease of $501,000 in deferred revenue in the GLC business. The
decline in organic growth of approximately $11.9 million in the nine months ended September 30, 2008, as compared to the nine months ended September 30, 2007, is primarily a result of the impact of the emerging global economic slowdown and
the resulting project delays and volume decreases from customers in the GLC business.

Revenue from the Companys GDT business was
$25.9 million for the quarter ended September 30, 2008, an increase of $6.0 million, or 30.3%, from $19.9 million for the quarter ended September 30, 2007. The period-over-period increase in GDT revenue was primarily due to increased
revenue from large programs for existing customers. Revenue in the GDT business is not materially impacted by fluctuations in foreign currency exchange rates. For the nine months ended September 30, 2008, revenue from the



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##### Table of Contents

Companys GDT business was $73.2 million, an increase of $14.3 million, or 24.3%, from $58.9 million for the nine months ended September 30, 2007.
The year-on-year increase in GDT for the quarter and nine months ended September 30, 2008 was primarily due to increased revenue from two long-term engagements and the Companys ability to utilize the skills and infrastructure of its GLC
business to broaden its offerings and cross-sell additional services across segments.

Revenue from the Companys Interpretation
business for the quarter ended September 30, 2008 was $6.5 million, an increase of $838,000, or 14.7%, from $5.7 million for the quarter ended September 30, 2007 primarily due to increased volume from long-term existing programs. The
Interpretation business is not materially impacted by fluctuations in foreign currency exchange rates. For the nine months ended September 30, 2008, revenue from the Companys Interpretation business was $20.7 million, an increase of $3.1
million, or 17.6%, from $17.6 million for the nine months ended September 30, 2007 primarily due to revenue from new customer engagements.

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 engagements. The following table shows GLC, GDT and Interpretation cost of revenues, the percentage change from the three and nine-month periods of the prior year and as a percentage of revenue for the three and nine months ended
September 30, 2008 and 2007, respectively:



|                      |  |                                    |            |   |                        |      |   |                                    |   |            |                                   |  |   |                                        |   |  |                                   |   |  |   |             |  
|--------------------- |  | ---------------------------------- | ---------- | - | ---------------------- | ---- | - | ---------------------------------- | - | ---------- | --------------------------------- |  | - | -------------------------------------- | - |  | --------------------------------- | - |  | - | ----------- | -
|                      |  | Three MonthsEndedSeptember 30,2008 |            |   | % ChangeQ3 07 to Q3 08 |      |   | Three MonthsEndedSeptember 30,2007 |   |            | Nine MonthsEndedSeptember 30,2008 |  |   | % ChangeNine Months07 to NineMonths 08 |   |  | Nine MonthsEndedSeptember 30,2007 |  
|GLC:                  |  |                                    |            |   |                        |      |   |                                    |   |            |                                   |  |   |                                        |   |  |                                   |   |  |   |             |  
|Cost of revenue       |  | $                                  | 57,487,000 |   |                        | 1.0  | % |                                    | $ | 56,903,000 |                                   |  | $ | 183,973,000                            |   |  | 8.0                               | % |  | $ | 170,277,000 |  
|Percentage of revenue |  |                                    | 70.2       | % |                        |      |   |                                    |   | 66.2       | %                                 |  |   | 70.0                                   | % |  |                                   |   |  |   | 66.0        | %
|GDT:                  |  |                                    |            |   |                        |      |   |                                    |   |            |                                   |  |   |                                        |   |  |                                   |   |  |   |             |  
|Cost of revenue       |  |                                    | 16,231,000 |   |                        | 20.8 | % |                                    |   | 13,436,000 |                                   |  |   | 45,987,000                             |   |  | 21.1                              | % |  |   | 37,984,000  |  
|Percentage of revenue |  |                                    | 62.6       | % |                        |      |   |                                    |   | 67.5       | %                                 |  |   | 62.8                                   | % |  |                                   |   |  |   | 64.5        | %
|Interpretation:       |  |                                    |            |   |                        |      |   |                                    |   |            |                                   |  |   |                                        |   |  |                                   |   |  |   |             |  
|Cost of revenue       |  |                                    | 4,922,000  |   |                        | 9.8  | % |                                    |   | 4,481,000  |                                   |  |   | 15,476,000                             |   |  | 13.9                              | % |  |   | 13,583,000  |  
|Percentage of revenue |  |                                    | 75.4       | % |                        |      |   |                                    |   | 78.7       | %                                 |  |   | 74.6                                   | % |  |                                   |   |  |   | 77.0        | %
|                      |  |                                    |            |   |                        |      |   |                                    |   |            |                                   |  |   |                                        |   |  |                                   |   |  |   |             |  
|Total cost of revenue |  | $                                  | 78,640,000 |   |                        |      |   |                                    | $ | 74,820,000 |                                   |  | $ | 245,436,000                            |   |  |                                   |   |  | $ | 221,844,000 |  
|                      |  |                                    |            |   |                        |      |   |                                    |   |            |                                   |  |   |                                        |   |  |                                   |   |  |   |             |  
|Percentage of revenue |  |                                    | 68.8       | % |                        |      |   |                                    |   | 67.1       | %                                 |  |   | 68.8                                   | % |  |                                   |   |  |   | 66.3        | %

For the quarter ended September 30, 2008 , as a percentage of revenue, cost of revenue
increased to 68.8% as compared to 67.1% for the quarter ended September 30, 2007 primarily due to the negative impact of the decline in the exchange rate of the U.S. Dollar against most foreign currencies and changes in the revenue and
service mix. The Company estimates that the decline of the U.S. Dollar negatively impacted cost of revenue by over 120 basis points, period-over-period, essentially offsetting the benefits realized from the deployment and use of
Lionbridges language management technology platform in the GLC business, and lower internal operating costs resulting from certain restructuring and cost reduction actions initiated over the past few years. Each segment provides distinctive
services with different gross margins. For the quarter ended September 30, 2008, GLC, GDT and Interpretation accounted for approximately 71.6%, 22.7% and 5.7% of the total revenue. For the quarter ended September 30, 2007, GLC, GDT and
Interpretation accounted for approximately 77.1%, 17.8% and 5.1% of the total revenue.

For the quarter ended September 30, 2008, cost
of revenue increased $3.8 million, or 5.1%, to $78.6 million as compared to $74.8 million for the corresponding period of the prior year. The increase was primarily in support of $2.7 million of incremental revenue as compared to the corresponding
period of the prior year. The increase includes approximately $3.4 million due to the depreciation of the U.S. Dollar against foreign currencies as noted above, with the balance due to changes in the revenue and service mix period-over-period.

For the nine months ended September 30, 2008, cost of revenue was $245.4 million, an increase of $23.6 million, or 10.6%, as compared
to $221.8 million for the same period of 2007. This increase was primarily in support of $22.1 million incremental revenue as compared to the nine months ended September 30, 2007. Approximately $18.8 million of the increase is attributable to
depreciation of the U.S. Dollar against certain currencies as noted above.

For the quarter ended September 30, 2008, cost of
revenue as a percentage of revenue in the Companys GLC business increased to 70.2% as compared to 66.2% for the quarter ended September 30, 2007. Cost of revenue increased $584,000 to $57.5



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##### Table of Contents

million compared to $56.9 million for the same quarter of the prior year. This increase reflects higher costs for translation services, mainly due the
negative impact of the decline in the exchange rate of the U.S. Dollar against most foreign currencies, and variations in work mix. As noted above, the negative impact of the decline in the exchange rate of the U.S. Dollar against most
foreign currencies significantly impacted the cost of revenue ratios in the GLC business. The Company estimates that the decline of the U.S. Dollar impacted cost of revenue in the GLC business by over 140 basis points, period-over-period. For
the nine months ended September 30, 2008, GLC cost of revenue increased $13.7 million to $184.0 million as compared to $170.3 million for the corresponding period of the prior This increase is in support of a $4.7 million increase in revenue
period-over-period, and is primarily attributable to the $16.6 million impact of the depreciation of the U.S. Dollar against foreign currencies, which was partially offset by the benefits realized from the deployment and use of
Lionbridges language management technology platform, growing customer satisfaction, the economies of longer-term customer programs and lower internal operating costs resulting from certain restructuring and cost reduction actions initiated
over the past few years. Since July 2008, and particularly since September 30, 2008, the U.S. Dollar has strengthened against any foreign currencies, including the Euro. If this trend continues, a portion of the negative impacts of
Lionbridges results of operations discussed above will be ameliorated.

Cost of revenue as a percentage of revenue in the
Companys GDT business decreased to 62.6% for the quarter ended September 30, 2008 as compared to 67.5% for the quarter ended September 30, 2007. This decrease was primarily the result of continued productivity gains on long-term
large programs for existing customers, a 30.3% increase in revenue levels, price increase, and work mix variations in services as compared to the corresponding quarter of the prior year. These benefits were partially offset by the impact of the U.S.
Dollars decline against certain foreign currencies, in particular the Euro, period-over-period. The Company estimates that the decline of the U.S. Dollar impacted cost of revenue by approximately 80 basis points, period-over-period. For the
quarter ended September 30, 2008, GDT cost of revenue increased $2.8 million, or 20.8%, to $16.2 million as compared to $13.4 million for the corresponding quarter of the prior year. This increase was primarily associated with the $6.0 million
increase in revenue period-over-period, and work mix variation in services as compared to the corresponding quarter of the prior year. The increase includes approximately $290,000 due to the depreciation of the U.S. Dollar against foreign
currencies as noted above.

For the nine months ended September 30, 2008, GDT cost of revenue was $46.0 million, an increase of $8.0
million, or 21.1%, as compared to $38.0 million for the same period of 2007. This increase was primarily in support of $14.3 million incremental revenue as compared to the nine months ended September 30, 2007. The increase includes
approximately $1.9 million due to the depreciation of the U.S. Dollar against foreign currencies as noted above. Cost of revenue as a percentage of revenue in the Companys GDT business decreased to 62.8% for the nine months ended
September 30, 2008 as compared to 64.5% for the nine months ended September 30, 2007. As noted above, the decrease was primarily the result of continued productivity gains on long-term large programs for existing customers, a 24.3%
increase in revenue levels, price increases, and work mix variations in services as compared to the corresponding quarter of the prior year. These benefits were partially offset by the impact of the U. S. Dollars decline against certain
foreign currencies, in particular the Euro, period-over-period. The Company estimates that the decline of the U.S. Dollar impacted cost of revenue by over 230 basis points, period-over-period.

Cost of revenue as a percentage of revenue in the Companys Interpretation business decreased to 75.4% and 74.6%, for the three and nine months
ended September 30, 2008, respectively, as compared to 78.7% and 77.00% for the three and nine months ended September 30, 2007. This decrease reflects the favorable impact of pricing and work mix variations in services as compared to the
prior year. The Companys Interpretation business is not materially impacted by foreign currency exchange rate fluctuations.

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 change from the three and
nine-month periods of the prior year and as a percentage of revenue for the three and nine months ended September 30, 2008 and 2007, respectively:



|                                   |  |                                  |           |   |                                 |   |           |      |  |   |            |   |  |   |            |  
|---------------------------------- |  | -------------------------------- | --------- | - | ------------------------------- | - | --------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                   |  | Three Months Ended September 30, |           |   | Nine Months Ended September 30, |  
|                                   |  | 2008                             |           |   | 2007                            |   |           | 2008 |  |   | 2007       |  
|Total sales and marketing expenses |  | $                                | 8,059,000 |   |                                 | $ | 7,729,000 |      |  | $ | 25,779,000 |   |  | $ | 24,251,000 |  
|Increase from prior year           |  |                                  | 330,000   |   |                                 |   |           |      |  |   | 1,528,000  |   |  |   |            |  
|Percentage of revenue              |  |                                  | 7.1       | % |                                 |   | 6.9       | %    |  |   | 7.2        | % |  |   | 7.2        | %

For the quarter ended September 30, 2008, sales and marketing expenses increased $330,000, as
compared with the corresponding period of 2007. As a percentage of revenue, sales and marketing expenses increased to 7.1% as compared to 6.9% for the quarter ended September 30 2007. For the nine months ended September 30, 2008, sales and
marketing expenses increased $1.5 million, as compared with the corresponding period of 2007. As a percentage of revenue, sales and marketing expenses remained flat at 7.2% for the nine months ended September 20, 2008, as compared to the
corresponding period of the prior year. These increases are primarily attributable to increased compensation to support increased revenue levels from period to period, as well as projected revenue growth in the future. The Company estimates that the
decline of the U.S. Dollar increased sales and marketing expenses by approximately $128,000 and $826,000 for the quarter and nine months ended September 30, 2008, respectively, as compared to the same periods of the prior year.



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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 change from the three and nine-month periods of the prior year and as a percentage of revenue for the three and nine months ended
September 30, 2008 and 2007, respectively:



|                                          |  |                                  |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|----------------------------------------- |  | -------------------------------- | ---------- | - | ------------------------------- | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                          |  | Three Months Ended September 30, |            |   | Nine Months Ended September 30, |  
|                                          |  | 2008                             |            |   | 2007                            |   |            | 2008 |  |   | 2007       |  
|Total general and administrative expenses |  | $                                | 21,737,000 |   |                                 | $ | 20,807,000 |      |  | $ | 67,719,000 |   |  | $ | 62,708,000 |  
|Increase from prior year                  |  |                                  | 930,000    |   |                                 |   |            |      |  |   | 5,011,000  |   |  |   |            |  
|Percentage of revenue                     |  |                                  | 19.0       | % |                                 |   | 18.7       | %    |  |   | 19.0       | % |  |   | 18.7       | %

For the quarter ended September 30, 2008, general and administrative expenses increased
$930,000, or 4.5%, to $21.7 million as compared to $20.8 million for the quarter ended September 30, 2007. The $930,000 increase is primarily attributable to the decline in the U.S. Dollars exchange rate against most foreign currencies,
in particular the Euro. Approximately 62.0% of general and administrative expenses are denominated in non-U.S. Dollars, primarily the Euro and Indian Rupee, and of that amount a majority of these expenses relate to rent and compensation expense in
the quarter ended September 30, 2008, as compared to the quarter ended September 30, 2007. As a percentage of revenue, general and administrative expenses increased to 19.0% for the quarter ended September 30, 2008, as compared to
18.7%, for the same period of the prior year, due primarily to the items noted above, as well as the impact of the increase in revenue from period to period.

For the nine months ended September 30, 2008, general and administrative expenses increased $5.0 million, or 8.0%, to $67.7 million as compared to $62.7 million for the nine months ended September 30, 2007.
Approximately $3.9 million of the increase is attributable to the impact of foreign exchange, as the U.S. Dollar declined against certain foreign currencies, in particular the Euro. Approximately 62.0% of general and administrative expenses are
denominated in non-U.S. Dollars, primarily the Euro and Indian Rupee, and of that amount a majority of these expenses relate to rent and compensation expense in the nine months ended September 30, 2008. The remainder of the increase is
primarily due to increased compensation, rent and consulting expenses in the nine months ended September 30, 2008 as compared to the nine months ended September 30, 2007. As a percentage of revenue, general and administrative expenses
increased to 19.0% for the nine months ended September 30, 2008 as compared to 18.7% for the same period of the prior year.

Research and Development. Research and development expenses relate primarily to the Companys web-based hosted language management technology platform 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 change from the three
and nine-month periods of the prior year and as a percentage of revenue for the three and nine months ended September 30, 2008 and 2007, respectively:



|                                       |  |                                  |           |   |                                 |   |         |      |  |   |           |   |  |   |           |  
|-------------------------------------- |  | -------------------------------- | --------- | - | ------------------------------- | - | ------- | ---- |  | - | --------- | - |  | - | --------- | -
|                                       |  | Three Months Ended September 30, |           |   | Nine Months Ended September 30, |  
|                                       |  | 2008                             |           |   | 2007                            |   |         | 2008 |  |   | 2007      |  
|Total research and development expense |  | $                                | 1,634,000 |   |                                 | $ | 851,000 |      |  | $ | 4,083,000 |   |  | $ | 2,353,000 |  
|Increase from prior year               |  |                                  | 783,000   |   |                                 |   |         |      |  |   | 1,730,000 |   |  |   |           |  
|Percentage of revenue                  |  |                                  | 1.4       | % |                                 |   | 0.7     | %    |  |   | 1.2       | % |  |   | 0.7       | %

Research and development expense increased $783,000 and $1.7 million for the three and nine months
ended September 30, 2008 to $1.6 million and $4.1 million from $851,000 and $2.4 million for the corresponding periods of the prior year. Approximately $84,000 and $347,000 of the increase for the quarter and nine months ended
September 30, 2008, respectively, is due to the depreciation of the U.S. Dollar against foreign currencies, as compared to the same periods of the prior year and the remaining increase is attributable principally to the Companys
continued development of its language management technologies, including Logoport and Freeway.

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 change from the three and nine-month periods of the prior year and as a percentage of revenue for the three and nine months ended September 30, 2008 and 2007, respectively:



|                                            |  |                                  |           |   |                                 |   |           |      |  |   |           |   |  |   |           |  
|------------------------------------------- |  | -------------------------------- | --------- | - | ------------------------------- | - | --------- | ---- |  | - | --------- | - |  | - | --------- | -
|                                            |  | Three Months Ended September 30, |           |   | Nine Months Ended September 30, |  
|                                            |  | 2008                             |           |   | 2007                            |   |           | 2008 |  |   | 2007      |  
|Total depreciation and amortization expense |  | $                                | 1,242,000 |   |                                 | $ | 1,300,000 |      |  | $ | 3,653,000 |   |  | $ | 3,918,000 |  
|Decrease from prior year                    |  |                                  | 58,000    |   |                                 |   |           |      |  |   | 265,000   |   |  |   |           |  
|Percentage of revenue                       |  |                                  | 1.1       | % |                                 |   | 1.2       | %    |  |   | 1.0       | % |  |   | 1.2       | %



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Depreciation and amortization expense decreased to $1.2 million and $3.7 million for the three and nine
months ended September 30, 2008, respectively, as compared to $1.3 million and $3.9 million for the three and nine months ended September 30, 2007. The decrease for the three and nine-month periods ended September 30, 2008 as compared
to the corresponding periods of the prior year is primarily due to the culmination of depreciable lives of certain assets acquired in prior years. This decrease was partially offset by increases attributable to a decline in foreign currency exchange
rates of approximately $54,000 and $274,000 for the three and nine months ended September 30, 2008, as compared to the corresponding period of the prior year.

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 months ended September 30, 2008 and 2007 of $2.1 million and $2.1 million, respectively, and for the nine months ended September 30, 2008 and 2007 of $6.3 million and $6.3 million, respectively, relates
solely to the amortization of identifiable intangible assets.

Interest Expense.Interest expense primarily represents interest paid
or payable on debt and the amortization of deferred financing costs. Interest expense for the quarter ended September 30, 2008 of $961,000 decreased $411,000 from $1.4 million for the quarter ended September 30, 2007. The decrease reflects
the impact of approximately $5.0 million lower average borrowings during the quarter ended September 30, 2008 as compared to the corresponding period of the prior year, coupled with lower interest rates. Interest expense for the nine months
ended September 30, 2008 of $3.1 million decreased $1.1 million from $4.3 million for the nine months ended September 30, 2007. The decrease reflects the impact of approximately $6.0 million lower average borrowings during the nine-month
period year-over-year coupled with lower interest rates.

Other (Income) Expense, Net.Other (income) 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 $1.3 million in other income, net and $1.6 million in other expense, net, in the three and nine months ended September 30, 2008, respectively, as compared to $1.3 million and $2.4 million in other expense, net, in the corresponding
periods of the prior year. The variations are primarily attributable to the variances among the Euro and other currencies against the U.S. Dollar in the periods, as compared to the net position and variance during the corresponding periods of
the prior year. Lionbridge recorded net realized and unrealized foreign currency losses of $3.2 million and $324,000 on forward contracts in the three and nine-month periods ended September 30, 2008, respectively, as compared to net realized
and unrealized foreign currency gains of $1.7 million and $1.8 million on forward contracts in the three and nine-month periods ended September 30, 2007, respectively. Additionally, approximately $400,000 of miscellaneous non-income tax charges
are included in other (income) expense, in the three and nine months ended September 30, 2008 as compared to the corresponding periods of prior year.

Provision for (Benefit from) Income Taxes. The following table shows the provision for (benefit from) income taxes expense in dollars, the dollar change from the three and nine-month periods of the prior year
and as a percentage of revenue for the three and nine months ended September 30, 2008 and 2007, respectively:



|                                                |  |                                  |            |    |                                 |   |           |      |  |   |           |    |  |   |           |  
|----------------------------------------------- |  | -------------------------------- | ---------- | -- | ------------------------------- | - | --------- | ---- |  | - | --------- | -- |  | - | --------- | -
|                                                |  | Three Months Ended September 30, |            |    | Nine Months Ended September 30, |  
|                                                |  | 2008                             |            |    | 2007                            |   |           | 2008 |  |   | 2007      |   
|Total provision for (benefit from) income taxes |  | $                                | (1,846,000 | )  |                                 | $ | 1,688,000 |      |  | $ | (629,000  | )  |  | $ | 5,767,000 |  
|Decrease from prior year                        |  |                                  | 3,534,000  |    |                                 |   |           |      |  |   | 6,396,000 |    |  |   |           |  
|Percentage of revenue                           |  |                                  | (1.6       | )% |                                 |   | 1.5       | %    |  |   | (0.2      | )% |  |   | 1.7       | %

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 $3.5 million to a benefit of $1.8 million for the quarter ended September 30, 2008 from a
provision of $1.7 million in the corresponding quarter of the prior year, and by $6.4 million for the comparable nine-month period. This decrease is primarily due to the reversal of a tax liability related to accured interest. The reversal was based
on a July 2008 ruling from the Irish Office of the Revenue Commissioners granting the Companys request relating to the deductibility of interest expense associated with certain interest-bearing inter-company loans that had generated taxable
income in Ireland. Another contributor to the decrease is the lower foreign profits which are subject to tax by the foreign jurisdictions due to treatment of the foreign subsidiaries as service providers that earn a profit based on a cost-plus
model.

Liquidity and Capital Resources

On December 21, 2006, the Company entered into a revolving credit facility (the Credit Agreement), replacing the Companys Term Loan B and Revolving Credit Facility that had been in place since September 1, 2005.
The Credit Agreement was subsequently amended on January 22, 2007 to add certain additional non-U.S. subsidiaries of the Company as Borrowers or Guarantors. The Credit Agreement provides for a five-year $100.0 million revolving credit facility.
At September 30, 2008, $59.7 million was outstanding with an interest rate of 5.5%.



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The following table shows cash and cash equivalents and working capital at September 30, 2008 and at
December 31, 2007:



|                          |  |                    |            |                   |   |           
|------------------------- |  | ------------------ | ---------- | ----------------- | - | ----------
|                          |  | September 30, 2008 |            | December 31, 2007
|Cash and cash equivalents |  | $                  | 24,930,000 |                   | $ | 32,248,000
|Working capital           |  |                    | 55,973,000 |                   |   | 64,460,000

Lionbridges working capital decreased $8.5 million to $56.0 million at September 30,
2008, as compared to $64.5 million at December 31, 2007. The decrease was primarily driven by the use of $16.8 million of cash provided by operations, during the nine months ended September 30, 2008, and $6.4 million of the cash balance at
December 31, 2007, to pay down $12.1 million of long-term debt, repurchase $4.3 million of Lionbridges common stock, and purchase $6.8 million of property and equipment, with the remainder of the decrease attributable to the use of cash
to fund activity and growth in the business during the nine months ended September 30, 2008.

As of September 30, 2008, cash and
cash equivalents totaled $24.9 million, a decrease of $7.3 million from $32.2 million at December 31, 2007, primarily due to $16.8 million net cash provided by operating activities of the business, offset by a $1.6 million decrease in cash due
to exchange rate changes in the period and $6.4 million of net cash used in investing, including a purchase price reimbursement from Bowne of $444,000, offset by $6.8 million for purchases of property and equipment and $16.1 million of net cash used
in financing, including $4.3 million for the repurchase of shares, $12.1 million used to pay down debt, partially reduced by other net financing activities of $302,000.

Accounts receivable and work in process totaled $94.7 million, a decrease of $12.2 million as compared to $106.9 million at December 31, 2007. Other current assets decreased $240,000 to $12.1 million as compared
to $12.3 million at December 31, 2007. Current liabilities totaled $75.8 million at September 30, 2008, a decrease of $11.3 million as compared to $87.1 million at December 31, 2007.

The following table shows the net cash provided by operating activities, net cash used in investing activities, and net cash used in financing activities
for the nine months ended September 30, 2008 and 2007, respectively:



|                                          |  |                                 |            |      |   |          
|----------------------------------------- |  | ------------------------------- | ---------- | ---- | - | ---------
|                                          |  | Nine Months Ended September 30,
|                                          |  | 2008                            |            | 2007
|Net cash provided by operating activities |  | $                               | 16,778,000 |      | $ | 8,689,000
|Net cash used in investing activities     |  |                                 | 6,372,000  |      |   | 2,017,000
|Net cash used in financing activities     |  |                                 | 16,097,000 |      |   | 5,702,000

Net cash provided by operating activities was $16.8 million for the nine months ended
September 30, 2008, as compared to $8.7 million for the corresponding period of the prior year. The $16.8 million cash provided by operating activities was due to a net loss of $362,000 (inclusive of $13.2 million in depreciation, amortization,
stock-based compensation and other non-cash expenses, including realized and unrealized foreign currency losses on forward contracts of $324,000), a $12.8 million net decrease in accounts receivable and work in process, reflecting improved cash
management in the nine-month period ended September 30, 2008 as compared to the corresponding period of 2007, a $597,000 decrease in other operating assets, a $2.0 million decrease in accounts payable, accrued expenses and other operating
liabilities, and a $7.5 million decrease in deferred revenue.

In the nine months ended September 30, 2007 net cash provided by
operating activities was $8.7 million. The $8.7 million cash provided by operating activities was due to net loss of $247,000 (inclusive of $14.4 million in depreciation, amortization, stock based compensation and other non-cash expenses, net of
realized and unrealized foreign currency gain on forward contracts of $1.8 million), a $5.9 million net increase in accounts receivable and work in process, a $9.6 million increase in other operating assets, a $7.3 million increase in accounts
payable, accrued expenses and other operating liabilities, and a $2.7 million increase in deferred revenue.

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

Net cash used in investing activities increased $4.4 million to $6.4
million for the nine months ended September 30, 2008, as compared to $2.0 million cash used in investing activities for the corresponding period of the prior year. The primary investing activity in the nine months ended September 30, 2008
was $6.8 million for the purchase of property and equipment, $49,000 net payments on foreign currency forward contracts, and a purchase price reimbursement from Bowne of $444,000. In the nine months ended September 30, 2007, net cash used in
investing activities was $2.0 million. The primary investing activity in the nine months ended September 30, 2007 was $3.8 million for the purchase of property and equipment, partially offset by $1.8 million net proceeds from foreign currency
forward contracts.



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During the quarter ended September 30, 2007, Lionbridge announced that its Board of Directors
authorized the repurchase up to $12.0 million of shares of the Companys outstanding common stock. As of January 24, 2008, the Company acquired 3.7 million shares of its common stock for $12.0 million at a volume weighted average
price of $3.25 per share. In February 2008, the Companys Board of Directors authorized an incremental repurchase program of up to $12.0 million of the Companys common stock according to working capital requirements and management
discretion. During the nine months ended September 30, 2008, the Company acquired 1,490,568 shares of its common stock for $4.3 million at a volume weighted average price of $2.90 per share. As of September 30, 2008, under the combined
programs the Company has purchased 4.6 million shares of its common stock at a volume weighted average price of $3.11 per share and total cost of $14.6 million.

Net cash used in financing activities for the nine months ended September 30, 2008 was $16.1 million, an increase of $10.4 million as compared to $5.7 million net cash used in financing activities for the
corresponding period of 2007. Cash used in financing activities consisted of $4.3 million of payments for the repurchase of shares, $12.1 million of payments of long-term debt and $76,000 for payments of capital lease obligations, and $378,000 of
proceeds from the issuance of common stock under option plans. In the nine months ended September 30, 2007 net cash used in financing activities was $5.7 million and of consisted of $15.1 million of payments of short-term debt, $6.1 million of
payments of long-term debt, $354,000 of proceeds from the issuance of common stock under stock option plans, $260,000 in proceeds from the issuance of capital leases and $233,000 for payments of capital lease obligations, partially offset by $15.1
million in proceeds from the issuance of short-term debt.

The Companys registration statement on Form S-3 under the Securities Act
of 1933, filed with the Securities and Exchange Commission 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 will expire on December 8, 2008. Prior to the expiration of this Registration Statement, 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 position, available revolving credit facility and its net cash provided by operating activities should provide adequate cash to fund its currently anticipated cash needs for the next twelve months and foreseeable future. The
Company has evaluated the implications of recent distress in the global economy, and resulting adverse impact on financial markets on our current business, and determined that there has not been a significant impact to our liquidity and credit
availability. There can be no assurance, however, that changing circumstances will not affect our future financial position, results of operations or liquidity.

Contractual Obligations

As of September 30, 2008, 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, 2007. In January 2007, Lionbridge adopted FIN 48 which resulted in an increase to the Companys income tax liabilities of
approximately $185,000 to $1.5 million from the amount recorded at December 31, 2006. As of December 31, 2007, the total amount of unrecognized tax benefits was $2.5 million. Tax provisions during the nine months ended September 30,
2008, primarily related to accrued interest, have increased these balances by $1.1 million to $3.6 million.

Additionally, in connection
with the acquisition of BGS, the Company has recorded a FIN 48 tax liability of approximately $4.0 million related to tax liabilities accruing on or prior to the acquisition date of September 1, 2005 that Bowne & Co., Inc. agreed to
indemnify. Accordingly, the Company adjusted its balance sheet by recording a long-term Indemnification Receivable and related FIN 48 liability for this amount. As of September 30, 2008 the FIN 48 tax liability balance is approximately $3.5
million. The timing of settlement of these tax liabilities is uncertain at this time.

Off-Balance Sheet Arrangements

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

Recent Accounting Pronouncements

In March 2008, the
Financial Accounting Standards Board (FASB) issued Statement of Accounting Standards (SFAS) No. 161, Disclosures about Derivative Instruments and Hedging Activities,an amendment of FASB Statement
No. 133 (SFAS No. 161). SFAS No. 161 requires enhanced disclosures regarding an entitys derivative and hedging activities. These enhanced disclosures include information regarding how and why an entity uses derivative
instruments; how derivative instruments and related hedge items are accounted for under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and its related interpretations; and how derivative
instruments and related hedge items affect an entitys financial position, financial performance and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after
November 15, 2008. The adoption of SFAS No. 161 will not have a material impact on our financial position, results of operations or liquidity.



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##### Table of Contents

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations
(SFAS No. 141R). This statement establishes principles and requirements for how the acquirer in a business combination (i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities
assumed, and any noncontrolling interest in the acquiree, (ii) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, and (iii) determines what information to disclose to enable users
of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141R is effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating the potential impact
of SFAS No. 141R on its financial position and results of operations.

In September 2006, the FASB issued SFAS No. 157, which
establishes a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2 (FSP FAS 157-2), Effective Date of FASB
Statement No. 157, which allows for the deferral of the adoption date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements
on a recurring basis. We have elected to defer the adoption of SFAS No. 157 for the assets and liabilities within the scope of FSP FAS 157-2. Refer to Note 12, Fair Value Measurements, of this Form 10-Q, for our disclosures pursuant to the
effective portion of SFAS No. 157. The adoption of SFAS No. 157 for those assets and liabilities within the scope of FSP FAS 157-2 is not expected to have a material impact on our financial position, results of operations or liquidity.



|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. The Company manages its risk to foreign currency
transaction exposure and interest rates through risk management programs that include the use of derivative financial instruments. Lionbridge operates these programs 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 substantially offset gains and losses on underlying hedged exposures.

Interest Rate Risk. Lionbridge is exposed to market risk from changes in interest rates with respect to its revolving loan facility which bears
interest at Prime or LIBOR (at the Companys discretion) plus an applicable margin based on certain financial covenants. As of September 30, 2008, $59.7 million was outstanding under this facility. A hypothetical 10% increase or decrease
in interest rates would have approximately a $326,000 impact on the Companys interest expense based on the $59.7 million outstanding at September 30, 2008 with an interest rate of 5.5%. On July 20, 2007, the Company entered into a
three-year amortizing interest rate swap with a notional amount of $20.0 million that corresponds to a portion of the Companys floating rate credit facility. The $20.0 million notional amount effectively converted that portion of the
Companys total floating rate credit facility to fixed rate debt. On July 31, 2008, the notional amount decreased to $15.0 million. The fair value of the interest rate derivative was a liability of $459,000 at September 30, 2008. A
10% increase in interest rates would increase the derivatives fair value by approximately $68,000. A 10% decrease in interest rates would decrease the derivatives fair value by approximately $68,000. The interest rate swap is designated
as a cash flow hedge under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133) and there is no hedge ineffectiveness at September 30, 2008. Additionally, Lionbridge is
exposed to market risk through its investing activities. The Companys portfolio consists primarily of short-term time deposits with investment grade banks and maturities less than 30 days. 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.

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, 64% and 62% of its
costs and expenses for the nine-month periods ended September 30, 2008 and 2007, respectively, were denominated in foreign currencies, primarily operating expenses associated with cost of revenue, sales and marketing and general and
administrative. In addition, 25% and 15% of the Companys consolidated tangible assets were subject to foreign currency exchange fluctuations as of September 30, 2008 and December 31, 2007, respectively, while 8% and 8% of its
consolidated liabilities were exposed to foreign currency exchange fluctuations as of September 30, 2008 and December 31, 2007, respectively. In addition, net inter-company balances denominated in currencies other than the functional
currency of the respective entity were approximately $18.1 million and $100.0 million as of September 30, 2008 and December 31, 2007, respectively. The principal foreign currency applicable to our business is the Euro. The Company has
implemented a risk management program that partially mitigates its exposure to assets or liabilities (primarily cash, accounts receivable and accounts payable) denominated in currencies other than the functional currency of the respective entity
which includes the use of derivative financial instruments, primarily forward contracts. These forward contracts generally have one-month terms and do not qualify for hedge accounting under SFAS No. 133. The Company had forward contracts
outstanding in the notional amount of $10.2 million at September 30, 2008 and recorded a net of $23,000 in assets to recognize the fair value of these forward contracts. A 10% appreciation in the U.S. Dollars value relative to the hedge
currencies would decrease the forward contracts fair value by approximately $54,000 at September 30, 2008. A 10% depreciation in the U.S. Dollars value relative to the hedge currencies would increase the forward contracts fair
value by approximately $80,000. 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.



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##### Table of Contents

|Item 4. | Controls and Procedures
|------- | -----------------------

Evaluation of Disclosure Controls and Procedures. Lionbridge maintains disclosure controls and procedures designed to provide reasonable assurance 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. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their
objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. 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 were effective at the reasonable assurance level as of September 30, 2008.

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, 2008 that materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.



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LIONBRIDGE TECHNOLOGIES, INC.

PART IIOTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

On or
about July 24, 2001, a purported securities class action lawsuit captioned Samet v. Lionbridge Technologies, Inc. et al. (01-CV-6770) was filed in the United States District Court for the Southern District of New York (the
Court) against the Company, certain of its officers and directors, and certain underwriters involved in the Companys initial public offering. The complaint in this action asserted, among other things, 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. On July 15, 2002, the Company, together with the other issuers named as defendants in these coordinated proceedings, filed a collective motion to dismiss the complaint on
various legal grounds common to all or most of the issuer defendants. In October 2002, the claims against officers and directors were dismissed without prejudice. In February 2003, the Court issued its ruling on the motion to dismiss, ruling that
the claims under the antifraud provisions of the securities laws could proceed against the Company and a majority of the other issuer defendants.

In June 2003, Lionbridge elected to participate in a proposed settlement agreement with the plaintiffs in this litigation. If the proposed settlement had been approved by the Court, it would have resulted in the dismissal, with prejudice,
of all claims in the litigation against Lionbridge and against any other of the issuer defendants who elected to participate in the proposed settlement, together with the current or former officers and directors of participating issuers who were
named as individual defendants. This proposed settlement was conditioned on, among other things, a ruling by the District Court that the claims against Lionbridge and against the other issuers who had agreed to the settlement would be certified for
class action treatment for purposes of the proposed settlement, such that all investors included in the proposed classes in these cases would be bound by the terms of the settlement unless an investor opted to be excluded from the settlement.

On December 5, 2006, the U.S. Court of Appeals for the Second Circuit issued a decision in In re Initial Public Offering
Securities Litigation that six purported class action lawsuits containing allegations substantially similar to those asserted against the Company may not be certified as class actions due, in part, to the Appeals Courts determination that
individual issues of reliance and knowledge would predominate over issues common to the proposed classes. On January 8, 2007, the plaintiffs filed a petition seeking rehearing en banc of the Second Circuit Court of Appeals
decision. On April 6, 2007 the Court of Appeals denied the plaintiffs petition for rehearing of the Courts December 5, 2006 ruling but noted that the plaintiffs remained free to ask the District Court to certify classes
different from the ones originally proposed which might meet the standards for class certification that the Court of Appeals articulated in its December 5, 2006 decision. The plaintiffs thereafter moved for certification of different classes in
the District Court.

In light of the Court of Appeals December 5, 2006 decision regarding certification of the plaintiffs
claims, the District Court entered an order on June 25, 2007 terminating the proposed settlement between the plaintiffs and the issuers, including Lionbridge. On August 14, 2007, the plaintiffs filed amended complaints in the six focus
cases. The issuer defendants and the underwriter defendants separately moved to dismiss the claims against them in the amended complaints in the six focus cases. On March 26, 2008, the District Court issued an order in which it denied in
substantial part the motions to dismiss the amended complaints in the six focus cases. In addition, on October 1, 2007, the plaintiffs submitted their briefing in support of their motions to certify different classes in the six focus cases. The
issuer defendants and the underwriter defendants have separately opposed those motions. The plaintiffs have voluntarily withdrawn their motions for class certification without prejudice.

We intend to continue to defend the litigation vigorously. The litigation process is inherently uncertain and unpredictable, however, and there can be no
guarantee as to the ultimate outcome of this pending lawsuit. The Company believes that the underwriters may have an obligation to indemnify Lionbridge for the legal fees and other costs of defending this suit. While Lionbridge cannot guarantee the
outcome of these proceedings, the Company believes that the final result of this lawsuit will have no material effect on its consolidated financial condition, results of operations, or cash flows.



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|Item 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 14, 2008 (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. In addition to those
statements set forth in Lionbridges Form 10-K Lionbridge sets forth the following additional risks and uncertainties related to its business.

Uncertain Conditions in the United States and global economies may adversely affect future revenues and operating results.

Current uncertainty in global economic conditions, including concerns over inflation, energy costs, geopolitical issues, the availability and cost of credit, the U.S. mortgage market and a declining real estate market in the U.S., have
contributed to increased volatility and diminished expectations for the global economy and expectations of slower global economic growth going forward. These factors, combined with volatile oil prices, declining business and consumer confidence and
increased unemployment, have precipitated an economic slowdown and fears of a possible recession. If the economic climate in the U.S. or abroad does not improve from its current condition or continues to deteriorate, there could be a negative impact
on business and customer spending patterns. More specifically, our customers or potential customers may cancel, reduce or delay their purchases of our services or payment for such services, which would adversely impact our revenues, collections of
customer receivables and ultimately our profitability.

Current tightening of credit in financial markets also adversely affects the
ability of customers to obtain financing for their operations and could result in a decrease in or cancellation of orders for our services. There is no assurance that government responses to the disruptions in the financial markets will restore
business and consumer confidence, stabilize the markets or increase liquidity and the availability of credit. In addition, during economic downturns companies may slow the rate at which they pay their vendors or become unable to pay their debts as
they become due. If any of our significant clients does not pay amounts owed to us in a timely manner or becomes unable to pay such amounts to us at a time when we have substantial amounts receivable from such client, our cash flow and profitability
may suffer.

Despite the disruptions in the financial markets, including the bankruptcy or restructuring of certain financial institutions,
we believe the lenders participating in our revolving credit facility will be willing and able to provide financing in accordance with their contractual obligations. However, the current economic environment may adversely impact the availability and
cost of credit in the future and may potentially reduce the sources of liquidity for the Company.

The Interpretation segment is
heavily dependent on one U.S. government contract which if not renewed, may adversely affect the continued operations of Interpretation business.

Approximately 62% of the revenue associated with the Interpretation segment for the nine months ended September 30, 2008 is derived from one large contract with the U.S. government. The term of that contract
expires in May 2009. The Company is engaged in a federal procurement process associated with the renewal of this contract; however, there is no assurance that this contract will be awarded to the Company. If the contract is not awarded to the
Company and such revenues are not replaced with other contracts, the Companys revenues both with respect to the Interpretation Segment and as a whole may be significantly reduced.



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

In September 30, 2007, Lionbridge announced that its Board of Directors authorized the repurchase up to $12.0 million of shares of the Companys outstanding common stock. In February 2008, the Companys
Board of Directors authorized an incremental repurchase program of up to $12.0 million of the Companys outstanding common stock. There were no shares of the Companys common Stock $0.01 par value purchased in connection with the stock
repurchase plan during the quarter ended September 30, 2008. As of September 30, 2008, approximately $9.5 million remains available under the stock repurchase plan.

During the quarter ended September 30, 2008, the Company withheld 19,756 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, 2008:



|                                 |  |                                 |  |                             |     
|-------------------------------- |  | ------------------------------- |  | --------------------------- | ----
|Period                           |  | Total Number ofShares Purchased |  | Average PricePaid Per Share
|July 1, 2008  July 31, 2008     |  | 477                             |  | $                           | 2.52
|August 1, 2008  August 31, 2008 |  | 19,279                          |  | $                           | 3.35



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In addition, upon the termination of employees during the quarter ended September 30, 2008, 1,000
unvested restricted shares were forfeited. The following table provides information about Lionbridges forfeited restricted shares for the quarter ended September 30, 2008:



|                                       |  |                                
|-------------------------------------- |  | -------------------------------
|Period                                 |  | Total Number ofShares Forfeited
|September 1, 2008  September 30, 2008 |  | 1,000                          



|Item 6. | Exhibits
|------- | --------

(a) Exhibits.



|       |  |                                                                                                                                                                                                                                                     
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1    |  | Amended and Restated By-laws of Lionbridge Technologies, Inc. (filed as Exhibit 3.1 to the Current Report on Form 8-K (File No. 000-26933) filed on October 30, 2008, and incorporated
herein by reference).                                        
|       | 
|10.1 * |  | First Amendment to the Lease dated as of June 5, 2008, 2008, between iAnywhere Solutions, Inc. and Lionbridge Technologies, Inc.                                                                                                                    
|       | 
|10.2 * |  | Fifth Amendment to the Lease dated as of July 3, 2008, between BCCC Property LLC and Lionbridge Technologies, Inc.                                                                                                                                  
|       | 
|10.3 * |  | Seventh Amendment to the Lease dated as of July 10, 2008, between Sterling Realty Organization Co. and Lionbridge Technologies, Inc.                                                                                                                
|       | 
|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 Donald M. Muir, 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 Donald M. Muir, 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/ DONALD M. MUIRDonald M. Muir Chief Financial Officer (Duly Authorized Officer and Principal Financial
Officer)


Dated: November 10, 2008



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Exhibit Index



|              |  |                                                                                                                                                                                                                                                     
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                         
|3.1           |  | Amended and Restated By-laws of Lionbridge Technologies, Inc. (filed as Exhibit 3.1 to the Current Report on Form 8-K (File No. 000-26933) filed on October 30, 2008, and incorporated herein by
reference).                                        
|              | 
|10.1 *        |  | First Amendment to the Lease dated as of June 5, 2008, 2008, between iAnywhere Solutions, Inc. and Lionbridge Technologies, Inc.                                                                                                                    
|              | 
|10.2 *        |  | Fifth Amendment to the Lease dated as of July 3, 2008, between BCCC Property LLC and Lionbridge Technologies, Inc.                                                                                                                                  
|              | 
|10.3 *        |  | Seventh Amendment to the Lease dated as of July 10, 2008, between Sterling Realty Organization Co. and Lionbridge Technologies, Inc.                                                                                                                
|              | 
|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 Donald M. Muir, 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 Donald M. Muir, 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.
|- | ---------------



32