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.

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 three-month period ended March 31, 2008, Lionbridge's loss from operations was $389,000, with a net loss of $4.4 million. 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 March 31, 2008, the Company had an accumulated deficit of $116.5 million.

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 sales and general and administrative expenses are payable in Euro, while the majority of its revenues are recorded in Euro. Over the past year, there has been a decline in the value of the U.S. Dollar relative to the Euro. During the quarter ended March 31, 2008, there was a 5% decline in the value of the U.S. Dollar relative to the Euro from the quarter ended December 31, 2007 and a 16% decline from the quarter ended March 31, 2007. The impact of this significant decline in the value of the U.S. Dollar relative to the Euro in the reported periods is reflected in the Company's financial results for the period ended March 31, 2008. While the depreciation in the U.S. Dollar has contributed to increased revenue for the quarter ended March 31, 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. The higher costs associated with the depreciation of the U.S. dollar during the quarter ended March 31, 2008 offset the benefits of the incremental revenue and of cost reduction initiatives undertaken by the Company during the period.

Revenue Recognition

Lionbridge recognizes revenue as services are performed and amounts are earned in accordance with the Securities and Exchange Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements," as amended by SAB No. 104, "Revenue Recognition." Lionbridge considers amounts to be earned when
(1) persuasive evidence of an arrangement has been obtained; (2) services are delivered; (3) the fee is fixed or determinable; and (4) collectibility is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the fee charged for services rendered and products delivered and the collectibility of those fees.

Lionbridge's revenue is recorded from the provision of services to customers for GLC, GDT and Interpretation services which include content development, product and content globalization, interpretation, software and hardware testing, product certification and application development and maintenance.

Content development, software and hardware testing, interpretations and application development and maintenance projects are normally time and expense priced contracts, and revenue is recognized using a time and expense basis over the period of performance, primarily based on labor costs incurred to date.

Product and content globalization and product certification projects are fixed price contracts and revenue is recognized as services are delivered. Depending on specific contractual provisions and nature of the deliverable, revenue is recognized on (1) a proportional performance model based on level of effort,
(2) as milestones are achieved or (3) when final deliverables have been met. Amounts billed in excess of revenue recognized are recorded as deferred revenue.

The delivery of Lionbridge's GLC services 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 at or near the book value of the Company for an extended period of time. When Lionbridge determines that the carrying value of intangibles 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", 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.

The Company evaluates whether there has been an impairment in the carrying value of its other intangibles 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.

Merger, Restructuring and Other Charges

During the three-month period ended March 31, 2008 Lionbridge recorded $206,000 of restructuring and other charges. The $206,000 of restructuring and other charges recorded in the three-month period ended March 31, 2008 included $53,000 for workforce reductions in Europe consisting of two technical staff, $101,000 recorded for vacated facilities, $52,000 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, $164,000 related to the Company's Global Language and Content ("GLC") segment and $42,000 related to the Global Development and Testing ("GDT") segment. The Company made $639,000 of cash payments in the three-month period ended March 31, 2008, $634,000 and $5,000 related to the GLC and GDT segments, respectively.

During the three-month period ended March 31, 2007 Lionbridge recorded $278,000 of restructuring and other charges. The $278,000 of restructuring and other charges recorded in the three-month period ended March 31, 2007 included $167,000 for workforce reductions in Europe consisting of one technical and two administrative staff and $111,000 of additional costs recorded for a previously vacated facility in order to reflect a new sublease arrangement, recorded pursuant to the guidance in SFAS 146. The $278,000 of restructuring and other charges recorded during the three-month period ended March 31, 2007 related to the Company's GLC segment. The Company made $383,000 of cash payments in the three-month period ended March 31, 2007, $303,000 and $80,000 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 March 31, 2008, there were 473,978 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 three months ended March 31, 2008, Lionbridge awarded 12,272 stock option grants under the 2005 Plan.

Lionbridge's 1998 Stock Plan (the "Plan") provides for the issuance of incentive and nonqualified stock options. The maximum number of shares of common stock available for issuance under the Plan is 11,722,032 shares and the Plan expired on January 26, 2008. Accordingly, at March 31, 2008 there were no options available for future grant under the Plan. Options to purchase common

stock are granted at the discretion of the Board of Directors and the Nominating and Compensation Committee. Generally, stock options vest over a four-year period: 25% of the option shares vest one year from the date of grant and the remaining option shares vest at the rate of 12.5% each six month period thereafter. Stock options generally expire ten years (five years in certain cases) from the date of grant under the Plan. Under the terms of the Plan, the exercise price of incentive stock options granted must not be less than 100% (110% in certain cases) of the fair market value of the common stock on the date of grant, as determined by the Board of Directors. The exercise price of nonqualified stock options may be less than the fair market value of the common stock on the date of grant, as determined by the Board of Directors, but in no case may the exercise price be less than the statutory minimum, the par value per share of Lionbridge's common stock. In the three months ended March 31, 2008, Lionbridge awarded 297,728 stock option grants under the 1998 Plan.

Restricted Stock Awards

Lionbridge issued 14,500 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 three-month period ended March 31, 2008 with a fair market value of $2.7 million for which restrictions on disposition lapse over four years from the date on each anniversary date.

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 $1.6 million and $1.7 million for the three-month periods ended March 31, 2008 and 2007, respectively, classified in the statement of operations line items as follows:

                                                      Three Months Ended
                                                           March 31,
                                                      2008          2007
          Cost of revenue                          $    36,000   $    25,000
          Sales and marketing                          230,000       267,000
          General and administrative                 1,299,000     1,414,000
          Research and development                      38,000        31,000

          Total stock-based compensation expense   $ 1,603,000   $ 1,737,000

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 Ended
                                                                       March 31,
                                                                 2008            2007
Revenue                                                           100.0 %         100.0 %
Operating expenses:
Cost of revenue (exclusive of depreciation and amortization
shown separately below)                                            69.1            66.5
Sales and marketing                                                 7.5             7.3
General and administrative                                         19.8            18.9
Research and development                                            0.9             0.7
Depreciation and amortization                                       1.0             1.2
Amortization of acquisition-related intangible assets               1.8             1.9
Merger, restructuring and other charges                             0.2             0.3

Total operating expenses                                          100.3            96.8


Income (loss) from operations                                      (0.3 )           3.2
Interest expense:
Interest in outstanding debt                                        1.0             1.3
Amortization of deferred financing costs                             -               -
Interest income                                                     0.1             0.2
Other expense, net                                                  2.1             0.5


Income (loss) before income taxes                                  (3.3 )           1.6
Provision for income taxes                                          0.5             1.4

Net income (loss)                                                  (3.8 )%          0.2 %

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 months ended March 31, 2008 and 2007, respectively:

                                            Three Months Ended
                                                 March 31,
                                       2008                    2007
               GLC              $  87,362,000    75 %   $  85,049,000    79 %
               GDT                 22,824,000    19 %      17,867,000    16 %
               Interpretation       6,862,000     6 %       5,700,000     5 %

               Total revenue    $ 117,048,000   100 %   $ 108,616,000   100 %

Revenue for the quarter ended March 31, 2008 was $117.0 million, an increase of $8.4 million, or 7.8%, from $108.6 million for the quarter ended March 31, 2007. Revenue growth during the first quarter of 2008 in each of the GLC, GDT and Interpretation segments was $2.3 million, $5.0 million and $1.2 million, respectively, as compared to the quarter ended March 31, 2007. Lionbridge conducts a large portion of its business in international markets. Approximately 46.6% of its revenue is denominated in foreign currencies for the quarter ended March 31, 2008. The principal foreign currency applicable to Lionbridge's business is the Euro. Approximately 33.6% of revenue was denominated in Euro for the quarter ended March 31, 2008, and a majority of this revenue is concentrated in the GLC business. During the quarter ended March 31, 2008, the U.S. dollar declined significantly against most foreign currencies, in particular the Euro. A fluctuation in foreign currency exchange rates primarily affects the GLC business. The Company's revenue increased approximately $1.7 million as the result of organic growth and approximately $6.7 million due to the significant decline in the exchange rate of the U.S. dollar against most foreign currencies period-over-period. This increase in revenue related to a decline in the U.S dollar's exchange rates was partially offset by a $1.6 million increase in deferred revenue which negatively impacted comparative recognized revenue in the GLC business.

Revenue from the Company's GLC business for the quarter ended March 31, 2008 increased $2.3 million, or 2.7%, to $87.4 million from $85.0 million for the quarter ended March 31, 2007. As compared to the quarter ended March 31, 2007, revenues increased approximately $6.4 million due to the decline in the U.S. dollar's exchange rates, in particular the Euro, while organic growth declined approximately $4.3 million during the quarter ended March 31, 2008, which was partially the result of an increase of $1.6 million in deferred revenue in the GLC business; additionally GLC was negatively impacted by a slower release cycle from a major customer in the first quarter of 2008 as compared to the first quarter of 2007.

Revenue from the Company's GDT business was $22.8 million for the quarter ended March 31, 2008, an increase of $5.0 million, or 27.7%, from $17.9 million for the quarter ended March 31, 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.

Revenue from the Company's Interpretation business for the quarter ended March 31, 2008 was $6.9 million, an increase of $1.2 million, or 20.4% from $5.7 million for the quarter ended March 31, 2007 primarily due to increased volume from a large existing program and a new customer. The Interpretation business is not materially impacted by fluctuations in foreign currency exchange rates.

Cost of Revenue. Cost of revenue, excluding depreciation and amortization, consists primarily of expenses incurred for translation services provided by third parties as well as salaries and associated employee benefits for personnel related to client projects. The following table shows GLC, GDT and Interpretation cost of revenues, the percentage change from the three-month period of the prior year and as a percentage of revenue for the three months ended March 31, 2008 and 2007, respectively:

                         Three Months Ended         % Change         Three Months Ended
                           March 31, 2008        Q1 07 to Q1 08        March 31, 2007
GLC:
Cost of revenue         $         60,947,000                8.0 %   $         56,429,000
Percentage of revenue                   69.8 %                                      66.3 %

GDT:
Cost of revenue                   14,563,000               27.4 %             11,435,000
Percentage of revenue                   63.8 %                                      64.0 %

Interpretation:
Cost of revenue                    5,365,000               23.2 %              4,354,000
Percentage of revenue                   78.2 %                                      76.4 %

Total cost of revenue   $         80,875,000                        $         72,218,000

Percentage of revenue                   69.1 %                                      66.5 %

For the quarter ended March 31, 2008, as a percentage of revenue, cost of revenue increased to 69.1% as compared to 66.5% for the three months ended March 31, 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 270 basis points, period-over-period, essentially offsetting the benefits realized from the deployment and use of Lionbridge's language management technology platform, and lower internal operating costs resulting from certain restructuring and cost . . .