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 13, 2009 (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 GLC solutions enable the translation, localization and worldwide multilingual release of clients' products, content and related technical support, training materials, and sales and marketing information. Lionbridge GLC solutions involve translating, localizing and adapting content and products to meet the language and cultural requirements of users throughout the world. As part of its GLC solutions, Lionbridge also develops eLearning content and technical documentation. Lionbridge GLC solutions are based on the Company's internet-architected language technology platform and global service delivery model which make the translation and localization processes more efficient for Lionbridge clients and translators.

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

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.

Lionbridge provides a full suite of language, testing and development outsourcing services to businesses in diverse end markets including technology, mobile and electronics, life sciences, consumer, publishing, manufacturing, automotive and government. Lionbridge's solutions include product localization and content translation; content and eLearning courseware development; technical writing services; interpretation services; application development and maintenance; software and hardware testing; global search relevance and sourcing; 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 six-month period ended June 30, 2009, Lionbridge's loss from operations was $2.4 million, with a net loss of $5.3 million. For the year ended December 31, 2008, the Company's loss from operations was $114.2 million (which included a goodwill impairment charge of $120.6 million) with a net loss of $119.3 million. As of June 30, 2009, the Company had an accumulated deficit of $236.7 million.

The Company expects that the deterioration in worldwide economic conditions that began to emerge during the second half of 2008 and intensified during the first quarter of 2009 may continue to some extent throughout 2009. These conditions have adversely affected the Company's overall financial performance during the first six months of 2009 and may continue to affect the Company's performance in 2009 if customers continue to reduce demand for the Company's service offerings and delay or postpone projects. Given the concentration of revenue among relatively few customers in the GLC segment, the impact of reduced customer demand was experienced most significantly within the GLC segment during the early part of 2009. All segments of the Company are experiencing and may continue to experience pricing pressures and project delays from customers as part of cost-cutting initiatives of such customers. Due to the continued instability in worldwide economic conditions and the impact of these conditions on customer demand for the Company's services, the Company has undertaken a number of cost-cutting and restructuring activities to adjust its cost structure and respond to the variable demand for the Company's services. During the second quarter of 2009, customers in the Company's GLC segment began to resume engagement of the Company for previously postponed or delayed projects. The Company expects that demand for the Company's services from these customers may continue to stabilize and possibly strengthen during the remainder of 2009, although it is unclear as to whether, when and to what extent demand will resume to prior years' levels.

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. During the quarter and six months ended June 30, 2009, the value of the U.S. Dollar relative to the Euro strengthened by 14% and 13%, respectively, from the same periods of the prior year. The impact of this significant strengthening in the value of the U.S. Dollar relative to the Euro is reflected in the Company's financial results for the three and six-month periods ended June 30, 2009 when compared to the corresponding period of 2008. While the strengthening in the U.S. Dollar has contributed to decreased revenue for the quarter and six months ended June 30, 2009, particularly in the GLC segment, the Company's operating income and net income were positively impacted due to lower costs related to Euro-denominated payment obligations to third party outsourcers, lease obligations and compensation when compared to the corresponding period of 2008. The lower costs associated with the strengthening of the U.S. Dollar during the quarter and six months ended June 30, 2009 as compared to the corresponding periods in 2008 more than offset the currency related decline in revenue 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 and development of content by subcontractors and in-house employees. As the time and cost to translate or produce 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.

Estimates for incentive rebates and other allowances are recorded as a reduction of revenues in the period the related revenues are recorded. These estimates are based upon contracted terms, historical experience and information currently available to management with respect to business and economic trends. Revisions of these estimates are recorded in the period in which the facts that give rise to the revision become known.

Valuation of Goodwill and Other Intangible Assets

Lionbridge assesses the impairment of goodwill and other intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. 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 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, 2008, the Company performed its annual test of goodwill to determine if an impairment existed. It was determined that the carrying value of the Company's goodwill related to its GLC reporting unit exceeded the implied fair value of goodwill. As a result, Lionbridge recorded a goodwill impairment charge of $120.6 million for the year ended December 31, 2008.

The Company evaluates whether there has been an impairment in the carrying value of its long-lived assets in accordance with SFAS No. 144, "Accounting for Impairment of Long-Lived Assets," ("SFAS No. 144") 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 grouping 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 acquisition of BGS in September 2005) 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

Due to the deterioration in worldwide economic conditions during 2008 and early 2009, Lionbridge implemented cost reduction actions to improve its operating cost structure, reduce overhead and better position itself competitively. During the three and six-month periods ended June 30, 2009, Lionbridge recorded $1.6 million and $2.6 million, respectively, of restructuring and other charges. The $2.6 million of restructuring and other charges recorded in the six-month period ended June 30, 2009 included $2.0 million for workforce reductions in Europe, the United States and Asia consisting of one hundred twenty-three technical staff, fifteen administrative staff and fourteen sales staff and $662,000 recorded for vacated facilities, 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, $2.3 million related to the Company's Global Language and Content ("GLC") segment, $280,000 related to the Global Development and Testing ("GDT") segment, $32,000 related to Corporate and Other and $12,000 related to the Interpretation segment. The Company made $1.9 million of cash payments in the six-month period ended June 30, 2009, with $1.6 million, $277,000, $12,000 and $11,000 related to the GLC, GDT, Interpretation and Corporate and Other segments, respectively. The Company expects that the cost reduction actions implemented during 2008 and early 2009 will have a positive impact on future operating results.

During the six-month period ended June 30, 2008 Lionbridge recorded $427,000 of restructuring and other charges. The $427,000 of restructuring and other charges recorded in the six-month period ended June 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 SFAS No. 146, and related literature. Of these charges, $357,000 related to the Company's GLC segment, $45,000 related to the Interpretation segment and $25,000 related to the GDT segment. The Company made $1.2 million of cash payments in the six-month period ended June 30, 2008, $1.1 million, $49,000 and $45,000 related to the GLC, Interpretation and GDT segments, respectively.

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. On May 1, 2009, the stockholders of the Company approved an amendment to the 2005 Plan increasing the maximum number of shares of common stock available for issuance under the 2005 Plan by 4,500,000 shares to 8,500,000 shares. At June 30, 2009, there were 3,681,204 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 to seven years from the date of grant under the 2005 Plan. Under the terms of the 2005 Plan, the exercise price of incentive and non-qualified stock option grants must not be less than 100% of the fair market value of the common stock on the date of grant. Options are amortized using a straight-line basis over the option vesting period.

Lionbridge's 1998 Stock Option Plan (the "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 Plan is 11,722,032 shares and the 1998 Plan expired on January 26, 2008. At June 30, 2009 there were no options available for future grant under the 1998 Plan. Options to purchase common stock under the 1998 Plan had been granted at the discretion of the Board of Directors and the Nominating and Compensation Committee. Generally, stock options granted under the 1998 Plan vested over a four-year period: 25% of the option shares vested one year from the date of grant and the remaining option shares vested at the rate of 12.5% each six month period thereafter. Stock options granted under the 1998 Plan generally expire ten years (five years in certain cases) from the date of grant. Under the terms of the 1998 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.

Restricted Stock Awards

Lionbridge issued 1,066,375 and 147,022 shares of restricted common stock and restricted stock units, respectively, under the Company's 2005 Incentive Plan, in the six-month period ended June 30, 2009 with a fair market value of $2.0 million. Of the total 1,213,397 shares of restricted common stock and restricted stock units issued in the six-month period ended June 30, 2009, 1,119,875 have restrictions on disposition which lapse over four years from the date of grant on each anniversary date and 93,522 have restrictions on disposition which lapse over thirteen months from the date of grant.

Stock-based Compensation

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 (revised 2004), "Share-Based Payment" ("SFAS 123R"). Total compensation expense related to stock options, market-based restricted stock awards and time-based restricted stock awards was $960,000 and $1.5 million for the three-month periods ended June 30, 2009 and 2008, respectively, and $2.1 million and $3.1 million for the six-month periods ended June 30, 2009 and 2008, respectively, classified in the statement of operations line items as follows:

                                                 Three Months Ended          Six Months Ended
                                                      June 30,                   June 30,
                                                 2009         2008          2009          2008
Cost of revenue                                $  24,000   $    18,000   $    47,000   $    54,000
Sales and marketing                              136,000       191,000       309,000       421,000
General and administrative                       768,000     1,282,000     1,660,000     2,580,000
Research and development                          32,000        35,000        67,000        74,000

Total stock-based compensation expense         $ 960,000   $ 1,526,000   $ 2,083,000   $ 3,129,000

As of June 30, 2009, future compensation cost related to non-vested stock options, less estimated forfeitures, is approximately $1.7 million and will be recognized over an estimated weighted average period of approximately 1.9 years. Lionbridge currently expects to amortize $4.8 million of unamortized compensation in connection with restricted stock awards outstanding as of June 30, 2009 over an estimated weighted average period of approximately 2.6 years.

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         Six Months Ended
                                                        June 30,                  June 30,
                                                   2009           2008        2009         2008
Revenue                                             100.0 %       100.0 %     100.0 %      100.0 %
Operating expenses:
Cost of revenue (exclusive of depreciation and
amortization included below)                         67.0          68.4        68.1         68.8
Sales and marketing                                   7.2           7.1         7.9          7.3
General and administrative                           18.8          18.2        20.0         19.0
Research and development                              1.1           1.1         1.2          1.0
Depreciation and amortization                         1.2           1.0         1.2          1.0
Amortization of acquisition-related intangible
assets                                                1.4           1.7         1.5          1.7
Merger, restructuring and other charges               1.7           0.2         1.4          0.2

Total operating expenses                             98.4          97.7       101.3         99.0

Income (loss) from operations                         1.6           2.3        (1.3 )        1.0
Interest expense:
Interest on outstanding debt                          0.5           0.8         0.5          0.9
Amortization of deferred financing costs               -             -           -            -
Interest income                                        -            0.1          -           0.1
Other expense, net                                    0.7           0.4         0.4          1.2

Income (loss) before income taxes                     0.4           1.2        (2.2 )       (1.0 )
Provision for income taxes                            0.6           0.5         0.7          0.5

Net income (loss)                                    (0.2 )%        0.7 %      (2.9 )%      (1.5 )%

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 six months ended June 30, 2009 and 2008, respectively:

                             Three Months Ended                                 Six Months Ended
                                  June 30,                                          June 30,
                        2009                    2008                     2009                     2008
GLC              $ 70,429,000    72 %    $  93,636,000    75 %    $ 133,096,000    71 %    $ 180,998,000    75 %
GDT                21,105,000    22 %       24,485,000    20 %       40,436,000    22 %       47,309,000    20 %
Interpretation      6,494,000     6 %        7,354,000     5 %       12,899,000     7 %       14,216,000     5 %

Total revenue    $ 98,028,000   100 %    $ 125,475,000   100 %    $ 186,431,000   100 %    $ 242,523,000   100 %

Revenue for the quarter ended June 30, 2009 was $98.0 million, a decrease of $27.4 million, or 21.9%, from $125.5 million for the quarter ended June 30, 2008. Revenue decline during the second quarter of 2009 in each of the GLC, GDT and Interpretation segments was $23.2 million, $3.4 million and $860,000, respectively, as compared to the quarter ended June 30, 2008. The Company's decline in revenue was primarily driven by decreased demand as a result of the recessionary global economic environment and, in the GLC segment, as a result of the strengthened U.S. Dollar. The Company's total revenue decreased approximately $20.8 million as a result of the global economic slowdown and approximately $6.6 million due to the strengthening of the U.S. dollar against most foreign currencies. Lionbridge conducts a large portion of its business in international markets. Approximately 46% of its revenue for the quarter ended June 30, 2009 is denominated in foreign currencies. The principal foreign currency applicable to Lionbridge's business is the Euro. Approximately 32% of . . .