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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended March 31, 2005

OR

For the transition period from              to             

Commission File Number 000-26933

LIONBRIDGE TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

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

The number of shares outstanding of the registrant’s common stock, par value $0.01 per share, as of April 29, 2005 was 47,599,082.

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LIONBRIDGE TECHNOLOGIES, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005

TABLE OF CONTENTS

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PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

LIONBRIDGE TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data)

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

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LIONBRIDGE TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Amounts in thousands, except per share data)

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

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LIONBRIDGE TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in thousands)

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

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LIONBRIDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION

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

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

Accounting for Stock-Based Compensation

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

2. PROPERTY AND EQUIPMENT

Property and equipment, net consists of the following:

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LIONBRIDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3. BUSINESS ACQUISITION

On February 1, 2005, Lionbridge acquired all of the capital stock of Logoport Software GmbH. Total purchase consideration included a cash payment of $750,000 made at closing and an additional $87,000 of acquisition costs. The purchase agreement provides for certain contingent payments totaling $550,000 to be made by Lionbridge over a two-year period, dependent on the continued employment of the former owner of Logoport Software GmbH, who as a Lionbridge employee, will continue to develop the acquired technology for Lionbridge’s internal use. The total purchase price was allocated to acquired technology and is being amortized over a seven-year life. The Company has recorded no goodwill as a result of this acquisition. The initial purchase price allocation is preliminary and subject to adjustment until the valuation of the acquired assets is finalized. It is anticipated that the future payments will also be capitalized as a fixed asset and amortized over a seven-year life as such amounts would be considered compensation payable to the former owner for the continued development of the Company’s internal use software.

4. DEBT

Line of Credit

In December 2004, Lionbridge entered into a line of credit agreement with a commercial bank. Under the terms of the agreement, Lionbridge is able to borrow up to $35.0 million (including up to $15 million in certain other currencies), limited by certain financial covenants. As of March 31, 2005 and December 31, 2004, Lionbridge had no borrowings outstanding under the agreement, with borrowing capacity limited by certain financial covenants to $14.2 million and $24.3 million, respectively. Borrowings outstanding under the agreement are collateralized by the domestic assets of the Company and its U.S. subsidiaries. The agreement bears interest at Prime, LIBOR or IBOR (at the discretion of the Company) plus an applicable margin based on certain financial covenants. Lionbridge would have elected an interest rate of 4.6% based on a 3-month LIBOR loan as of March 31, 2005 if there were any borrowings outstanding at that date.

5. STOCKHOLDERS’ EQUITY

Stock-Based Compensation

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

In August 2004, Lionbridge recorded deferred compensation of $1.4 million, representing the fair market value of 171,887 restricted common stock units issued to the Company’s Chief Executive Officer. Restrictions on disposition lapse over five years from the date of grant on each anniversary date. In March 2004, Lionbridge recorded deferred compensation of $28,000, representing the fair market value of 3,000 shares of restricted common stock issued to an employee at that time. Restrictions on disposition lapse over two years from the date of grant on each anniversary date. In February 2004, Lionbridge recorded deferred compensation of $510,000, representing the fair market value of 69,761 shares of restricted common stock issued to certain employees at that time. Restrictions on disposition lapse over eighteen months from the date of grant on each nine month anniversary date.

In October 2003, the Company recorded deferred compensation of $812,000, representing the fair market value of 90,000 shares of restricted common stock issued to certain employees at that time. During the second quarter of 2004, upon the separation of an employee, deferred compensation of $423,000, representing the fair market value of 37,500 shares of restricted common stock originally issued to the employee in October 2003, was reversed. In September 2003, Lionbridge recorded deferred compensation of $513,000, representing the fair market value of 66,000 shares of restricted common stock issued to certain employees at that time. The restricted common stock issued in 2003 vests over four years from the date of grant on each anniversary date.

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LIONBRIDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Total amortization of deferred compensation related to these awards was $316,000 and $119,000 for the three-month periods ended March 31, 2005 and 2004, respectively.

6. COMPREHENSIVE INCOME (LOSS)

Total comprehensive income (loss) consists of net income (loss) and the net change in foreign currency translation adjustment, which is the only component of accumulated other comprehensive income. Total comprehensive loss was $620,000 for the three- month period ended March 31, 2005 and total comprehensive income was $321,000 for the three-month period ended March 31, 2004.

7. 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 purpose of calculating diluted earnings per share, the denominator includes both the weighted average number of shares of common stock outstanding and the number of dilutive common stock equivalents such as stock options, unvested restricted stock and warrants, as determined using the treasury stock method.

Shares used in calculating basic and diluted earnings per share for the three-month periods ended March 31, 2005 and 2004, respectively, are as follows:

Options, unvested restricted stock and warrants to purchase 6,617,718 and 1,375,234 shares of common stock for the three-month periods ended March 31, 2005 and 2004, respectively, were not included in the calculation of diluted net income per share, as their effect would be anti-dilutive.

8. MERGER, RESTRUCTURING AND OTHER CHARGES

During the three-month period ended March 31, 2005, Lionbridge recorded $449,000 of restructuring charges for workforce reductions in France and the U.S., consisting of thirty-one technical and two sales staff. Of this amount, $382,000 relates to the Company’s Globalization segment and $67,000 to the Testing segment. Of the $696,000 of cash payments during the three-month period ended March 31, 2005, $523,000 and $157,000 related to the Globalization and Testing segments, respectively, and $16,000 related to Corporate and Other.

During the three-month period ended March 31, 2004, Lionbridge recorded restructuring and other charges of $1.6 million primarily related to the integration of its India operation. The $1.6 million of restructuring and other charges included $708,000 for losses recorded on vacated facilities, $119,000 impairment of long-lived assets, and $786,000 for workforce reductions in the U.S., France, Ireland, Germany and China, consisting of forty-one technical, five administrative, and four sales staff. This restructuring plan was completed during the second quarter of 2004. Since inception of this restructuring plan, and including charges recorded in 2003, Lionbridge has recorded $2.8 million in the aggregate of related restructuring and other charges. Of the $1.6 million of restructuring and other charges recorded in the three months ended March 31, 2004, $873,000 and $502,000 related to the Company’s Globalization and Testing segments, respectively, and $238,000 related to Corporate and Other. Of the $739,000 of cash payments during the three- month period ended March 31, 2004, $641,000 and $63,000 related to the Globalization and Testing segments, respectively, and $35,000 related to Corporate and Other.

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LIONBRIDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table summarizes the accrual activity (excluding the impairment of long-lived assets) for the three months ended March 31, 2005 and 2004, respectively, by initiative:

During the three-month period ended March 31, 2004, Lionbridge recorded $22,000 in revisions of estimated liabilities due to the reversal of excess accruals for employee termination costs previously estimated and recorded as part of its restructuring plan related to the acquisition and integration of Mentorix.

At March 31, 2005, the consolidated balance sheet included accruals totaling $537,000 primarily related to the integration of the Company’s India operation. Lionbridge currently anticipates that $425,000 of this total will be fully utilized within twelve months. The remaining $112,000 relates to lease obligations on unused facilities expiring through 2007 and is included in long-term liabilities.

9. SEGMENT INFORMATION

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

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

The table below presents information about the reported revenue and net income (loss) of the Company for the three-month periods ended March 31, 2005 and 2004. Asset information by reportable segment is not reported, since the Company does not produce such information internally.

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LIONBRIDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

10. OTHER INTANGIBLE ASSETS

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

Future amortization expense related to intangible assets held at March 31, 2005 is expected to be $28,000 and $27,000 for the years ended December 31, 2005 and 2006, respectively.

11. CONTINGENCIES

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

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

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

Consummation of the proposed settlement is conditioned upon obtaining both preliminary and final approval by the Court. Formal settlement documents were submitted to the Court in June 2004, together with a motion asking the Court to preliminarily

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LIONBRIDGE TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

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

12. RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards 123—revised 2004 (“SFAS 123R”), “Share-Based Payment” which replaces Statement of Financial Accounting Standards No. 123 (“SFAS 123”), Accounting for Stock-Based Compensation” and supersedes APB Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees.” On April 14, 2005, the Securities and Exchange Commission amended the effective date for SFAS 123R to annual periods that begin after June 15, 2005. Accordingly, the Company will be required to adopt SFAS 123R effective January 1, 2006. SFAS 123R requires the measurement of all employee share-based payments to employees, including grants of employee stock options, using a fair-value-based method and the recording of such expense in our consolidated statements of income. SFAS 123R requires companies to assess the most appropriate model to calculate the value of the options. Lionbridge currently uses the Black-Scholes option pricing model to value options and are currently assessing which model we may use in the future under the new statement and may determine that an alternative model may more appropriate. In addition, there are a number of other requirements under the new standard that would result in differing accounting treatment than those required under SFAS 123. These differences include, but are not limited to, the accounting for the tax benefit on employee stock options and for stock issued under our employee stock purchase plan, and the presentation of these tax benefits within the consolidated statement of cash flows. In addition to the appropriate fair value model to be used for valuing share-based payments, we will also be required to determine the transition method to be used at date of adoption of SFAS 123R. The allowed transition methods include choices of prospective or retroactive adoption. The prospective method requires that compensation expense be recorded for all unvested stock options and restricted stock at the beginning of the first quarter of adoption of SFAS 123R, while the retroactive methods would record compensation expense for all unvested stock options and restricted stock beginning with the first period restated. The pro forma disclosures previously permitted under SFAS 123 will no longer be an alternative to financial statement recognition. See Note 1 in our Notes to Consolidated Financial Statements for the pro forma net income (loss) and net income (loss) per share amounts, for the three-month period ended March 31, 2005 and 2004, as if we had used a fair-value-based method similar to the methods required under SFAS 123R to measure compensation expense for employee stock incentive awards. It is expected that the adoption of SFAS 123R will have a significant impact on our consolidated statements of operations and net income (loss) per share if the adoption results in amounts similar to those in the current pro forma disclosure.

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

The matters discussed in this Form 10-Q include forward-looking statements that involve risks or uncertainties. These statements are neither promises nor guarantees, but are based on various assumptions by management regarding future circumstances over many of which Lionbridge has little or no control. A number of important risks and uncertainties, including those identified under the captions “Factors That May Affect Future Results” in Lionbridge’s Annual Report on Form 10-K, filed February 28, 2005 (SEC File No. 000-26933) and “Risk Factors” in Lionbridge’s Registration Statements on Form S-3 (SEC File Nos. 333-105446, 333-106693, 333-107753 and 333-122698) as well as risks and uncertainties discussed elsewhere in this Form 10-Q could cause Lionbridge’s actual results to differ materially from those in the forward-looking statements. Those risks and uncertainties include the following: (i) the success of Lionbridge’s continued diversification of its customer base; (ii) pricing pressures from customers; (iii) termination of customer contracts prior to the end of their term; (iv) ability to execute anticipated projects and opportunities in our pipeline, and recognize revenue from such opportunities; (v) Lionbridge’s dependence on clients’ product releases to generate revenues, in particular with respect to technology clients; (vi) the loss of a major client or customer; (vii) the size, timing and recognition of revenue from major clients; (viii) the impact of foreign currency fluctuations on its operating results and revenue growth; (ix) risks associated with the management of

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growth; (x) market acceptance of new service offerings; (xi) the failure to keep pace with the rapidly changing requirements of its customers; (xii) the ability to realize benefits from the new Lionbridge India solution center; (xiii) the ability to recognize benefits from our new language technology deployment; (xiv) the ability to implement and realize cost efficiencies and benefits from offshore production capabilities and restructuring activities, and the timing and size of such restructuring activities; (xv) Lionbridge’s ability to attract and retain key personnel; (xvi) Lionbridge being held liable for defects or errors in its solutions or services; (xvii) political, economic and business fluctuations in international markets; as well as risks of additional downturns in conditions generally, and in the information technology and software industries specifically, and the risks associated with competition and competitive price pressures; and (xviii) Lionbridge’s ability to forecast revenue and operating results. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. The forward-looking statements in this Form 10-Q are made as of the date of this filing only, and Lionbridge does not undertake to update or supplement these statements due to changes in circumstances or otherwise.

Introduction

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

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

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

For the three-month period ended March 31, 2005, Lionbridge’s loss from operations was $320,000, with a net loss of $217,000. For the years ended December 31, 2004 and 2003, respectively, the Company’s income from operations was $7.2 million and $7.5 million, respectively, with net income of $7.1 million and $2.5 million, respectively. Prior to 2002, the Company experienced operating losses, as well as net losses, for each year of its operations and, as of March 31, 2005, had an accumulated deficit of $99.1 million.

Revenue Recognition

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

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

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

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

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

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

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

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

Merger, Restructuring and Other Charges

During the three-month period ended March 31, 2005, Lionbridge recorded $449,000 of restructuring charges for workforce reductions in France and the U.S., consisting of thirty-one technical and two sales staff. Of this amount, $382,000 relates to the Company’s Globalization segment and $67,000 to the Testing segment. Of the $696,000 of cash payments during the three-month period ended March 31, 2005, $523,000 and $157,000 related to the Globalization and Testing segments, respectively, and $16,000 related to Corporate and Other.

During the three-month period ended March 31, 2004, Lionbridge recorded restructuring and other charges of $1.6 million primarily related to the integration of its India operation. The $1.6 million of restructuring and other charges included $708,000 for losses recorded on vacated facilities, $119,000 impairment of long-lived assets, and $786,000 for workforce reductions in the U.S., France, Ireland, Germany and China, consisting of forty-one technical, five administrative, and four sales staff. This restructuring plan was completed during the second quarter of 2004. Since inception of this restructuring plan, and including charges recorded in 2003, Lionbridge has recorded $2.8 million in the aggregate of related restructuring and other charges. Of the $1.6 million of restructuring and other charges recorded in the three-month period ended March 31, 2004, $873,000 and $502,000 related to the Company’s Globalization and Testing segments, respectively, and $238,000 related to Corporate and Other. Of the $739,000 of cash payments during the three-month period ended March 31, 2004, $641,000 and $63,000 related to the Globalization and Testing segments, respectively, and $35,000 related to Corporate and Other.

Non-Cash Charges

Stock-Based Compensation. On March 11, 2005, the Company recorded deferred compensation of $427,000, representing the fair market value of 75,019 shares of restricted common stock issued to certain employees at that time. Restrictions on disposition lapse ratably over eighteen months from the date of grant on each nine month anniversary date. The amortization of this deferred compensation is recorded as an operating expense and totaled $16,000 for the three-month period ended March 31, 2005.

On February 16, 2005, the Company recorded deferred compensation of $2.8 million, representing the fair market value of 475,231 shares of restricted common stock issued to certain employees at that time. Of the 475,231 restricted common stock issued in February 2005, restrictions on disposition lapse from the date of grant on each anniversary date as follows: 71,731 shares over two years, 171,500 shares over three years and 232,000 shares over four years, respectively. The amortization of this deferred compensation is recorded as an operating expense and totaled $103,000 for the three-month period ended March 31, 2005.

In August 2004, Lionbridge recorded deferred compensation of $1.4 million, representing the fair market value of 171,887 shares of restricted common stock units issued to the Company’s Chief Executive Officer. Restrictions on disposition

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lapse over five years from the date of grant on each anniversary date. The deferred compensation is being amortized over the five-year period during which the restrictions on the common stock lapse. The amortization of this deferred compensation is recorded as an operating expense and totaled $67,000 for the three-month period ended March 31, 2005.

In March 2004, Lionbridge recorded deferred compensation of $28,000, representing the fair market value of 3,000 shares of restricted common stock issued to an employee at that time. Restrictions on disposition lapse over two years from the date of grant on each anniversary date. The deferred compensation is being amortized over the two-year period during which the restrictions on the common stock lapse. The amortization of this deferred compensation is recorded as an operating expense and totaled $3,000 and $1,000 for the three-month periods ended March 31, 2005 and 2004, respectively.

In February 2004, Lionbridge recorded deferred compensation of $510,000, representing the fair market value of 69,761 shares of restricted common stock issued to certain employees at that time. Restrictions on disposition lapse over eighteen months from the date of grant on each nine month anniversary date. The deferred compensation is being amortized over the eighteen month period during which the restrictions on the common stock lapse. The amortization of this deferred compensation is recorded as an operating expense and totaled $84,000 and $35,000 for the three-month periods ended March 31, 2005 and 2004, respectively.

In October 2003, Lionbridge recorded deferred compensation of $812,000, representing the fair market value of 90,000 shares of restricted common stock issued to certain employees at that time. Restrictions on disposition lapse over four years from the date of grant on each anniversary date. The deferred compensation is being amortized over the four-year period during which the restrictions on the common stock lapse. During the quarter ended June 30, 2004, unamortized deferred compensation of $423,000, representing the fair market value of 37,500 shares of restricted common stock issued to an employee at that time, was reversed upon the separation of the employee. The amortization of this deferred compensation is recorded as an operating expense and totaled $22,000 and $51,000 for the three-month periods ended March 31, 2005 and 2004, respectively.

In September 2003, Lionbridge recorded deferred compensation of $513,000, representing the fair market value of 66,000 shares of restricted common stock issued to certain employees at that time. Restrictions on disposition lapse over four years from the date of grant on each anniversary date. The deferred compensation is being amortized over the four-year period during which the restrictions on the common stock lapse. During the quarter ended March 31, 2005, unamortized deferred compensation of $16,000, representing the fair market value of 3,375 shares of restricted common stock issued to employees at that time, was reversed upon the separation of the employees. The amortization of this deferred compensation is recorded as an operating expense and totaled $21,000 and $32,000 for the three-month periods ended March 31, 2005 and 2004, respectively.

Lionbridge currently expects to amortize the following remaining amounts of deferred compensation existing as of March 31, 2005 in the fiscal periods as follows:

Results of Operations

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

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Revenue. The following table shows Globalization and Testing revenues in dollars and as a percentage of total revenue for the three months ended March 31, 2005 and 2004, respectively:

Revenue for the quarter ended March 31, 2005 was $38.8 million, a decrease of $1.0 million, or 2.6%, from $39.9 million for the quarter ended March 31, 2004. Revenue for the first quarter was an increase of $3.2 million or 9% from revenue of $35.6 million for the prior quarter ended December 31, 2004.

Globalization revenue for the quarter ended March 31, 2005 was $30.5 million, essentially the same as the comparable period of 2004. Lionbridge’s Globalization revenue benefited from new programs with customers outside of the Company’s traditional technology market sector, as well as a new engagement with a large enterprise software provider in the quarter ended March 31, 2005 as compared to the corresponding period of 2004. Revenue from these new customer engagements offset the Company’s revenue shortfall from certain large traditional technology customers.

Revenue from the Company’s Testing business was $8.3 million for the quarter ended March 31, 2005, a decrease of $1.1 million or 11.5% from $9.4 million in the quarter ended March 31, 2004. Although revenue from the Company’s Testing business increased slightly from the quarter ended December 31, 2004, the revenue decrease from the comparable period in 2004 was primarily due to a general slow down in market demand for technology applications products and certification testing, particularly from one of the Company’s largest customers, as well as the result of a general technology market slowdown.

Cost of Revenue. Cost of revenue consists primarily of expenses incurred for translation services provided by third parties as well as salaries and associated employee benefits for personnel related to client projects. The following table shows Globalization and Testing cost of revenues, the percentage variance from the prior three-month period and as a percentage of revenue for the three months ended March 31, 2005 and 2004, respectively:

For the quarter ended March 31, 2005, as a percentage of revenue, cost of revenue increased to 67.1% as compared to 61.6% for the corresponding quarter of the prior year. Cost of revenue increased $1.5 million to $26.0 million as compared to $24.6 million for the corresponding period of the prior year.

Globalization cost of revenue increased to 69.1% as compared to 63.3% for the corresponding period of the prior year. This increase was primarily due to increased costs for translation services provided by third parties compared to the prior year, resulting from variations in work mix and the startup of localization services for new client engagements in the quarter.

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Testing cost of revenue increased to 59.7% for the quarter ended March 31, 2005 as compared to 56.2% for the corresponding quarter of the prior year. The increase was primarily the result of under-utilized capacity in the VeriTest testing laboratories due to lower than anticipated Testing revenue during the quarter, and the mix and scope of testing services provided as compared to the prior year.

Sales and Marketing. Sales and marketing expenses consist primarily of salaries, commissions and associated employee benefits, travel expenses of sales and marketing personnel, promotional expenses and the costs of programs aimed at increasing revenue, such as advertising, trade shows, public relations and other market development programs. The following table shows sales and marketing expenses in dollars, the dollar variance as compared to the prior three-month period and as a percentage of revenue for the three months ended March 31, 2005 and 2004, respectively:

Sales and marketing expenses of $3.8 million for the quarter ended March 31, 2005 increased $229,000 from the corresponding quarter of 2004. The increase was primarily the result of higher employee-related expenses and travel costs in the sales organization, as a result of higher associated variable compensation due to a larger percentage of revenue being derived from new customer programs and sales resources added to drive larger, offshore initiatives, in the quarter ended March 31, 2005, as compared to the corresponding period of the prior year. As a percentage of revenue, sales and marketing expenses increased to 9.8% in the first quarter of 2005 from 9.0% in the corresponding period in 2004, primarily due to the increased costs noted above.

General and Administrative. General and administrative expenses consist of salaries of the management, purchasing, process and technology, finance and administrative groups, and associated employee benefits and travel; facilities costs; information systems costs; professional fees; business reconfiguration costs and all other site and corporate costs. The following table shows general and administrative expenses in dollars, the dollar variance as compared to the prior three-month period and as a percentage of revenue for the three months ended March 31, 2005 and 2004, respectively:

General and administrative expenses decreased $435,000 or 5.3%, to $7.7 million for the quarter ended March 31, 2005 as compared to $8.2 million for the quarter ended March 31, 2004. The decrease was primarily the result of lower employee, facility and travel costs, reflecting the benefit of restructuring activities primarily related to the integration of the India operation, initiated in the fourth quarter of 2003. This decrease was partially offset by a $139,000 increase in the bad debt provision in the quarter ended March 31, 2005, as compared to the corresponding period of the prior year.

Research and Development. Research and development expenses relate to the development and integration of configurable technologies used in the globalization process and the research and development of a language management technology platform initiated in 2004. The cost consists primarily of salaries and associated employee benefits and third-party contractor expenses. Research and development expense increased 15.2% to $144,000 for the quarter ended March 31, 2005 as compared to $125,000 for the quarter ended March 31, 2004. This increase is attributable to research and development costs incurred in development of the language management technology platform.

Depreciation and Amortization. Depreciation and amortization consist of the expense related to property and equipment that is being depreciated over the estimated useful lives of the assets using the straight-line method. The following table shows depreciation and amortization expense in dollars, the dollar variance as compared to the prior three-month period and as a percentage of revenue for the three months ended March 31, 2005 and 2004, respectively:

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Depreciation and amortization expense decreased 23.8% to $659,000 for the quarter ended March 31, 2005 as compared to $865,000 for the quarter ended March 31, 2004 and is due to the culmination of depreciable lives of certain assets acquired in prior years.

Liquidity and Capital Resources

In December 2004, Lionbridge entered into a line of credit agreement with a commercial bank. Under the terms of the agreement, Lionbridge is able to borrow up to $35.0 million (including up to $15 million in certain other currencies), limited by certain financial covenants. As of March 31, 2005 and December 31, 2004, Lionbridge had no borrowings outstanding under the agreement, with borrowing capacity limited by certain financial covenants to $14.2 million and $24.3 million, respectively. Borrowings outstanding under the agreement are collateralized by the domestic assets of the Company and its U.S. subsidiaries. The agreement bears interest at Prime, LIBOR or IBOR (at the discretion of the Company) plus an applicable margin based on certain financial covenants. Lionbridge would have elected an interest rate of 4.6% based on a 3-month LIBOR loan as of March 31, 2005 if there were any borrowings outstanding at that date.

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

Lionbridge’s working capital decreased $608,000 to $49.4 million at March 31, 2005 as compared to $50.0 million at December 31, 2004. As of March 31, 2005, cash and cash equivalents totaled $25.3 million, a decrease of $13.2 million from $38.5 million at December 31, 2004; accounts receivable and work in process totaled $35.3 million, an increase of $5.0 million compared to December 31, 2004; and other current assets increased by $565,000 as compared to December 31, 2004. Current liabilities totaled $24.8 million at March 31, 2005, remaining flat with December 31, 2004.

The following table shows the net cash provided by (used in) operating activities, net cash used in investing activities, and net cash provided by financing activities for the three months ended March 31, 2005 and 2004, respectively:

Net cash used in operating activities was $4.4 million for the three-month period ended March 31, 2005, as compared to net cash provided by operating activities of $1.4 million for the corresponding period of the prior year. The $4.4 million use of cash was due to the net loss of $217,000 (inclusive of $1.2 million in depreciation, amortization and other non-cash expenses), and a $6.5 million increase in accounts receivable, work in process, other current assets and other assets, partially offset by a net $1.3 million increase in accounts payable and accrued expenses and a $183,000 decrease in deferred revenue. In the quarter ended March 31, 2004, the primary source of cash was the growth and profitability of the business, including net income of $693,000 (inclusive of $1.2 million in depreciation, amortization and other non-cash expenses), a $2.2 million reduction in accounts receivable, partially offset by other changes including a $2.9 million increase in work-in-process and a $1.2 million decrease in deferred revenue.

Lionbridge has not experienced any significant trends in accounts receivable and work in process other than changes relative to the increase 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 $8.2 million to $8.4 million for the quarter ended March 31, 2005 from $202,000 for the corresponding quarter of the prior year. The primary investing activities in the three-month period ended March 31, 2005 were the purchase of $32.2 million of short-term investments, $837,000 for the acquisition of Logoport and $530,000 for the purchase of equipment. Net cash provided by investing activities in the three-month period ended March 31, 2005 came from the sale of $25.2 million of short-term investments. Net cash provided by investing activities in the three-month period ended March 31, 2004 consisted of the purchase of $248,000 of equipment, partially offset by $46,000 in proceeds from the sale of property and equipment.

Net cash provided by financing activities decreased $257,000 to $93,000 in the three-month period ended March 31, 2005 as compared to $350,000 for the corresponding period of 2004. Net cash provided by financing activities for both three-month periods consisted of the proceeds from the issuance of common stock under option and employee stock purchase plans, partially offset by the payments of capital lease obligations.

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Lionbridge’s future financing requirements will depend upon a number of factors, including its operating performance and increases in operating expenses associated with growth in its business. As of March 31, 2005, Lionbridge had $14.2 million available for borrowing under its bank line of credit. In addition, on February 10, 2005, Lionbridge filed with the Securities and Exchange Commission a shelf registration statement on Form S-3 under the Securities Act of 1933, as amended (333-122698), covering the registration of common stock (the “Securities”), in an aggregate amount of $130 million, which was declared effective by the Commission on February 23, 2005. These Securities may be offered from time to time in amounts, at prices and on terms to be determined at the time of sale. The Corporation believes the shelf registration provides additional financing flexibility to meet potential future funding requirements and to take advantage of potentially attractive capital market conditions. Lionbridge anticipates that its present cash and short-term investments position, available financing and access to capital markets should provide adequate cash to fund its currently anticipated cash needs for the next twelve months and foreseeable future.

Contractual Obligations

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

Off-Balance Sheet Arrangements

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

Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards 123—revised 2004 (“SFAS 123R”), “Share-Based Payment” which replaces Statement of Financial Accounting Standards No. 123 (“SFAS 123”), Accounting for Stock-Based Compensation” and supersedes APB Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees.” On April 14, 2005, the Securities and Exchange Commission amended the effective date for SFAS 123R to annual periods that begin after June 15, 2005. Accordingly, the Company will be required to adopt SFAS 123R effective January 1, 2006. SFAS 123R requires the measurement of all employee share-based payments to employees, including grants of employee stock options, using a fair-value-based method and the recording of such expense in our consolidated statements of income. SFAS 123R requires companies to assess the most appropriate model to calculate the value of the options. Lionbridge currently uses the Black-Scholes option pricing model to value options and are currently assessing which model we may use in the future under the new statement and may determine that an alternative model may more appropriate. In addition, there are a number of other requirements under the new standard that would result in differing accounting treatment than those required under SFAS 123. These differences include, but are not limited to, the accounting for the tax benefit on employee stock options and for stock issued under our employee stock purchase plan, and the presentation of these tax benefits within the consolidated statement of cash flows. In addition to the appropriate fair value model to be used for valuing share-based payments, we will also be required to determine the transition method to be used at date of adoption of SFAS 123R. The allowed transition methods include choices of prospective or retroactive adoption. The prospective method requires that compensation expense be recorded for all unvested stock options and restricted stock at the beginning of the first quarter of adoption of SFAS 123R, while the retroactive methods would record compensation expense for all unvested stock options and restricted stock beginning with the first period restated. The pro forma disclosures previously permitted under SFAS 123 will no longer be an alternative to financial statement recognition. See Note 1 in our Notes to Consolidated Financial Statements for the pro forma net income (loss) and net income (loss) per share amounts, for the three-month period ended March 31, 2005 and 2004, as if we had used a fair-value-based method similar to the methods required under SFAS 123R to measure compensation expense for employee stock incentive awards. It is expected that the adoption of SFAS 123R will have a significant impact on our consolidated statements of operations and net income (loss) per share if the adoption results in amounts similar to those in the current pro forma disclosure.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

Interest Rate Risk. Lionbridge is exposed to market risk from changes in interest rates with respect to its line of credit with a commercial bank. There were no amounts outstanding as of March 31, 2005 under this facility. In addition, Lionbridge’s ability to finance future acquisitions through debt transactions may be impacted if it is unable to obtain appropriate debt financing at acceptable rates. Lionbridge is exposed to market risk from changes in interest rates through its investing activities. Lionbridge’s investment portfolio consists primarily of investments in high-grade commercial bank money market accounts. A hypothetical 10% increase or decrease in interest rates would not have a material impact on the carrying value of Lionbridge’s investments due to their immediate available liquidity or their short maturity.

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Foreign Currency Exchange Rate Risk. Lionbridge conducts a large portion of its business in international markets. Although a majority of Lionbridge’s contracts with clients are denominated in U.S. dollars, 44% of its costs and expenses for the three-month periods ended March 31, 2005 and 2004 were denominated in foreign currencies. Eight percent and 6% of its assets were recorded in foreign currencies as of March 31, 2005 and December 31, 2004, respectively. Twenty-one percent and 22% of its liabilities were recorded in foreign currencies as of March 31, 2005 and December 31, 2004, respectively. The principal foreign currencies applicable to our business are the Euro, the Indian Rupee and the Yen. In addition, Lionbridge has assets and liabilities denominated in U.S. dollars in foreign countries. As a result, Lionbridge is exposed to foreign currency exchange fluctuations. Lionbridge has not historically used derivative instruments to reduce its exposure to exchange rate fluctuations; however, beginning in January 2005, the Company adopted an economic hedging policy. The impact of hedging activities during the quarter ended March 31, 2005 was not material and the Company had no derivative instruments outstanding as of March 31, 2005. From time to time, the U.S. dollar has been volatile relative to foreign currencies, particularly the Euro. Therefore, Lionbridge has experienced exchange rate gains or losses as a result of fluctuations in assets and liabilities and changes in revenue and expense mix in various subsidiaries operating in non-U.S. dollar denominated functional currencies. If Lionbridge is unsuccessful in reducing foreign currency exchange rate risk, Lionbridge may experience additional foreign currency fluctuations which may significantly harm its revenue, cash flow and results of operations, as well as Lionbridge’s ability to maintain profitability as it continues to grow its business.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures. Lionbridge maintains disclosure controls and procedures designed to ensure that information required to be disclosed in the Company’s filings under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported accurately within the time periods specified in the Securities and Exchange Commission’s rules and forms. As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (pursuant to Exchange Act Rule 13a-15). Based upon this evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures are effective as of March 31, 2005.

Changes in internal controls. There were no significant changes in the Company’s internal control over financial reporting that occurred during the quarter ended March 31, 2005 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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LIONBRIDGE TECHNOLOGIES, INC.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

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

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

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

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

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

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Item 6. Exhibits

(a) Exhibits.

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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.

Dated: May 9, 2005

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Exhibit Index

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