Lionbridge Technologies (LIOX)

Income Taxes

Current income taxes are recorded based on statutory obligations for the current operating period for the various countries in which the Company has operations.

Deferred income taxes are generally recognized for the difference between the financial statement and tax basis of assets and liabilities (temporary differences) multiplied by the enacted tax rates in effect in the years in which the temporary differences are expected to reverse. A valuation allowance is provided if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

On January 1, 2007, Lionbridge adopted FIN 48. FIN 48 prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on de-recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues. At the adoption date the Company had gross unrecognized tax affected benefits of approximately $1.4 million, exclusive of certain pre-acquisition indemnification items. As a result of adopting FIN 48, the Company recognized a charge of approximately $185,000 to the January 1, 2007 retained earnings balance for accrued taxes, interest and penalties related to the unrecognized tax benefits, which if incurred, would be recognized as a component of income tax expense.

Income Taxes

FACE="Times New Roman" SIZE="2">Current income taxes are recorded based on statutory obligations for the current operating period for the various countries in which the Company has operations.

Income Taxes

FACE="Times New Roman" SIZE="2">Current income taxes are recorded based on statutory obligations for the current operating period for the various countries in which the Company has operations.

Income Taxes

Current income taxes are recorded based on statutory obligations for the current operating period for the various countries in which the Company has operations.

Deferred income taxes are generally recognized for the difference between the financial statement and tax basis of assets and liabilities (temporary differences) multiplied by the enacted tax rates in effect in the years in which the temporary differences are expected to reverse. A valuation allowance is provided if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

On January 1, 2007, Lionbridge adopted FIN 48. FIN 48 prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on de-recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues. At the adoption date the Company had gross unrecognized tax affected benefits of approximately $1.5 million, exclusive of certain pre-acquisition indemnification items. As a result of adopting FIN 48, the Company recognized a charge of approximately $185,000 to the January 1, 2007 retained earnings balance for accrued taxes, interest and penalties related to the unrecognized tax benefits, which if incurred, would be recognized as a component of income tax expense.

Income Taxes

FACE="Times New Roman" SIZE="2">Current income taxes are recorded based on statutory obligations for the current operating period for the various countries in which the Company has operations.

7. INCOME TAXES

On January 1, 2007, Lionbridge adopted Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), and recognized a $185,000 increase in the liability for unrecognized tax benefits, which was accounted for as a reduction to retained earnings. The balance of unrecognized tax benefits at March 31, 2008, including interest and penalties, was $2.9 million, of which $1.3 million would affect earnings if recognized. Lionbridge recognizes interest accrued related to unrecognized tax benefits in tax expense. As a result, in the three months ended March 31, 2008, Lionbridge recorded $26,000 of gross interest expense, or $17,000 net of the federal tax benefit, in tax expense. Penalties, if incurred, would also be recognized as a component of tax expense. At March 31, 2008, Lionbridge had approximately $96,000 of interest accrued related to unrecognized tax benefits, which, net of the federal tax benefit, was approximately $63,000. The net increase in the liability during the three months ended March 31, 2008 was as follows:

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In connection with the acquisition of Bowne Global Solutions (“BGS”), Bowne & Co., Inc. (“Bowne”) agreed to indemnify the Company for any tax liabilities accruing on or prior to the acquisition date of September 1, 2005. The Company determined that its gross unrecognized tax affected benefits related to the acquisition of BGS and subject to indemnification were approximately $4.0 million. Accordingly, the Company adjusted its balance sheet by recording a long-term Indemnification Receivable and related FIN 48 liability as of January 1, 2007 for this amount. A change in interest rate and penalties assumptions in 2007 resulted in a net reduction to the FIN 48 liability and Indemnification Receivable of $428,000 to $3.5 million. At March 31, 2008 the gross unrecognized tax affected benefits are $3.6 million.

The components of the provision for income taxes are as follows for the three-month periods ended March 31, 2008 and 2007:

The tax provision for the three-month periods ended March 31, 2008 and 2007 consists primarily of taxes on income in foreign jurisdictions, a deferred tax provision of $117,000 and $116,000, respectively, related to tax-deductible goodwill from the BGS acquisition and interest and penalties assumed in relation to the Company’s uncertain tax positions. The Company reasonably anticipates that the unrecognized tax benefit relative to FIN 48 will not change significantly within the next twelve months. The tax provision for the three-month period ended March 31, 2007 consists primarily of taxes on income in foreign jurisdictions and deferred taxes related to tax deductible goodwill acquired from the BGS acquisition.

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

At March 31, 2008, no provision for U.S. income and foreign withholding taxes has been made for unrepatriated foreign earnings because it is expected that such earnings will be reinvested indefinitely or the distribution of any remaining amount would be principally offset by foreign tax credits.

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

The Company conducts business globally and in the normal course of business is subject to examination by local, state and federal jurisdictions in the United States as well as in multiple foreign jurisdictions. Currently, no Internal Revenue Service audits are underway and audits in foreign jurisdictions are in varying stages of completion. Open audit years are dependent upon the tax jurisdiction and range from 1997 to 2006.

7. INCOME TAXES

On January 1, 2007, Lionbridge adopted Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), and recognized a $185,000 increase in the liability for unrecognized tax benefits, which was accounted for as a reduction to retained earnings. The balance of unrecognized tax benefits at March 31, 2008, including interest and penalties, was $2.9 million, of which $1.3 million would affect earnings if recognized. Lionbridge recognizes interest accrued related to unrecognized tax benefits in tax expense. As a result, in the three months ended March 31, 2008, Lionbridge recorded $26,000 of gross interest expense, or $17,000 net of the federal tax benefit, in tax expense. Penalties, if incurred, would also be recognized as a component of tax expense. At March 31, 2008, Lionbridge had approximately $96,000 of interest accrued related to unrecognized tax benefits, which, net of the federal tax benefit, was approximately $63,000. The net increase in the liability during the three months ended March 31, 2008 was as follows:

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In connection with the acquisition of Bowne Global Solutions (“BGS”), Bowne & Co., Inc. (“Bowne”) agreed to indemnify the Company for any tax liabilities accruing on or prior to the acquisition date of September 1, 2005. The Company determined that its gross unrecognized tax affected benefits related to the acquisition of BGS and subject to indemnification were approximately $4.0 million. Accordingly, the Company adjusted its balance sheet by recording a long-term Indemnification Receivable and related FIN 48 liability as of January 1, 2007 for this amount. A change in interest rate and penalties assumptions in 2007 resulted in a net reduction to the FIN 48 liability and Indemnification Receivable of $428,000 to $3.5 million. At March 31, 2008 the gross unrecognized tax affected benefits are $3.6 million.

The components of the provision for income taxes are as follows for the three-month periods ended March 31, 2008 and 2007:

The tax provision for the three-month periods ended March 31, 2008 and 2007 consists primarily of taxes on income in foreign jurisdictions, a deferred tax provision of $117,000 and $116,000, respectively, related to tax-deductible goodwill from the BGS acquisition and interest and penalties assumed in relation to the Company’s uncertain tax positions. The Company reasonably anticipates that the unrecognized tax benefit relative to FIN 48 will not change significantly within the next twelve months. The tax provision for the three-month period ended March 31, 2007 consists primarily of taxes on income in foreign jurisdictions and deferred taxes related to tax deductible goodwill acquired from the BGS acquisition.

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

At March 31, 2008, no provision for U.S. income and foreign withholding taxes has been made for unrepatriated foreign earnings because it is expected that such earnings will be reinvested indefinitely or the distribution of any remaining amount would be principally offset by foreign tax credits.

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

The Company conducts business globally and in the normal course of business is subject to examination by local, state and federal jurisdictions in the United States as well as in multiple foreign jurisdictions. Currently, no Internal Revenue Service audits are underway and audits in foreign jurisdictions are in varying stages of completion. Open audit years are dependent upon the tax jurisdiction and range from 1997 to 2006.

Income Taxes

Current income taxes are recorded based on statutory obligations for the current operating period for the various countries in which the Company has operations.

Deferred income taxes are generally recognized for the difference between the financial statement and tax basis of assets and liabilities (temporary differences) multiplied by the enacted tax rates in effect in the years in which the temporary differences are expected to reverse. A valuation allowance is provided if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

On January 1, 2007, Lionbridge adopted FIN 48. FIN 48 prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on de-recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues. At the adoption date the Company had gross unrecognized tax affected benefits of approximately $1.5 million, exclusive of certain pre-acquisition indemnification items. As a result of adopting FIN 48, the Company recognized a charge of approximately $185,000 to the January 1, 2007 retained earnings balance for accrued taxes, interest and penalties related to the unrecognized tax benefits, which if incurred, would be recognized as a component of income tax expense.

Income Taxes

FACE="Times New Roman" SIZE="2">Current income taxes are recorded based on statutory obligations for the current operating period for the various countries in which the Company has operations.

7. INCOME TAXES

On January 1, 2007, Lionbridge adopted Financial Accounting Standards Board Interpretation No. 48 (“FIN 48”). FIN 48 prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on de-recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues.

At the adoption date the Company had gross unrecognized tax affected benefits of approximately $1.5 million, exclusive of certain pre-acquisition indemnification items. As a result of adopting FIN 48, the Company recognized a charge of approximately $185,000 to the January 1, 2007 retained earnings balance for accrued taxes, interest and penalties related to the unrecognized tax benefits, which if incurred, would be recognized as a component of income tax expense.

In connection with the acquisition of BGS, Bowne & Co. Inc. agreed to indemnify the Company for any tax liabilities accruing on or prior to the acquisition date of September 1, 2005. The Company determined that its gross unrecognized tax affected benefits related to the acquisition of BGS and subject to indemnification were approximately $4.0 million. Accordingly, the Company adjusted its balance sheet by recording a long-term Indemnification Receivable and related FIN 48 liability as of January 1, 2007 for this amount. A change in interest rate and penalties assumptions in the third quarter of 2007 resulted in a net reduction to the FIN 48 liability and Indemnification Receivable of $450,000 to $3.5 million.

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The components of the provision for income taxes are as follows for the three and nine-month periods ended September 30, 2007 and 2006:

The tax provision for the three and nine-month periods ended September 30, 2007 consists primarily of taxes on income in foreign jurisdictions, a deferred tax provision of $18,000 and $250,000, respectively, related to tax-deductible goodwill from the BGS acquisition and interest and penalties assumed in relation to the Company’s uncertain tax positions. The Company reasonably anticipates that the unrecognized tax benefit relative to FIN 48 will not change significantly within the next twelve months. The tax provision for the three and nine-month periods ended September 30, 2006 consists primarily of taxes on income in foreign jurisdictions and deferred taxes related to tax deductible goodwill acquired from the BGS acquisition. In addition, the tax provision in the third quarter of 2007 was favorably affected by a one-time benefit of enacted reductions in tax rates in the United Kingdom, Denmark, Germany and China on the Company’s deferred tax balances. This benefit totaled $90,000.

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

At September 30, 2007, no provision for U.S. income and foreign withholding taxes has been made for unrepatriated foreign earnings because it is expected that such earnings will be reinvested indefinitely or the distribution of any remaining amount would be principally offset by foreign tax credits.

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

The Company conducts business globally and in the normal course of business is subject to examination by local, state and federal jurisdictions in the United States as well as in multiple foreign jurisdictions. Currently, no Internal Revenue Service audits are underway and audits in foreign jurisdictions are in varying stages of completion. Open audit years are dependent upon the tax jurisdiction and range from 1997 to 2006.

7. INCOME TAXES

On January 1, 2007, Lionbridge adopted Financial Accounting Standards Board Interpretation No. 48 (“FIN 48”). FIN 48 prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on de-recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues.

At the adoption date the Company had gross unrecognized tax affected benefits of approximately $1.5 million, exclusive of certain pre-acquisition indemnification items. As a result of adopting FIN 48, the Company recognized a charge of approximately $185,000 to the January 1, 2007 retained earnings balance for accrued taxes, interest and penalties related to the unrecognized tax benefits, which if incurred, would be recognized as a component of income tax expense.

In connection with the acquisition of BGS, Bowne & Co. Inc. agreed to indemnify the Company for any tax liabilities accruing on or prior to the acquisition date of September 1, 2005. The Company determined that its gross unrecognized tax affected benefits related to the acquisition of BGS and subject to indemnification were approximately $4.0 million. Accordingly, the Company adjusted its balance sheet by recording a long-term Indemnification Receivable and related FIN 48 liability as of January 1, 2007 for this amount. Tax provisions during the six months ended June 30, 2007, primarily related to accrued interest, have increased these balances by $192,000 to $4.2 million.

The components of the provision for income taxes are as follows for the three and six-month periods ended June 30, 2007 and 2006:

The tax provision for the three and six-month periods ended June 30, 2007 consists primarily of taxes on income in foreign jurisdictions, a deferred tax provision of $116,000 and $232,000, respectively, related to tax-deductible goodwill from the BGS acquisition and a provision of $99,000 and $197,000, respectively, related to the Company’s FIN 48 liability. The Company reasonably anticipates that the unrecognized tax benefit relative to FIN 48 will not change significantly within the next twelve months. The tax provision for the three and six-month periods ended June 30, 2006 consists primarily of taxes on income in foreign jurisdictions and deferred taxes related to tax deductible goodwill acquired from the BGS acquisition.

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

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At June 30, 2007, no provision for U.S. income and foreign withholding taxes has been made for unrepatriated foreign earnings because it is expected that such earnings will be reinvested indefinitely or the distribution of any remaining amount would be principally offset by foreign tax credits.

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

The Company conducts business globally and in the normal course of business is subject to examination by local, state and federal jurisdictions in the United States as well as in multiple foreign jurisdictions. Currently, no Internal Revenue Service audits are underway and audits in foreign jurisdictions are in varying stages of completion. Open audit years are dependent upon the tax jurisdiction and range from 1997 to 2006.

7. INCOME TAXES

On January 1, 2007, Lionbridge adopted Financial Accounting Standards Board Interpretation No. 48 (“FIN 48”). FIN 48 prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on de-recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues.

At the adoption date the Company had gross unrecognized tax affected benefits of approximately $1.5 million, exclusive of certain pre-acquisition indemnification items. As a result of adopting FIN 48, the Company recognized a charge of approximately $185,000 to the January 1, 2007 retained earnings balance for accrued taxes, interest and penalties related to the unrecognized tax benefits, which if incurred, would be recognized as a component of income tax expense.

The Company conducts business globally and in the normal course of business is subject to examination by local, state and federal jurisdictions in the United States as well as in multiple foreign jurisdictions. Currently, no Internal Revenue Service audits are underway and audits in foreign jurisdictions are in varying stages of completion. Open audit years are dependent upon the tax jurisdiction and range from 1997 to 2006.

In connection with the acquisition of BGS, Bowne & Co. Inc. agreed to indemnify the Company for any tax liabilities accruing on or prior to the acquisition date of September 1, 2005. The Company determined that its gross unrecognized tax affected benefits related to the acquisition of BGS and subject to indemnification were approximately $4.0 million. Accordingly, the Company adjusted its balance sheet by recording a long-term Indemnification Receivable and related FIN 48 liability as of January 1, 2007 for this amount. The accounts were increased during the first quarter of 2007 to reflect additional interest of approximately $95,000.

The components of the provision for income taxes are as follows for the three-month periods ended March 31, 2007 and 2006:

The tax provision for the three-month period ended March 31, 2007 consists primarily of taxes on income in foreign jurisdictions, a deferred tax provision of $116,000 related to the tax-deductible goodwill from the BGS acquisition and a provision of $98,000 related to the Company’s FIN 48 liability. The tax provision for the three-month period ended March 31, 2006 consists primarily of taxes on income in foreign jurisdictions and the tax deductible goodwill from the BGS acquisition.

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

At March 31, 2007, no provision for U.S. income and foreign withholding taxes has been made for unrepatriated foreign earnings because it is expected that such earnings will be reinvested indefinitely or the distribution of any remaining amount would be principally offset by foreign tax credits.

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

Income Taxes

Current income taxes are recorded based on statutory obligations for the current operating period for the various countries in which the Company has operations.

Deferred income taxes are generally recognized for the difference between the financial statement and tax basis of assets and liabilities (temporary differences) multiplied by the enacted tax rates in effect in the years in which the temporary differences are expected to reverse. A valuation allowance is provided if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized

8. INCOME TAXES

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

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

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

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

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

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