UNITED STATES SECURITIES AND EXCHANGE COMMISSION

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

þx QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended ~~June~~March 3031, ~~2006~~2007.

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from to .

Commission file number 333-118753

Language Line, Inc.

(Exact name of registrant as specified in its charter)


Delaware		20-0997805
*(State or other jurisdiction of* *incorporation or organization)*		*(IRS Employer* *Identification Number)*
		*(IRS Employer* *Identification Number)*

One Lower Ragsdale Drive

Monterey, CA 93940

(877) 886-3885

(Address, zip code, and telephone number, including

area code, of registrant’s principal executive office.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 and 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No x

Yes ¨ No þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ¨ No x

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

Language Line Holdings, LLC owns 100% of the registrant’s common stock.

FORWARD LOOKING STATEMENTS

Statements in this document that are not historical facts are hereby identified as “forward looking statements” for the purposes of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 27A of the Securities Act of 1933 (the “Securities Act”). Language Line, Inc. (“LLI,” “we,” “us,” or the “Company”) cautions readers that such “forward looking statements”, including without limitation, those relating to the Company’s future business prospects, revenue, working capital, liquidity, capital needs, interest costs and income, wherever they occur in this document or in other statements attributable to the Company, are necessarily estimates reflecting the judgment of the Company’s senior management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the “forward looking statements”. Such “forward looking statements” should, therefore, be considered in light of the factors set forth in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

The “forward looking statements” contained in this report are made under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Moreover, the Company, through its senior management, may from time to time make “forward looking statements” about matters described herein or other matters concerning the Company.

The Company disclaims any intent or obligation to update “forward looking statements” to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time.

LANGUAGE LINE, INC. AND SUBSIDIARIES

(An Indirect Wholly-Owned Subsidiary of Language Line Holdings, LLC)

TABLE OF CONTENTS

		Page
Part 1. Financial Information
Item 1.	Financial Statements (Unaudited)	1 - 156
	Condensed Consolidated Balance Sheets – December 31, 2005 and June 30, 2006	1
	Condensed Consolidated Balance Sheets – March 31, 2007 and December 31, 2006
	Condensed Consolidated Statements of Operations – Three months and Six Months ended June 30, 2005 and June 30, 2006	2
	Condensed Consolidated Statements of Operations – Three months ended March 31, 2007 and March 31, 2006
	Condensed Consolidated Statements of Cash Flows – Six Months ended June 30, 2005 and June 30, 2006	3
	Condensed Consolidated Statements of Cash Flows – Three months ended March 31, 2007 and March 31, 2006
	Notes to Condensed Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	167
Item 3.	Quantitative and Qualitative Disclosures of Market Risk	2010
Item 4.	Controls and Procedures	20
Item 4T.	Controls and Procedures	11
Part 2. Other Information
Item 1.	Legal Proceedings	2011
Item 1A.	Risk Factors	2011
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2112
Item 3.	Defaults ~~upon~~Upon Senior Securities	2112
Item 4.	Submission of Matters to a Vote of Security Holders	2112
Item 5.	Other Information	2112
Item 6.	Exhibits and Reports on Form 8-K	2112
Signatures		2213
Certifications		Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2

PART 1. FINANCIAL INFORMATION

Item 1.

Financial Statements

The financial statements presented have not been reviewed or audited by an independent auditor. See Explanatory Note A on page 4.

LANGUAGE LINE, INC. AND SUBSIDIARIES

(An Indirect Wholly-Owned Subsidiary of Language Line Holdings, LLC)

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and par value amounts)

(Unaudited)

	December 31,2005			June 30,2006
	March 31,2007			December 31,2006
Assets
Current assets:
Cash and cash equivalents	$	1323,~~991~~315		$	1620,~~130~~236
Accounts receivable, net		2225,~~329~~876			2324,~~422~~321
Prepaid expenses and other current assets		21,~~845~~802			21,~~652~~625
Deferred taxes on income		~~626~~880			~~812~~1,018
Total current assets		3951,~~791~~873			4347,~~016~~200
Property and equipment, net		45,~~991~~522			5,~~809~~385
Goodwill		408,793			408,793
Intangible assets, net		~~403~~361,~~056~~396			~~384~~369,~~688~~139
Deferred financing costs, net		11,~~425~~127			1011,~~452~~740
Other assets		96323			~~211~~365
Total assets	$	~~868~~839,~~152~~034		$	~~852~~842,~~969~~622
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	12,~~208~~222		$	~~793~~2,351
Accrued interest		45,~~848~~409			43,~~939~~485
Accrued payroll and related benefits		~~817~~1,730			12,~~445~~339
Accrued cost of interpreters		~~1,288~~581			~~1,467~~675
Other accrued liabilities		12,~~786~~372			2,~~242~~325
Income taxes payable		27,~~488~~320			3,~~883~~246
Current portion of long-term debt		1812,~~638~~630			1417,~~158~~251
Total current liabilities		3132,~~073~~264			2831,~~927~~672
Long-term debt		~~236~~216,~~431~~023			~~229~~219,~~353~~181
Senior subordinated notes		161,~~315~~836			161,~~514~~725
Deferred taxes on income		~~163~~153,~~188~~917			~~158~~155,~~986~~660
Total liabilities		~~592~~564,~~007~~040			~~578~~568,~~780~~238
Stockholders’ equity:
Common stock, $.01 par value per share and 1,000 shares authorized, issued and outstanding		—			—
Additional paid-in capital		~~281~~280,~~064~~289			280,~~005~~186
Accumulated deficit		(35,~~667~~295	)		(5,~~816~~802	)
Deferred stock compensation		(1,252	)		—
Total stockholders’ equity		274,994			274,384
Total stockholders’ equity		276,145			274,189
Total liabilities and stockholders’ equity	$	839,034		$	842,622
Total liabilities and stockholders’ equity	$	868,152		$	852,969

See notes to condensed consolidated financial statements.

LANGUAGE LINE, INC. AND SUBSIDIARIES

(An Indirect Wholly-Owned Subsidiary of Language Line Holdings, LLC)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands)

(Unaudited)

	Three monthsendedJune 30, 2005				Three monthsendedJune 30, 2006			Six monthsendedJune 30, 2005			Six monthsendedJune 30, 2006
	Three months ended March 31, 2007			Three months ended March 31, 2006
Revenues	$	3545,~~502~~266		$	$40,046	~~40,116~~		$	~~71,424~~		$	~~80,162~~
Cost of services		1215,~~102~~573			14,097	~~14,147~~			~~24,304~~			~~28,244~~
Gross margin		23,400				25,969			47,120			51,918
Other expenses:
Other expenses:
Selling, general and administrative		8,041			7,185
Selling, general and administrative		6,529				7,112			13,082			14,296
Interest		10,392			10,710
Interest - net		10,075				10,891			20,001			21,519
Depreciation and amortization		8,488			9,766
Depreciation and amortization		9,796				9,810			19,630			19,576
Total other expenses		26,921			27,661
Total other expenses		26,400				27,813			52,713			55,391
Other income:
Loss before income taxes		(3,000	)			(1,844	)		(5,593	)		(3,473	)
Interest		302			83
Income tax benefit		(1,237	)			(700	)		(2,291	)		(1,324	)
Total other income		302			83
Net loss	$	(1,763	)		$	(1,144	)	$	(3,302	)	$	(2,149	)
Income (loss) before taxes on income		3,074			(1,629	)
Taxes (benefit) on income (loss)		2,567			(624	)
Net income (loss)	$	507		$	(1,005	)

See notes to condensed consolidated financial statements.

LANGUAGE LINE, INC. AND SUBSIDIARIES

(An Indirect Wholly-Owned Subsidiary of Language Line Holdings, LLC)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Six monthsendedJune 30, 2005			Six monthsendedJune 30, 2006
	Three months ended March 31, 2007			Three months ended March 31, 2006
Cash flows from operating activities:
Net loss	$	(3,302	)	$	(2,149	)
Net income (loss)	$	507		$	(1,005	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		198,~~630~~488			199,~~576~~766
Amortization of deferred financing costs		~~947~~613			~~973~~486
Deferred taxes on income		(41,~~116~~605	)		(42,~~389~~183	)
Stock based compensation expense		184			208
Provision for losses on accounts receivable		(184	)		180
Loss from derivative instruments		4			—
Stock based compensation expense		103			95
Accretion of discount on long-term debt		~~179~~111			~~199~~99
Effect of changes in operating assets and liabilities:
Accounts receivable		~~227~~(1,371	)		(1,~~093~~297	)
Prepaid expenses and other current assets		(~~744~~177	)		~~193~~381
Other assets		6242			(~~115~~232	)
Accounts payable		~~163~~(129	)		(~~415~~752	)
Income taxes payable/refundable		(2,963	)		1,395
Income taxes payable		4,074			1,425
Accrued payroll and other liabilities		2,857			1,354
Accrued interest and other liabilities		1,268			5,185
Net cash provided by operating activities		1311,~~128~~740			1512,~~737~~148
Cash flows from investing activities:
Cash flows from investing activities :
Purchase of property		(~~493~~707	)		(21,~~026~~009	)
Net cash used in investing activities		(493	)		(2,026	)
Acquisition of intangible asset		(175	)
Cash flows from financing activities:
Net cash used in investing activities		(882	)		(1,009	)
Long-term debt repayments		(18,661	)		(11,558	)
Cash flows from financing activities :
Repurchase of restricted stock units		—			(14	)
Long-term debt repayments		(7,779	)		(7,153	)
Capital contribution from Parent		995			—
Repurchase of restricted stock units		—			(1	)
Net cash used in financing activities		(177,~~666~~779	)		(117,~~572~~154	)
Net (decrease) increase in cash and cash equivalents		(5,031	)		2,139
Net increase in cash and cash equivalents		3,079			3,985
Cash and cash equivalents - beginning of period		12,164			13,991
Cash and cash equivalents—beginning of period		20,236			13,991
Cash and cash equivalents - end of period	$	7,133		$	16,130
Cash and cash equivalents—end of period	$	23,315		$	17,976
Supplemental cash flow disclosures:
Cash paid for interest	$	157,~~837~~696		$	205,~~325~~495
Cash paid for income taxes	$	~~4,789~~98		$	~~1,664~~134

See notes to condensed consolidated financial statements.

LANGUAGE LINE, INC. AND SUBSIDIARIES

(An Indirect Wholly-Owned Subsidiary of Language Line Holdings, LLC)

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Explanatory Note A—Basis of Presentation

We recently engaged PricewaterhouseCoopers LLP (“PWC”) as our new independent accountants to audit our financial statements, as previously disclosed on our Current Report on Form 8-K filed on May 4, 2006, as amended by our Current Report on Form 8-K/A filed on May 5, 2006. However, because of the proximity of the engagement of PWC to the release of this quarterly report on Form 10-Q, PWC was not able to complete the audit and review of our condensed consolidated financial statements contained herein. Therefore, we are filing the condensed consolidated financial statements contained throughout this quarterly report on Form 10-Q as “unreviewed” and “unaudited.”

1. Organization and Significant Accounting Policies

The accompanying unaudited condensed consolidated financial information has been prepared in accordance with the Securities and Exchange Commission (“SEC”) regulations for interim financial reporting. In the opinion of management, the condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, that are considered necessary for a fair statement of the Company’s financial position, results of operations and cash flows for the interim periods. Operating results for the ~~six~~three months ended ~~June~~March 3031, 2007 and March 31, 2006 are not necessarily indicative of results that may be expected for the entire year. This financial information should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, ~~2005~~2006 of Language Line, Inc., which are included in the Form 10-K filed with the SEC on ~~April~~March 1216, ~~2006~~2007.

In accordance with the rules and regulations of the SEC, unaudited condensed consolidated financial statements may omit or condense certain information and disclosures normally required for a complete set of financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Accordingly, certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. We believe that the notes to the condensed consolidated financial statements contain disclosures adequate to make the information presented not misleading.

Organization - —Language Line Holdings, Inc. (the “Predecessor”) was a Delaware corporation formed in December 1999 as a holding company for Language Line, LLC (“LLC”) and its subsidiaries. LLC was incorporated during February 1999 as a Delaware limited liability company. The Predecessor was acquired on June 11, 2004 by ~~the Company, a wholly-owned subsidiary of~~ Language Line ~~Acquisition~~, Inc., (“LLI”) in a transaction accounted for under the purchase method of accounting (the “Merger”). LLI, a wholly-owned subsidiary of Language Line Acquisition, Inc., is a Delaware corporation formed in April 2004. LLI had no significant operations prior to the acquisition of Predecessor.

The Company provides over-the-phone interpretation services, from English into over 150 different languages 24 hours a day, seven days a week. Such services are provided mainly to the non-English speaking business population in the U.S. and Canada covering various industries such as insurance, healthcare, financial, utilities and government, providing a cost effective alternative to staffing in-house multilingual capabilities or using face-to-face interpretation.

~~Cash~~Principles ~~equivalents~~of -Consolidation— ~~Cash~~The ~~equivalents are~~condensed ~~short-term,~~consolidated ~~highly~~financial ~~liquid~~statements ~~investments~~include ~~with~~the ~~original~~accounts orof ~~remaining~~LLI, ~~maturities~~LLC and LLC’s wholly-owned subsidiaries as of March 31, 2007 and December 31, 2006, and for the three months orended ~~less~~March 31, ~~when~~2007 ~~purchased~~and 2006. All significant intercompany accounts and transactions have been eliminated in consolidation.

~~Principles~~Fiscal ~~of Consolidation -~~ Year—The ~~condensed consolidated financial statements include the accounts of LLI, LLC and LLC~~Company’s ~~wholly-owned~~fiscal year ~~subsidiaries~~end asis of December 31~~, 2005 and June 30, 2006, and for the three months ended June 30, 2005 and 2006 and for the six months ended June 30, 2005 and 2006~~. ~~All significant intercompany accounts and transactions have been eliminated in consolidation.~~

~~Comprehensive~~Cash ~~Income~~equivalents—Cash -equivalents ~~SFAS~~are ~~No. 130~~short-term, ~~Reporting~~highly ~~Comprehensive~~liquid ~~Income,~~investments ~~requires~~with ~~that the Company report comprehensive income, which includes net income as well as other changes in assets and~~original ~~liabilities~~or ~~recorded~~remaining ~~directly~~maturities ~~to equity, in its financial statements. There were no components~~ of ~~comprehensive~~three ~~income~~months ~~other~~or ~~than~~less ~~net~~when ~~income for all periods presented~~purchased.

~~Stock-Based~~Reclassification—Interest ~~Compensation~~income ~~- Under the Company’s restricted stock unit plan, officers, employees~~ and ~~outside~~expense ~~directors~~ have ~~received or may receive grants of restricted stock units. Effective~~been ~~January 1,~~reclassified ~~2006,~~to ~~the~~be ~~Company~~presented ~~adopted~~on ~~the~~a ~~provisions~~gross ofbasis ~~Financial Accounting Standards Board Statement of Financial Accounting Standard (“SFAS”) No. 123(R), “Share-Based Payments,” which establishes the accounting~~ for ~~employee~~ ~~stock-based awards. Under~~ the provisions of SFAS No. 123(R), stock-based compensation is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the requisite employee service period (generally the vesting period of the grant). The Company adopted SFAS No. 123(R) using the modified prospective method and, as a result, periods ~~prior~~ended ~~to January~~March 131, 2006 ~~have~~to ~~not~~conform ~~been~~to ~~restated. The Company recognized stock-based compensation for grants of restricted stock units in~~ the ~~Selling~~March 31, ~~General~~2007 ~~and Administrative line item of the Condensed Consolidated Statement of Operations~~presentation. ~~Additionally, no~~

Income Taxes—Income taxes are accounted for using an asset and liability approach. Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and operating loss and tax credit carry forwards measured by applying currently enacted tax laws. A valuation allowance is provided to reduce net deferred tax assets to an amount that is more likely than not to be realized.

~~modifications~~The ~~were~~Company ~~made~~adopted tothe ~~outstanding~~provisions ~~restricted~~of ~~stock~~Financial ~~units~~Standards ~~prior~~Accounting toBoard ~~the~~Interpretation ~~adoption~~No. 48 Accounting for Uncertainty in Income Taxes (“FIN 48”) an interpretation of ~~SFAS~~FASB Statement No. ~~123~~109 (R“SFAS 109”), ~~and~~on noJanuary 1, ~~cumulative~~2007. No adjustments were ~~recorded~~made into the liability for unrecognized income tax benefits or our accumulated deficit as a result of the ~~Company’s~~implementation ~~financial~~of ~~statements~~FIN 48. At the adoption date of January 1, 2007, we had $3,216,000 of unrecognized tax benefits, all of which would affect our effective tax rate if recognized. At March 31, 2007, we have $5,494,000 of unrecognized tax benefits.

~~Prior~~We recognize interest and penalties related to ~~January~~uncertain tax positions in income tax expense. As of March 131, ~~2006~~2007, ~~the~~we ~~Company~~have ~~accounted~~approximately ~~for~~$706,000 ~~the~~of ~~plans~~accrued ~~under~~interest ~~the measurement~~ and ~~recognition provisions~~$426,000 of ~~Accounting~~accrued ~~Principles~~penalties ~~Board~~related ~~(“APB”)~~to ~~Opinion~~uncertain Notax positions. ~~25,~~ ~~Accounting~~The ~~for~~Company ~~Stock~~files ~~Issued~~income totax ~~Employees~~returns ~~(“APB~~in ~~25”)~~U.S. federal jurisdiction along with various state and foreign jurisdictions, and ~~related~~is ~~Interpretations~~subject asto ~~permitted~~ongoing byaudits ~~SFAS~~from ~~No. 123~~various ~~(“SFAS~~taxing ~~123”),~~authorities ~~Accounting~~in ~~for Stock~~the ~~Based~~jurisdictions ~~Compensation~~in which it does business. ~~Under~~With ~~APB~~certain 25exceptions, the Company ~~recorded~~is ~~stock-based~~no ~~compensation~~longer ~~expense~~subject to examinations from taxing authorities for ~~restricted~~years prior ~~stock~~to ~~and~~2003. ~~restricted~~The ~~stock~~Franchise ~~units~~Tax inBoard ~~its~~of ~~Financial~~the ~~Statements.~~State ~~Stock-based~~of ~~compensation~~California ~~expense~~is ~~was~~currently ~~included~~examining asthe aCompany’s ~~pro~~California ~~forma~~income ~~disclosure~~tax inreturns ~~the financial~~for ~~statement~~2003 ~~footnotes~~and 2004.

~~The~~We ~~following~~expect ~~table~~that, ~~illustrates~~within the ~~effect~~next ontwelve ~~net~~months, ~~income~~we ifwill ~~the~~make ~~Predecessor~~settlement ~~and~~payments ~~the~~on ~~Company~~tax ~~had~~positions ~~applied~~relating ~~the~~to ~~fair~~state ~~value recognition~~tax ~~provisions of SFAS No~~apportionments. ~~123~~ ~~and~~As ina ~~accordance~~result ~~with SFAS No. 148, Accounting~~ of ~~Stock-Based~~this ~~Compensation~~settlement ~~– Transition and Disclosure~~payment, Anthe ~~amendment~~total ofunrecognized ~~FASB~~tax ~~Statement~~benefit ~~No. 123,~~is expected to ~~stock-based~~decrease ~~employee~~by ~~compensation prior to January 1~~$499,000. ~~2006 (in thousands):~~

	Three MonthsEnded June 30, 2005			Six MonthsEnded June 30, 2005
Net income (loss), as reported	$	(1,763	)	$	(3,302	)
Add total stock-based employee compensation expense included in reported net income, net of related tax effects		60			120
Deduct total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(60	)		(120	)
Pro forma net income (loss)	$	(1,763	)	$	(3,302	)

The effective tax rate for the three months ended March 31, 2007 was 83% as compared to 38% for the three months ended March 31, 2006. The increase in the effective rate is primarily a result a $2.3 million increase in the liability for unrecognized tax benefits, representing a change in estimate given new information related to tax positions of prior years, recorded in the three months ended March 31, 2007.

~~Under~~Comprehensive ~~both~~ Income—SFAS ~~123 and SFAS 123(R)~~No. 130, ~~the Company determines the fair value of restricted stock units from the~~ ~~probability-weighted~~Reporting ~~expected~~Comprehensive ~~return method. Under this method~~Income, ~~the~~requires ~~value~~that ~~of an enterprise’s common stock is estimated from an analysis of~~ the ~~future values for the~~ Company ~~assuming~~report ~~various~~comprehensive ~~possible~~income, ~~future~~which ~~liquidity~~includes ~~events.~~net ~~SFAS~~income ~~123~~(Rloss) ~~requires that~~as ~~the~~well ~~Company~~as ~~recognize~~other ~~compensation~~changes ~~expense~~in ~~for~~assets ~~only~~and ~~the~~liabilities ~~portion~~recorded ofdirectly ~~restricted stock units that are expected~~ to ~~vest~~equity, ~~rather~~in ~~than~~its ~~recording~~financial ~~forfeitures when they occur, as previously permitted~~statements. IfThere ~~the~~were ~~actual~~no components ~~number~~ of ~~forfeitures~~comprehensive ~~differs~~income ~~from those~~other ~~estimated~~than bynet ~~management,~~income ~~additional~~(loss) ~~adjustments~~for toall ~~compensation expense may be required in future~~ periods presented.

OnRecent ~~January 1,~~Accounting ~~2006, deferred~~Pronouncements compensation related to awards issued prior to the adoption of SFAS 123(R) was reduced to zero with a corresponding decrease to capital surplus. SFAS 123(R) will require the Company to reflect the tax savings resulting from tax deductions in excess of expense reflected in its Financial Statements as a financing cash flow, which will impact the Company’s future reported cash flows from operating activities.

~~Stock-based~~In ~~compensation~~June ~~expense~~2006, ~~related~~the toFinancial ~~restricted~~Accounting ~~stock~~Standards ~~units~~Board of(FASB) ~~Language~~issued ~~Line~~FASB ~~Holdings,~~Interpretation ~~LLC~~No. 48, ~~the~~“Accounting ~~Company’s~~for ~~ultimate~~Uncertainty in ~~parent~~Income Taxes, ~~recognized~~an ~~under~~interpretation ~~SFAS~~of ~~123~~FASB Statement No. 109” (R“FIN 48”). FIN 48 prescribes guidance for the ~~three~~recognition ~~months~~ and ~~six~~measurement ~~months~~of ~~ended~~a tax position taken or expected to be taken in a tax return. Recognition of an asset ~~June 30,~~or ~~2006~~liability ~~was~~is ~~$113,000~~required ~~and~~if ~~$208~~it is more likely than not that a tax position will be sustained upon examination,~~000,~~ ~~respectively~~including resolution of any related appeals or litigation processes. AsThe provisions of ~~June 30,~~FIN ~~2006,~~48 ~~total~~were ~~unrecognized~~effective ~~compensation~~for ~~cost~~us on January 1, 2007, ~~net~~with the cumulative effect of ~~estimated~~the ~~forfeitures~~change in accounting principle, ~~was~~if ~~$1.4~~any, ~~million~~recorded ~~related~~as an adjustment to ~~restricted~~opening ~~stock~~retained ~~units~~earnings. The ~~unrecognized~~adoption ~~compensation~~of ~~cost~~FIN48 ~~is expected~~on toof beJanuary 1, ~~recognized~~2007 ~~over~~did not have an effect on the ~~next~~financial 5statements ~~years~~of the Company.

~~The~~In ~~restricted~~June ~~stock~~2006, ~~units~~the ~~will~~Financial ~~vest~~Accounting ~~according~~Standards toBoard a(“FASB”) ~~specified~~ratified ~~schedule~~the Emerging Issues Task Force No. 06-3 (“EITF 06-3”), “How Taxes Collected from Customers and ~~will~~Remitted to Governmental Authorities Should be ~~expensed~~Presented toin the Income Statement.” The pronouncement addresses disclosure requirements for taxes assessed by a ~~compensation~~governmental ~~over~~authority ~~the~~that ~~vesting~~is ~~period~~both ofimposed ~~five~~on ~~years.~~and ~~Vesting~~concurrent ~~will~~with ~~accelerate~~a ~~upon~~specific revenue-producing transaction between a ~~change~~seller ofand ~~control~~a ofcustomer, ~~Language~~and ~~Line~~may ~~Holdings~~include, ~~LLC~~but ~~and~~is ~~upon~~not limited to, sales, use, value added, certain ~~types~~excise oftaxes ~~sales~~and some industry-specific taxes. ~~Vesting~~A ~~will~~consensus ~~cease~~was ifreached that entities may adopt a policy of presenting these taxes in the ~~individual~~income ~~ceases~~statement toon beeither ~~employed~~a bygross ~~Language~~or ~~Line Holdings~~net basis. If such taxes are significant, ~~LLC~~EITF or06-3 ~~any~~requires disclosure of ~~its~~the ~~subsidiaries.~~accounting Ifmethod in the ~~individual~~accounting ~~ceases~~policy section of the notes to bethe ~~employed~~financial bystatements, ~~Language~~and ~~Line~~if ~~Holdings~~not presented at net, ~~LLC~~then ordisclosure ~~any~~is required for the amount of ~~its~~such ~~subsidiaries~~taxes that are recognized on a gross basis. We adopted EITF 06-3 on our effective date of January 1, ~~Language~~2007. We present revenues net of sales and value-added taxes in our consolidated financial position and results of operations. The amount of taxes collected from customers and remitted to government authorities are immaterial to our consolidated revenues.

~~Line~~In ~~Holdings~~September 2006, ~~LLC will have~~ the ~~option~~FASB toissued ~~purchase~~SFAS ~~all or any portion of the vested and/or the unvested restricted stock units~~No. 157 ~~The~~(“SFAS ~~aggregate~~157”) ~~purchase~~“Fair ~~price~~Value ~~for~~Measurements,” ~~all~~which ~~unvested~~defines ~~units~~fair ~~will be $1.00~~value, ~~and~~establishes ~~the~~a ~~purchase~~framework ~~price~~ for ~~each~~measuring ~~vested unit will be the~~ fair ~~market~~ value ~~for~~under ~~such~~generally ~~unit~~accepted asaccounting ~~of the date of individual’s termination. If~~principles, ~~however,~~and ~~the~~expands ~~Company~~disclosures ~~terminates~~about ~~the~~fair ~~individual’s~~value ~~employment for cause, the aggregate purchase price of all vested units will be $1~~measurements.~~00.~~ ~~Language~~SFAS ~~Line~~157 ~~Holdings,~~applies ~~LLC’s right~~ to ~~repurchase~~other ~~the~~accounting pronouncements ~~individual’s~~that ~~units~~require ~~will~~or ~~terminate~~permit ~~upon~~fair avalue ~~“change~~measurements. ofIt ~~control”~~is ~~(as~~effective ~~such~~for ~~term~~us isbeginning ~~defined~~ in ~~their~~fiscal ~~incentive unit~~year ~~agreement),~~2008. ~~provided~~We ~~that~~are ~~the~~currently ~~individual~~evaluating ~~is employed by Language Line Holdings, LLC or any of its subsidiaries at~~ the ~~time~~impact of ~~the~~adopting ~~“change~~SFAS ~~of control~~157.”

On February 15, 2007, the FASB issued SFAS No. 159, “The ~~following~~Fair ~~table~~Value ~~reflects~~Option ~~activity~~for ~~under~~Financial ~~the~~Assets ~~restricted~~and ~~stock~~Financial ~~unit~~Liabilities” (FAS ~~plan~~159). ~~from~~This ~~December 31,~~Statement ~~2005~~is ~~through~~a ~~June~~fair value option for financial assets and financial liabilities and includes an amendment of FASB Statement No. ~~30,~~115 ~~2006~~which (covers accounting for certain investments in ~~thousands,~~debt ~~except~~and ~~per~~equity ~~share~~securities. ~~amounts):~~It is effective for us beginning in fiscal year 2008. We are currently evaluating the impact of adopting SFAS 159.

	Number ofUnits (000)		WeightedAverage GrantDate Fair Value		WeightedAverageRemainingContractualTerm
Outstanding, December 31, 2005	19,405		$	0.09
Granted	4,225		$	0.09
Repurchased	(154	)	$	0.09
Forfeited	(777	)	$	0.09
Outstanding, June 30, 2006	22,699		$	0.09	3.27

2. Guarantor and Non-Guarantor Subsidiaries

AThe ~~summary~~Company’s ofoutstanding public debt (the ~~status~~“Senior Subordinated Notes”) is jointly and severally, fully and unconditionally guaranteed by the Company and certain of its subsidiaries (the “Guarantor Subsidiaries”). The Company’s ~~nonvested~~or ~~shares~~Parent asCompany ofhas ~~June~~no independent assets or operations. The subsidiaries are 100% owned by the Company. At March 3031, ~~2006~~2007, a total of approximately $161.8 million of Senior Subordinated Notes were outstanding. The Guarantor Subsidiaries and ~~changes~~non-guarantor ~~during~~subsidiaries are direct or indirect wholly-owned subsidiaries of the Company. Separate financial ~~period~~statements isof the Company and each of the Guarantor Subsidiaries are not presented ~~below:~~because the guarantees are full and unconditional and the Guarantor Subsidiaries are jointly and severally liable.

Nonvested Units	Number ofUnits (000)		WeightedAverage GrantDate Fair Value
Outstanding, December 31, 2005	17,464		$	0.09
Granted	4,225		$	0.09
Repurchased	(139	)	$	0.09
Forfeited	(704	)	$	0.09
Outstanding, June 30, 2006	20,846		$	0.09

The non-guaranteeing subsidiaries represent less than 3% on an individual and aggregate basis of consolidated assets, pre-tax earnings, cash flow and equity. Therefore, the non-guarantor subsidiaries’ information is not separately presented.

~~Restricted~~There ~~stock~~are ~~units~~no ~~granted~~current ~~vest~~restrictions ~~over~~on athe ability 5of ~~year~~the ~~cliff~~Guarantor ~~vesting~~Subsidiaries ~~schedule.~~to ~~During~~make ~~the~~payments ~~three~~under ~~months~~the ~~and~~guarantees ~~six~~referred ~~months ended~~to ~~June 30,~~above. ~~2006~~The noobligations ~~units~~of ~~vested.~~each ~~Recipients~~guarantor ofunder ~~restricted~~its ~~stock~~guarantee ~~units~~are dolimited ~~not~~to ~~pay~~the ~~any~~maximum ~~cash~~amount ~~consideration~~permitted ~~for~~under ~~the~~Bankruptcy ~~units~~Law, ~~do not have~~ the ~~right~~Uniform toFraudulent ~~vote~~Conveyance Act, ~~and~~the doUniform ~~not~~Fraudulent ~~receive~~Transfer ~~dividends~~Act, ~~with~~or ~~respect~~any tosimilar ~~such~~Federal ~~units.~~or ~~Compensation~~state ~~expense~~law ~~for restricted~~(e.g. ~~stock~~laws ~~units~~requiring isadequate ~~recognized~~capital onto apay ~~straight-line~~dividends) ~~basis~~respecting ~~over~~fraudulent ~~the~~conveyance ~~vesting~~or ~~period,~~fraudulent ~~using the restricted stock unit’s fair value on the grant date~~transfer.

~~Recent Accounting Pronouncements - In June 2006, the FASB issued FASB Interpretation No~~3. ~~48,~~ ~~“Accounting~~Subsequent ~~for~~Event Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 prescribes guidance for the recognition and measurement of a tax position taken or expected to be taken in a tax return. Recognition of an asset or liability is required if it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes. FIN 48 is effective for fiscal years beginning after December 15, 2006, with any adjustment in a company’s tax provision being accounted for as a cumulative effect of accounting change in equity. We are currently evaluating FIN 48 to determine its effect on our consolidated financial statements.

On April 25, 2007, Language Line, Inc. and Subsidiaries issued a dividend distribution in the amount of $20,000,000 to Language Line Holdings II, Inc. an affiliated non-consolidated entity under the ultimate parent, Language Line Holdings, LLC. The distribution will be recorded as a reduction to Additional-Paid-In-Capital in the consolidated financial statements of Language Line, Inc. and Subsidiaries for the quarter ended June 30, 2007 due to our accumulated deficit.

As a result of issuing the dividend distribution the Company borrowed $6,000,000 on our revolving credit facility to support current operating cash flow requirements. Borrowings under the revolving credit facility bear interest at 8.82%

4. Contingencies

The Company is party to certain legal actions arising in the ordinary course of business. Although the ultimate outcome is not presently determinable, management believes that the resolution of such matters will not have a material adverse effect on the Company’s financial position or results of operations.

2. Subsequent Events

On June 11, 2004 as part of the Merger, $30.0 million of the Merger consideration was deposited into an escrow account on behalf of the stockholders and optionholders of the Predecessor to secure their potential indemnity obligations to LLI and payment of any post-closing adjustment to the Merger consideration to LLI. On July 27, 2006 the Company received $796,000 in final settlement of the escrow account which will be booked as a gain in the third quarter of 2006.

3. Guarantor and Non-Guarantor Subsidiaries

LLI’s $165 million of Senior Subordinated Notes due 2012 (the “Notes”) are guaranteed by each of LLI’s domestic subsidiaries. The Notes are fully and unconditionally guaranteed on a joint and several basis by LLI’s wholly-owned direct and indirect domestic subsidiaries (the “Guarantor Subsidiaries”). The Notes are guaranteed by each Guarantor Subsidiary on an unsecured senior subordinated basis.

The indenture governing the Notes contains covenants limiting, among other things, LLI’s liability and the ability of LLI’s Guarantor Subsidiaries to incur additional indebtedness, make restricted payments, make investments, create certain liens, sell assets, restrict payments by the subsidiaries to LLI, guarantee indebtedness, enter into transactions with affiliates and merge or consolidate or transfer and sell assets.

The following information sets forth, on a condensed consolidating basis, balance sheet information as of December 31, 2005 and June 30, 2006, statements of operations and comprehensive income (loss) information for the three months and six months ended June 30, 2005 and 2006, and statement of cash flow information for the three months and six months ended June 30, 2005 and 2006 for LLI (the “Registrant”), the Guarantor Subsidiaries and foreign subsidiaries of LLI that are not guaranteeing the Notes (the “Non-Guarantor Subsidiaries”). Income tax expense (benefit) is allocated among entities based upon taxable income (loss) by jurisdiction within each group.

Condensed Consolidated Balance Sheets as of December 31, 2005 (In thousands)	CompanyIssuer			GuarantorSubsidiaries		Non-GuarantorSubsidiaries		Total			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	—		$	13,436	$	555	$	13,991		$	—		$	13,991
Accounts receivable - net		—			21,944		385		22,329			—			22,329
Intercompany receivable		—			78,719		—		78,719			(78,719	)		—
Prepaid expenses and other current assets		164			2,073		608		2,845			—			2,845
Refundable income taxes		—			—		—		—			—			—
Deferred taxes on income		626			—		—		626			—			626
Total current assets		790			116,172		1,548		118,510			(78,719	)		39,791
Property and equipment - net		—			3,283		1,708		4,991			—			4,991
Goodwill		—			408,793		—		408,793			—			408,793
Intangible assets - net		—			403,056		—		403,056			—			403,056
Deferred financing costs - net		11,425			—		—		11,425			—			11,425
Investment in subsidiaries		748,117			857		—		748,974			(748,974	)		—
Other assets		—			9		87		96			—			96
Total assets	$	760,332		$	932,170	$	3,343	$	1,695,845		$	(827,693	)	$	868,152
Liabilities, Member’s Capital and Stockholders’ Equity
Current liabilities:
Accounts payable	$	—		$	1,208	$	—	$	1,208		$	—		$	1,208
Intercompany payable		76,718			—		2,001		78,719			(78,719	)		—
Accrued interest		4,821			27		—		4,848			—			4,848
Accrued payroll and related benefits		—			779		38		817			—			817
Accured cost of interpreters		—			986		302		1,288			—			1,288
Other accrued liabilities		1			1,640		145		1,786			—			1,786
Income taxes payable		(2,816	)		5,304		—		2,488			—			2,488
Current portion of long-term debt		17,703			935		—		18,638			—			18,638
Total current liabilities		96,427			10,879		2,486		109,792			(78,719	)		31,073
Long-term debt		236,431			—		—		236,431			—			236,431
Senior subordinated notes		161,315			—		—		161,315			—			161,315
Deferred income taxes		(11,238	)		174,426		—		163,188			—			163,188
Total liabilities		482,935			185,305		2,486		670,726			(78,719	)		592,007
Member’s capital		—			746,865		857		747,722			(747,722	)		—
Stockholders’ equity:
Common stock		—			—		—		—			—			—
Additional paid-in-capital		281,064			—		—		281,064			—			281,064
Accumulated deficit		(3,667	)		—		—		(3,667	)		—			(3,667	)
Deferred stock compensation		—			—		—		—			(1,252	)		(1,252	)
Total stockholders’ equity		277,397			—		—		277,397			(1,252	)		276,145
Total liabilities, member’s capital and stockholders’ equity	$	760,332		$	932,170	$	3,343	$	1,695,845		$	(827,693	)	$	868,152

Condensed Consolidated Balance Sheets as of June 30, 2006 (In thousands)	CompanyIssuer			GuarantorSubsidiaries			Non-GuarantorSubsidiaries		Total			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	—		$	15,510		$	620	$	16,130		$	—		$	16,130
Accounts receivable - net		—			22,950			472		23,422			—			23,422
Intercompany receivable		—			93,959			—		93,959			(93,959	)		—
Prepaid expenses and other current assets		164			1,961			527		2,652			—			2,652
Refundable income taxes		—			—			—		—			—			—
Deferred taxes on income		812			—			—		812			—			812
Total current assets		976			134,380			1,619		136,975			(93,959	)		43,016
Property and equipment - net		—			3,856			1,953		5,809			—			5,809
Goodwill		—			408,793			—		408,793			—			408,793
Intangible assets - net		—			384,688			—		384,688			—			384,688
Deferred financing costs - net		10,452			—			—		10,452			—			10,452
Investment in subsidiaries		758,138			1,151			—		759,289			(759,289	)		—
Other assets		—			122			89		211			—			211
Total assets	$	769,566		$	932,990		$	3,661	$	1,706,217		$	(853,248	)	$	852,969
Liabilities, Member’s Capital and Stockholders’ Equity
Current liabilities
Accounts payable	$	—		$	793		$	—	$	793		$	—		$	793
Intercompany payable		91,813			—			2,146		93,959			(93,959	)		—
Accrued interest		4,939			—			—		4,939			—			4,939
Accrued payroll and related benefits		—			1,445			—		1,445			—			1,445
Accured cost of interpreters		—			1,409			58		1,467			—			1,467
Other accrued liabilities		—			1,936			306		2,242			—			2,242
Income taxes payable		5,547			(1,664	)		—		3,883			—			3,883
Current portion of long-term debt		14,158			—			—		14,158			—			14,158
Total current liabilities		116,457			3,919			2,510		122,886			(93,959	)		28,927
Long-term debt		229,353			—			—		229,353			—			229,353
Senior subordinated notes		161,514			—			—		161,514			—			161,514
Senior discount notes		—			—			—		—			—			—
Deferred income taxes		(11,947	)		170,933			—		158,986			—			158,986
Total liabilities		495,377			174,852			2,510		672,739			(93,959	)		578,780
Member’s capital		—			758,138			1,151		759,289			(759,289	)		—
Stockholders’ equity:
Common stock		—			—			—		—			—			—
Additional paid-in-capital		280,005			—			—		280,005			—			280,005
Accumulated deficit		(5,816	)		—			—		(5,816	)		—			(5,816	)
Total stockholders’ equity		274,189			—			—		274,189			—			274,189
Total liabilities, member’s capital and stockholders’ equity	$	769,566		$	932,990		$	3,661	$	1,706,217		$	(853,248	)	$	852,969

Condensed Consolidated Statements of Operations for the Three Months Ended June 30, 2005 (In thousands)	CompanyIssuer			GuarantorSubsidiaries			Non-GuarantorSubsidiaries		Total			Eliminations			Consolidated
Revenues	$	—		$	35,297		$	4,431	$	39,728		$	(4,226	)	$	35,502
Cost of services:
Interpreters		—			7,585			3,096		10,681			—			10,681
Telecommunications		—			1,326			18		1,344			—			1,344
Answer points		—			48			29		77			—			77
Total cost of services		—			8,959			3,143		12,102			—			12,102
Gross margin		—			26,338			1,288		27,626			(4,226	)		23,400
Other expenses:
Selling, general and administrative		—			9,858			897		10,755			(4,226	)		6,529
Interest - net		10,205			(130	)		—		10,075			—			10,075
Depreciation and amortization		—			9,603			193		9,796			—			9,796
Total other expenses		10,205			19,331			1,090		30,626			(4,226	)		26,400
Income (loss) from operations		(10,205	)		7,007			198		(3,000	)		—			(3,000	)
Equity earnings from subsidiaries		7,205			198			—		7,403			(7,403	)		—
Income (loss) before income taxes		(3,000	)		7,205			198		4,403			(7,403	)		(3,000	)
Income tax provision (benefit)		(1,237	)		2,990			82		1,835			(3,072	)		(1,237	)
Net income (loss)	$	(1,763	)	$	4,215		$	116	$	2,568		$	(4,331	)	$	(1,763	)

Condensed Consolidated Statements of Operations for the Three Months Ended June 30, 2006 (In thousands)	CompanyIssuer			GuarantorSubsidiaries			Non-GuarantorSubsidiaries		Total			Eliminations			Consolidated
Revenues	$	—		$	39,963		$	5,096	$	45,059		$	(4,943	)	$	40,116
Cost of services		—			10,568			3,579		14,147			—			14,147
Gross margin		—			29,395			1,517		30,912			(4,943	)		25,969
Other expenses:
Selling, general and administrative		—			11,016			1,039		12,055			(4,943	)		7,112
Interest - net		11,035			(144	)		0		10,891			—			10,891
Depreciation and amortization		—			9,569			241		9,810			—			9,810
Total other expenses		11,035			20,441			1,280		32,756			(4,943	)		27,813
Income (loss) from operations		(11,035	)		8,954			237		(1,844	)		—			(1,844	)
Equity earnings (losses) from subsidiaries		9,191			237			—		9,427			(9,427	)		—
Income (loss) before income taxes		(1,844	)		9,191			237		7,583			(9,427	)		(1,844	)
Income tax provision (benefit)		(700	)		3,492			90		2,882			(3,582	)		(700	)
Net income (loss) and comprehensive income (loss)	$	(1,144	)	$	5,699		$	147	$	4,701		$	(5,845	)	$	(1,144	)

Condensed Consolidated Statements of Operations for the Six Months Ended June 30, 2005 (In thousands)	CompanyIssuer			GuarantorSubsidiaries			Non-GuarantorSubsidiaries		Total			Eliminations			Consolidated
Revenues	$	—		$	71,048		$	8,607	$	79,655		$	(8,231	)	$	71,424
Cost of services:
Interpreters		—			15,435			5,972		21,407			—			21,407
Telecommunications		—			2,701			32		2,733			—			2,733
Answer points		—			96			68		164			—			164
Total cost of services		—			18,232			6,072		24,304			—			24,304
Gross margin		—			52,816			2,535		55,351			(8,231	)		47,120
Other expenses:
Selling, general and administrative		—			19,563			1,750		21,313			(8,231	)		13,082
Interest - net		20,112			(111	)		—		20,001			—			20,001
Depreciation and amortization		—			19,211			419		19,630			—			19,630
Total other expenses		20,112			38,663			2,169		60,944			(8,231	)		52,713
Income (loss) from operations		(20,112	)		14,153			366		(5,593	)		—			(5,593	)
Equity earnings from subsidiaries		14,519			366			—		14,885			(14,885	)		—
Income (loss) before income taxes		(5,593	)		14,519			366		9,292			(14,885	)		(5,593	)
Income tax provision (benefit)		(2,291	)		5,959			151		3,819			(6,110	)		(2,291	)
Net income (loss)	$	(3,302	)	$	8,560		$	215	$	5,473		$	(8,775	)	$	(3,302	)

Condensed Consolidated Statements of Operations for the Six Months Ended June 30, 2006 (In thousands)	CompanyIssuer			GuarantorSubsidiaries			Non-GuarantorSubsidiaries			Total			Eliminations			Consolidated
Revenues	$	—		$	79,757		$	10,168		$	89,925		$	(9,763	)	$	80,162
Cost of services		—			21,011			7,233			28,244			—			28,244
Gross margin		—			58,746			2,935			61,681			(9,763	)		51,918
Other expenses:
Selling, general and administrative		—			22,031			2,028			24,059			(9,763	)		14,296
Interest - net		21,709			(188	)		(2	)		21,519			—			21,519
Depreciation and amortization		—			19,143			433			19,576			—			19,576
Total other expenses		21,709			40,986			2,459			65,154			(9,763	)		55,391
Income (loss) from operations		(21,709	)		17,760			476			(3,473	)		—			(3,473	)
Equity earnings (losses) from subsidiaries		18,236			476			—			18,712			(18,712	)		—
Income (loss) before income taxes		(3,473	)		18,236			476			15,239			(18,712	)		(3,473	)
Income tax provision (benefit)		(1,324	)		6,968			182			5,826			(7,150	)		(1,324	)
Net income (loss) and comprehensive income (loss)	$	(2,149	)	$	11,268		$	294		$	9,413		$	(11,562	)	$	(2,149	)

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2005 (In thousands)	CompanyIssuer			GuarantorSubsidiaries			Non-GuarantorSubsidiaries			Total			Eliminations			Consolidated
Cash flows from operating activities:
Net income (loss)	$	(3,302	)	$	8,560		$	215		$	5,473		$	(8,775	)	$	(3,302	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		—			19,211			419			19,630			—			19,630
Amortization of deferred financing costs		947			—			—			947			—			947
Deferred taxes on income		(2,679	)		(1,437	)		—			(4,116	)		—			(4,116	)
Stock based compensation expense		—			184			—			184			—			184
Accretion of discount on long-term debt		179			—			—			179			—			179
Loss from derivative instruments		4			—			—			4			—			4
Equity in earnings of subsidiaries		(8,560	)		(215	)		—			(8,775	)		8,775			—
Effect of changes in operating assets and liabilities:
Accounts receivable		—			193			34			227			—			227
Prepaid expenses and other current assets		—			(386	)		(358	)		(744	)		—			(744	)
Other assets		—			72			(10	)		62			—			62
Accounts payable		—			163			—			163			—			163
Intercompany receivable, net of payable		34,291			(34,099	)		(192	)		—			—			—
Income taxes payable/refundable		(6,091	)		3,128			—			(2,963	)		—			(2,963	)
Accrued liabilities		2,963			(202	)		96			2,857			—			2,857
Net cash provided by (used in) operating activities		17,752			(4,828	)		204			13,128			—			13,128
Cash flows from investing activities -
Purchase of property		—			(486	)		(7	)		(493	)		—			(493	)
Net cash used in investing activities		—			(486	)		(7	)		(493	)					(493	)
Cash flows from financing activities:
Long-term debt repayments		(17,752	)		(909	)		—			(18,661	)		—			(18,661	)
Capital contribution from Parent		—			995			—			995			—			995
Net cash provided by (used in) financing activities		(17,752	)		86			—			(17,666	)		—			(17,666	)
Net increase (decrease) in cash		—			(5,228	)		197			(5,031	)		—			(5,031	)
Cash - beginning of period		—			11,983			181			12,164			—			12,164
Cash - end of period	$	—		$	6,755		$	378		$	7,133		$	—		$	7,133

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2006 (In thousands)	CompanyIssuer			GuarantorSubsidiaries			Non-GuarantorSubsidiaries			Total			Eliminations			Consolidated
Cash flows from operating activities
Net income (loss)	$	(2,149	)	$	11,268		$	294		$	9,413		$	(11,562	)	$	(2,149	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		—			19,142			434			19,576			—			19,576
Amortization of deferred financing costs		973			—			—			973			—			973
Deferred taxes on income		(893	)		(3,496	)		—			(4,389	)		—			(4,389	)
Stock based compensation expense		—			208			—			208			—			208
Accretion of discount on long-term debt		199			—			—			199			—			199
Equity in earnings (losses) of subsidiaries		(11,268	)		(294	)		—			(11,562	)		11,562			—
Effect of changes in operating assets and liabilities:
Accounts receivable		—			(1,005	)		(88	)		(1,093	)		—			(1,093	)
Prepaid expenses and other current assets		—			113			80			193			—			193
Other assets		—			(115	)		—			(115	)		—			(115	)
Accounts payable		—			(415	)		—			(415	)		—			(415	)
Intercompany receivable, net of payable		15,282			(15,428	)		146			—			—			—
Income taxes payable/refundable		8,361			(6,966	)		—			1,395			—			1,395
Accrued liabilities		119			1,357			(122	)		1,354			—			1,354
Net cash provided by operating activities		10,624			4,369			744			15,737			—			15,737
Cash flows from investing activities-
Purchase of property		—			(1,347	)		(679	)		(2,026	)		—			(2,026	)
Net cash used in investing activities		—			(1,347	)		(679	)		(2,026	)		—			(2,026	)
Cash flows from financing activities-
Long-term debt repayments		(10,624	)		(934	)		—			(11,558	)		—			(11,558	)
Repurchase of restricted stock units		—			(14	)		—			(14	)		—			(14	)
Net cash used in financing activities		(10,624	)		(948	)		—			(11,572	)		—			(11,572	)
Net increase in cash and cash equivalents		—			2,074			65			2,139			—			2,139
Cash and cash equivalents - beginning of period		—			13,436			555			13,991			—			13,991
Cash and cash equivalents - end of period	$	—		$	15,510		$	620		$	16,130		$	—		$	16,130

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of our Financial Condition and Results of Operations should be read in conjunction with the condensed consolidated financial statements and notes thereto included as part of this Form 10-Q. This report contains forward-looking statements that are based upon current expectations. We sometimes identify forward-looking statements with such words as “may”, “will”, “expect”, “anticipate”, “estimate”, “seek”, “intend”, “believe” or similar words concerning future events. The forward-looking statements contained herein, include, without limitation, statements concerning future revenue sources and concentration, gross profit margins, selling and marketing expenses, research and development expenses, general and administrative expenses, capital resources, additional financings or borrowings and additional losses and are subject to risks and uncertainties including, but not limited to, those discussed below and elsewhere in this Form 10-Q that could cause actual results to differ materially from the results contemplated by these forward-looking statements. We also urge you to carefully review the risk factors set forth in other documents we file from time to time with the SEC.

Introduction

We are the leading global provider of over-the-phone interpretation (“OPI”) services from English into more than 150 different languages, 24 hours a day, seven days a week. Our specially-trained, proprietary base of interpreters perform value-added OPI services which facilitate critical business transactions and delivery of emergency and government services between our customers and limited English proficiency (“LEP”) speakers throughout the world. In ~~2005~~2006, we helped more than 1924 million people communicate across linguistic and cultural barriers, providing over 90 million billed minutes of OPI services to our customers. We offer our customers a high-quality, cost-effective alternative to staffing in-house multilingual employees or using face-to-face interpretation. Through our OPI services, we improve our customers’ revenue potential, customer service and competitiveness by enhancing their ability to effectively serve the growing population of current and prospective LEP speakers.

Overview of Operations

Our operating revenues are derived primarily from per minute fees charged to our customers for our interpretation services. Generally, customers are charged based on the product of actual billed minutes of service and the customer’s contractual rate per billed minute of service. In addition, the Company generates revenue from membership and enrollment fees, as well as fees for other OPI-related services, such as document translation.

Expenses consist primarily of cost of services, selling, general and administrative expenses, depreciation and amortization and interest expense. Cost of services primarily include the cost of our interpreters and telecommunications related costs.

Results of Operations

The following table sets forth the percentages of revenue that certain items of operating data constitute for the periods indicated:

	Three MonthsEndedJune 30, 2005		Three MonthsEndedJune 30, 2006		Six MonthsEndedJune 30, 2005		Six MonthsEndedJune 30, 2006
	Three Months Ended March 31,2007		Three Months Ended March 31,2006
Statement of Operations data:
Revenues	100.0	%	100.0	%	~~100.0~~	%	~~100.0~~	%
Cost of services	34.14	%	35.32	%	~~34.0~~	%	~~35.2~~	%
Gross margin	65.9	%	64.7	%	66.0	%	64.8	%
Other expenses:
Other expenses:
Selling, general and administrative	17.8	%	17.9	%
Selling, general and administrative	18.4	%	17.7	%	18.3	%	17.8	%
Interest	22.9	%	26.7	%
Interest, net	28.4	%	27.1	%	28.0	%	26.8	%
Depreciation and amortization	18.8	%	24.4	%
Depreciation and amortization	27.6	%	24.5	%	27.5	%	24.4	%
Total other expenses	59.5	%	69.0	%
Total other expenses	74.4	%	69.3	%	73.8	%	69.1	%
Other income:
Income (loss) before income taxes	(8.5	)%	(4.5	)%	(7.8	)%	(4.3	)%
Interest	0.7	%	0.2	%
Income tax provision (benefit)	(3.5	)%	(1.7	)%	(3.2	)%	(1.7	)%
Total other income	0.7	%	0.2	%
Net income (loss)	(5.0	)%	(2.8	)%	(4.6	)%	(2.6	)%
Income (loss) before taxes on income	6.8	%	(4.0	)%
Tax (benefit) on income (loss)	5.7	%	(1.6	)%
Net income (loss)	1.1	%	(2.4	)%

~~Three~~7 ~~Months Ended June 30, 2006 Compared to the Three Months Ended June 30, 2005.~~

Revenues for the three months ended June 30, 2006 were $40.1 million as compared to $35.5 million for the three months ended June 30, 2005, an increase of $4.6 million or 13.0%. The majority of the increase in revenue is driven by a 18% increase in OPI billed minutes offset by a 5% decline in the average rate per billed minute.

Cost of services consists primarily of costs associated with interpretation services and customer support. Significant cost components include compensation of interpreters and telecommunication charges. For the three months ended June 30, 2006, cost of services were $14.1 million as compared to $12.1 million for the three months ended June 30, 2005, an increase of $2 million or 16.9%. This increase was primarily due to increased interpretation minutes.

Selling, general and administrative expenses for the three months ended June 30, 2006 were $7.1 million as compared to $6.5 million for the three months ended June 30, 2005, an increase of $0.6 million or 8.9%. This increase was primarily due to the results of an increase in sales initiatives, in addition to increased audit and tax related fees.

Interest expense for the three months ended June 30, 2006 was $10.9 million as compared to $10.1 million for the three months ended June 30, 2005. This increase was primarily the result of an increase in interest rates.

Depreciation and amortization was $9.8 million for the three months ended June 30, 2006 which was the same as compared to $9.8 million for the three months ended June 30, 2005.

The tax benefit on loss for the three months ended June 30, 2006 was $700,000 as compared to $1.2 million of tax benefit on loss for the three months ended June 30, 2005.

As a result of the factors described above, net loss was $1.1 million for the three months ended June 30, 2006 as compared to a net loss of $1.8 million for the three months ended June 30, 2005.

~~Six~~Three Months Ended ~~June~~March 3031, ~~2006~~2007 Compared to the ~~Six~~Three Months Ended ~~June~~March 3031, ~~2005.~~2006

Revenues for the ~~six~~three months ended ~~June~~March 3031, ~~2006~~2007 were $8045.23 million as compared to $7140.40 million for the ~~six~~three months ended ~~June~~March 3031, ~~2005~~2006, an an increase of $85.83 million or 1213.23%. The majority of the increase in revenue is driven by a 19.9% increase in OPI billed minutes, offset by a 6.0% decline in the average rate per billed minute driven by our pricing strategy. Our pricing strategy is designed to increase revenues by opportunistically reducing average rate per minute pricing in order to stimulate growth in billed minute volume.

Cost of services consists primarily of costs associated with interpretation services and customer support. Significant cost components include compensation of interpreters and telecommunication charges. For the ~~six~~three months ended ~~June~~ March 3031, ~~2006~~2007, cost of services were $2815.26 million as compared to $2414.31 million for the ~~six~~three months ended ~~June~~March 3031, ~~2005~~2006, an increase of $31.95 million or 16 10.26%. This increase was primarily due to increased interpretation minutes.

Selling, general and administrative expenses for the ~~six~~ three months ended ~~June~~March 3031, ~~2006~~2007 were $148.30 million as compared to $137.12 million for the ~~six~~three months ended ~~June~~March 3031, ~~2005~~2006, an increase of $10.28 million or 911.31%. This increase was primarily due to the results of an increase in ~~sales~~marketing ~~initiatives, in addition to increased audit~~ and ~~tax~~sales ~~related fees~~initiatives.

Interest expense for the ~~six~~three months ended ~~June~~March 3031, ~~2006~~2007 was $2110.54 million as compared to $2010.07 million for the ~~six~~three months ended ~~June~~March 3031, ~~2005~~ 2006. ~~This~~There ~~increase~~ was ~~primarily~~a slight decrease for the ~~result~~three ofmonths anended ~~increase~~March 31, 2007 in interest ~~rates~~expense due to refinancing our term loan.

Depreciation and amortization was $198.65 million for the ~~six~~three months ended ~~June~~March 3031, ~~2006~~2007 ~~which was the same as~~ compared to $199.68 million for the ~~six~~three months ended ~~June~~March 3031, ~~2005~~2006, a decrease of $1.3 million or 13.3%. The decrease was primarily due to one intangible asset being fully amortized in 2006.

~~The~~Interest ~~tax~~income ~~benefit on loss~~ for the ~~six~~three months ended ~~June~~March 3031, ~~2006~~2007 was $10.3 million as compared to $20.31 million ~~of tax benefit on loss~~ for the ~~six~~ three months ended ~~June~~March 3031, ~~2005~~2006. The increase was due to having a higher cash balance as well as earning higher interest on our cash.

AsThe atax ~~result~~expense ofon income for the ~~factors~~three ~~described~~months ~~above~~ended March 31, ~~net~~2007 was $2.6 million as compared to $0.6 million of tax benefit on loss ~~was~~for the three months ended March 31, 2006, a change of $3.2 million. This change in tax expense is primarily due to a $4.7 million change in pretax results of operations (income before income taxes of $3.1 million for the ~~six~~three months ended ~~June~~March 3031, ~~2006~~2007 as compared to a ~~net~~ loss before income taxes of $1.6 million for the three months ended March 31, 2006), combined with a $2.3 million increase in the liability for unrecognized tax benefits recorded in the three months ended March 31, 2007. The effective tax rate for the three months ended March 31, 2007 was 83% as compared to 38% for the three months ended March 31, 2006. The increase in the effective rate is primarily a result a $2.3 million increase in the liability for unrecognized tax benefits, representing a change in estimate given new information related to tax positions of prior years, recorded in the ~~six~~three months ended ~~June~~March 3031, ~~2005~~2007.

As a result of the factors described above, net income was $0.5 million for the three months ended March 31, 2007 as compared to a net loss of $1.0 million for the three months ended March 31, 2006.

Liquidity and Capital Resources

Operating Activities. Net cash provided by operating activities for the ~~six~~three months ended ~~June~~March 3031, ~~2006~~2007 was $1511.7 million compared with net cash provided by operating activities during the ~~six~~three months ended ~~June~~March 3031, ~~2005~~2006 of $1312.1 million. This ~~increase~~decrease of $0.4 million is mainly attributable to ~~the~~a ~~timing~~reduction ofin ~~tax~~accrued ~~payments~~interest ~~offset~~and byother ~~a decrease attributable to accounts receivable~~liabilities.

Investing Activities. Net cash used in investing activities was $20.9 million for the ~~six~~three months ended ~~June~~March 3031, ~~2006~~2007, compared to $~~493,000~~1.0 million for the ~~six~~three months ended ~~June~~March 3031, ~~2005~~2006. This ~~increase~~decrease was mainly attributable to a reduction in capital ~~expenditures~~expenditure spending.

Financing Activities. Net cash used in financing activities during the ~~six~~three months ended ~~June~~March 3031, ~~2006~~2007 was $117.68 million, compared to $~~17.~~7.2 million during the ~~six~~three months ended ~~June~~March 3031, ~~2005~~2006. The ~~decrease~~increase of $60.16 million is the result of ~~a decrease~~an increase in principal payments made on our senior secured debt.

~~Our~~8 principal sources of liquidity are cash flow from operations and borrowings under our senior secured credit facilities. We believe that these funds will provide us with sufficient liquidity and capital resources for us to meet our current and future financial obligations, including our scheduled principal and interest payments, as well as to provide funds for working capital, capital expenditures, and other needs. Our principal uses of cash are debt service requirements, capital expenditures, and working capital requirements.

Debt Service. As of June 30, 2006, we had total indebtedness of $405.0 million and $40.0 million of borrowings available under our revolver credit facility, as defined in our loan agreement and subject to customary conditions.

The senior secured credit facilities consist of a six-year $40.0 million revolving credit facility and a seven-year amortizing $285.0 million term loan facility. Borrowings under the senior credit facilities generally bear interest based on a margin over, at our option, the base rate or the reserve-adjusted LIBOR. The applicable margin for revolving credit loans will vary based upon our leverage ratio as defined in the senior credit facilities. The senior credit facilities are secured by first priority interests in, and mortgages on, substantially all of our tangible and intangible assets and first priority pledges of all the equity interests owned by us in our existing and future domestic subsidiaries.

Our principal source of liquidity is cash flow from operations. We believe that cash flow from operations will provide us with sufficient liquidity and capital resources for us to meet our current and future financial obligations, including our scheduled principal and interest payments, as well as to provide funds for working capital, capital expenditures, and other needs. Our principal uses of cash are debt service requirements, capital expenditures, and working capital requirements.

Debt Service. As of March 31, 2007, we had total indebtedness of $390.5 million and $40.0 million of borrowings available under our revolver credit facility, as defined in our loan agreement and subject to customary conditions.

Our senior subordinated notes mature in 2012 and are guaranteed by each of our existing domestic subsidiaries on a senior subordinated basis. Interest on the notes will be payable semi-annually in cash.

Capital Expenditures. We expect to spend approximately $3.0 million in ~~2006~~2007 and approximately $3.0 million in ~~2007~~2008 to fund our capital expenditures as well as normal investments in telecommunications and company equipment. We plan to fund these expenditures through net cash flows from operations.

Contractual and Commercial Commitments Summary

The following tables present our long-term contractual cash obligations as of ~~June~~March 3031, ~~2006~~2007 (dollars in thousands):

	Total		~~Remainderof 2006~~2007		~~2007~~2008		~~2008~~2009		~~2009~~2010		~~2010~~2011		Thereafter
Senior secured credit facilities	$	~~243~~228,~~511~~653	$	79,~~079~~472	$	1412,~~158~~630	$	1412,~~158~~630	$	1412,~~158~~630	$	14181,~~158~~291	$	~~179,800~~—
Senior subordinated notes offered by Language Line, Inc.		165,000		—		—		—		—		—		165,000
Interest payments		~~212~~175,~~349~~300		2032,~~951~~901		4036,~~867~~798		3935,~~488~~712		3834,~~109~~626		3626,~~730~~084		369,~~204~~179
Operating leases		10,177		2,050		3,892		2,499		883		769		84
Unrecognized tax benefit		499		499
Total cash contractual obligations	$	631,037	$	30,080	$	58,917	$	56,145	$	53,150	$	51,657	$	381,088
Operating leases		7,757		3,098		2,660		1,023		831		145		—
Total cash contractual obligations	$	577,209	$	45,970	$	52,088	$	49,365	$	48,087	$	207,520	$	174,179

Interest payments with respect to the senior secured credit facilities assume a variable rate of 9 8.7460%, which represents the most recent rate applicable to these facilities. The senior subordinated notes offered by Language Line, Inc. are 11 1/8% fixed rate notes.

We expect that, within the next twelve months, we will make settlement payments on tax positions relating to state tax apportionments. As a result of this settlement payment, the total unrecognized tax benefit is expected to decrease by $499,000. Since settlement of all other tax positions can not be reasonably estimated, $4,995,000 of the unrecognized tax benefit is not included in the Contractual and Commercial Commitment Summary.

Critical Accounting Policies

In preparing the consolidated financial statements, GAAP requires management to select and apply accounting policies that involve estimates and judgment. The following accounting policies may require a higher degree of judgment or involve amounts that could have a material impact on the consolidated financial statements.

Allowance for Doubtful Accounts - —We maintain an allowance for doubtful accounts for estimated losses resulting from the failure of customers to make ~~payments~~payment. We determine the allowance based upon an evaluation of individual accounts, aging of the portfolio, issues raised by customers that may suggest non-payment, historical experience and/or the current economic environment. WeWhile ~~might~~our ~~not~~bad ~~continue~~debt tolosses ~~experience~~have ~~the~~historically ~~same~~been ~~loss~~within ~~rates~~our ~~that~~expectations weand ~~have in~~ the ~~past.~~allowance Ifestablished, ~~the~~we ~~financial~~might ~~condition~~not ofcontinue ~~individual customers or the general worldwide economy were~~ to ~~vary~~experience ~~materially from~~ the ~~estimates~~same ~~and~~loss ~~assumptions~~rates ~~made~~that bywe ~~us,~~have ~~the allowance may require adjustment~~ in the ~~future~~past. WeIf ~~evaluate~~ the ~~adequacy~~financial ~~of the allowance on a regular basis, modifying, as necessary, its assumptions, updating its record of historical experience and adjusting reserves as appropriate.~~

~~Income~~9 Taxes - In preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating actual current tax exposures together with assessing tax credits and temporary differences resulting from differing treatment of certain items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within the consolidated balance sheet. We then assess the likelihood of additional tax exposure, and to the extent we believe that additional tax exposure may be likely, we must record a liability for such matters. To the extent we increase this liability in a period, we include an expense within the tax provision in our consolidated statement of operations.

~~Impairment of Long-Lived Assets - We assess the impairment of long-lived assets at least annually or when~~ ~~changes~~condition ~~in circumstances indicate that the carrying value~~ of ~~the~~individual ~~assets~~customers or the ~~asset~~general ~~grouping~~worldwide ~~may~~economy ~~not~~were beto ~~recoverable.~~vary ~~Customer~~materially ~~relationships,~~from ~~internally~~the ~~developed~~estimates ~~technology, tradenames~~ and ~~trademarks,~~assumptions ~~and~~made ~~goodwill~~by ~~are~~us, ~~our~~the ~~most~~allowance ~~significant~~may ~~long-lived~~require ~~assets~~adjustment ~~and~~in ~~are~~the ~~tested annually~~future. ~~Impairment~~We isevaluate ~~measured by~~ the ~~difference~~adequacy ~~between~~of the ~~carrying~~allowance ~~amount~~on ~~and~~a ~~the~~regular ~~respective~~basis, ~~fair values~~modifying, ~~based~~as onnecessary, ~~the~~its ~~best information available~~assumptions, ~~including~~updating ~~market~~its ~~prices~~record ~~or a discounted cash flow analysis. Estimates are made on the useful lives or economic values~~ of ~~assets~~historical experience and ~~could~~adjusting ~~change~~reserves ~~base~~as ~~on changes in the economy or industry trends~~appropriate.

~~Claims~~Impairment of Long-Lived Assets—We assess the impairment of long-lived assets at least annually or when events or changes in circumstances indicate that the carrying value of the assets or the asset grouping may not be recoverable. Customer relationships, internally developed technology, tradenames and trademarks, and goodwill are our most significant long-lived assets and are tested ~~Legal~~annually. ~~Proceedings~~Impairment is measured by the difference between the carrying amount and the respective fair values, based on the best information available, including market prices or a discounted cash flow analysis. Estimates are made on the useful lives or economic values of assets and could change based on changes in the economy or industry trends.

InStock-Based Compensation—We account for stock-based compensation in accordance with Statement of Financial Accounting Standards (SFAS) No. 123(R), “Share Based Payment”. Under SFAS 123(R), the ~~normal~~Company ~~course~~determines the fair value of its ~~business~~Language Line Holdings, weLLC ~~are~~(“Holdings”) ~~party~~Class C restricted stock units pursuant to the probability-weighted expected return method. Under this method, the value of an enterprise’s common stock is estimated from an analysis of the future values for the Company assuming various ~~claims~~possible ~~and~~future ~~legal~~liquidity ~~proceedings~~events. WeSFAS ~~record~~123(R) arequires ~~reserve~~that the Company recognize compensation expense for ~~these~~only the portion of restricted stock units that are expected to vest, rather than recording ~~matters~~forfeitures when anthey ~~adverse~~occur, ~~outcome~~as ispreviously ~~probable~~permitted. ~~and~~If wethe ~~can~~actual ~~reasonably~~number ~~estimate~~of ~~our~~forfeitures ~~potential~~differs ~~liability.~~from Wethose ~~are~~estimated ~~not~~by ~~currently~~management, ~~involved~~additional inadjustments ~~any~~to ~~material~~compensation ~~legal~~expense ~~proceedings~~may be required in future periods.

Income Taxes—In preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating actual current tax exposures together with assessing tax credits and temporary differences resulting from differing treatment of certain items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within the consolidated balance sheet. We then assess the likelihood of additional tax exposure, and to the extent we believe that additional tax exposure may be likely, we must record a liability for such matters. To the extent we increase this liability in a period, we include an expense within the tax provision in our consolidated statement of operations.

Significant management judgment is required in determining our provision for income taxes, income tax credits, deferred tax assets and liabilities. The recording of a liability based on additional tax exposure is based on estimates of taxable income by the jurisdictions in which we operate and the period over which amounts would be recoverable. In the event that actual results differ from these estimates or we adjust these estimates in future periods, we may need to adjust our income tax liability, which could impact our financial position and results of operations.

Claims and Legal Proceedings—In the normal course of business, we are party to various claims and legal proceedings. We record a reserve for these matters when an adverse outcome is probable and we can reasonably estimate our potential liability. Although the outcome of these matters is currently not determinable, we do not believe that the resolution of these matters in a manner adverse to our interest will have a material effect upon our financial condition, results of operations or cash flows for any interim or annual period.

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

We are exposed to certain market risks as part of our ~~on-going~~ongoing business operations. Primary exposure ~~includes~~will include changes in interest rates, as borrowings under our senior secured credit facilities bear interest at floating rates based on LIBOR or the ~~prime~~base rate, in each case plus an applicable borrowing margin. We will manage our interest rate risk by balancing ~~the~~our amount of fixed-rate and floating-rate debt. For fixed-rate debt, interest rate changes ~~affect the fair market value but~~ do not affect our earnings or cash flows. Conversely, for floating-rate debt, interest rate changes generally ~~do not affect the fair market value but do~~ impact our earnings and cash flows, assuming other factors are held constant.

WeAs ~~may~~of ~~use~~March 31, ~~derivative financial instruments~~2006, ~~where~~we ~~appropriate,~~had to$165.0 ~~manage~~million ~~our~~principal ~~interest~~amount of fixed-rate ~~risks.~~debt ~~However,~~and as$268.7 amillion ~~matter~~ of ~~policy~~available wefloating-rate ~~will~~debt ~~not~~(of ~~enter~~which we ~~into~~borrowed ~~derivative~~$228.7 ormillion). ~~other~~Based ~~financial~~on ~~investments~~the ~~for~~pro ~~trading~~forma oramounts ~~speculative~~outstanding ~~purposes.~~under Wethe dorevolver ~~not~~credit ~~have~~facility ~~any~~and ~~speculative~~the orterm ~~leveraged~~loan, ~~derivative~~a ~~transactions.~~hypothetical ~~Most~~increase of ~~our~~one ~~revenue~~percentage ispoint ~~denominated~~would incause ~~U.S.~~an ~~dollars;~~increase ~~thus~~to ~~our~~interest ~~financial~~expense ~~results~~of ~~are~~approximately ~~not~~$2.3 ~~subject~~million on toan ~~any~~annual ~~material~~basis ~~foreign~~on ~~currency~~the ~~exchange~~floating ~~risks~~rate debt.

~~Item~~10 ~~4. Controls and Procedures.~~

The Company’sTable Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this quarterly report, have concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in rules and forms of the SEC. Contents

~~Disclosure~~Changes ~~controls~~in economic conditions could result in higher interest rates, thereby increasing our interest expense and ~~procedures~~other ~~include~~operating expenses and reducing our funds available for capital investment, ~~without~~operations ~~limitation~~or other purposes. In addition, ~~controls~~a ~~and~~substantial ~~procedures~~portion ~~designed~~of toour ~~ensure~~cash ~~that~~flow ~~information~~must ~~required~~be used to beservice ~~disclosed~~debt, ~~by an~~which ~~issuer~~may inaffect ~~the~~our ~~reports~~ability ~~that~~to itmake ~~files~~future acquisitions or ~~submits~~capital ~~under~~expenditures. ~~the~~We ~~Exchange~~may ~~Act~~from istime ~~accumulated~~to ~~and~~time ~~communicated~~use interest rate protection agreements to ~~the~~minimize ~~issuer’s~~our ~~management~~exposure to interest rate fluctuation. However, ~~including~~there ~~its~~can ~~principal~~be ~~executive~~no ~~and~~assurance ~~principal~~that ~~financial~~hedges ~~officers,~~will orachieve ~~persons~~the ~~performing~~desired ~~similar~~effect. ~~functions,~~We asmay ~~appropriate~~experience toeconomic ~~allow~~loss ~~timely~~and ~~decisions~~a ~~regarding~~negative ~~required~~impact ~~disclosure~~on earnings or net assets as a result of interest rate fluctuations.

~~There~~Item ~~have~~4T. ~~not~~Controls ~~been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f)~~ and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reportingProcedures.

Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as defined in Rule 13a–15(e) and 15d–15(e) under the Securities Exchange Act of 1934) that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

The Company’s management has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal year that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PART 2. OTHER INFORMATION

Item 1.

Legal Proceedings

Language Line, Inc. is not currently involved in any material legal proceedings.

Item 1A.

Risk Factors

For a more detailed explanation of the factors affecting our business, please refer to the Risk Factors section in our Form 10-K for the fiscal year ended December 31, ~~2005~~2006.

There have been no material changes from Risk Factors previously disclosed in our Form 10-K.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.

Defaults upon Senior Securities

None.

Item 4.

Submission of Matters to a Vote of Security Holders

None.

Item 5.

Other Information

None.

Item 6.

Exhibits and Reports on Form 8-K

(a)

Exhibits

31.1		Certification by Dennis G. Dracup pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification by ~~Matthew~~Jeffrey TC. ~~Gibbs~~Grace II pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Chief Executive Officer.
32.2		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Chief Financial Officer.

(b)

Reports of Form 8-K

None.

2112

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Monterey, California on ~~August~~May 1410, ~~2006~~2007.

LANGUAGE LINE, INC. /s/ Dennis G. Dracup Dennis G. Dracup Chief Executive Officer and Director /s/ ~~Matthew~~Jeffrey TC. ~~Gibbs~~Grace IIJeffrey ~~Matthew T~~C. ~~Gibbs~~Grace II Chief Financial Officer, Vice President, Secretary and Director

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Filing Compare · Language Line, Inc.