UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
| þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended June 30, 2006
or
| ¨ | 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 333-118754
Language Line Holdings, Inc.
(Exact name of registrant as specified in its charter)
| | |
| Delaware | | 20-0997806 |
(State or other jurisdiction of incorporation or organization) | | (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¨ Noþ
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 filerx
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes¨ Nox
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 Holdings, Inc. (“LLHI,” “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 HOLDINGS, INC. AND SUBSIDIARIES
(An Indirect Wholly-Owned Subsidiary of Language Line Holdings, LLC)
TABLE OF CONTENTS
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 HOLDINGS, 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 | |
Assets | | | | | | | | |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 13,991 | | | $ | 16,130 | |
Accounts receivable, net | | | 22,329 | | | | 23,422 | |
Prepaid expenses and other current assets | | | 2,681 | | | | 2,488 | |
Deferred taxes on income | | | 621 | | | | 810 | |
| | | | | | | | |
Total current assets | | | 39,622 | | | | 42,850 | |
Property and equipment, net | | | 4,991 | | | | 5,809 | |
Goodwill | | | 408,793 | | | | 408,793 | |
Intangible assets, net | | | 403,056 | | | | 384,688 | |
Deferred financing costs, net | | | 13,173 | | | | 12,083 | |
Other assets | | | 96 | | | | 211 | |
| | | | | | | | |
Total assets | | $ | 869,731 | | | $ | 854,434 | |
| | | | | | | | |
Liabilities and Stockholders’ Equity | | | | | | | | |
Current liabilities: | | | | | | | | |
Accounts payable | | $ | 1,208 | | | $ | 793 | |
Accrued interest | | | 4,848 | | | | 4,939 | |
Accrued payroll and related benefits | | | 817 | | | | 1,445 | |
Accrued cost of interpreters | | | 1,288 | | | | 1,467 | |
Other accrued liabilities | | | 1,786 | | | | 2,242 | |
Income taxes payable | | | 2,341 | | | | 3,691 | |
Current portion of long-term debt | | | 18,638 | | | | 14,158 | |
| | | | | | | | |
Total current liabilities | | | 30,926 | | | | 28,735 | |
Long-term debt | | | 236,431 | | | | 229,353 | |
Senior subordinated notes | | | 161,315 | | | | 161,514 | |
Senior discount notes | | | 67,996 | | | | 72,799 | |
Deferred taxes on income | | | 159,643 | | | | 154,132 | |
| | | | | | | | |
Total liabilities | | | 656,311 | | | | 646,533 | |
| | | | | | | | |
Stockholders’ equity: | | | | | | | | |
Common stock, $.01 par value per share and 1,000 shares authorized, issued and outstanding | | | — | | | | — | |
Additional paid-in capital | | | 228,015 | | | | 226,957 | |
Accumulated deficit | | | (13,343 | ) | | | (19,056 | ) |
Deferred stock compensation | | | (1,252 | ) | | | — | |
| | | | | | | | |
Total stockholders’ equity | | | 213,420 | | | | 207,901 | |
| | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 869,731 | | | $ | 854,434 | |
| | | | | | | | |
See notes to condensed consolidated financial statements.
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LANGUAGE LINE HOLDINGS, INC. AND SUBSIDIARIES
(An Indirect Wholly-Owned Subsidiary of Language Line Holdings, LLC)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
| | | | | | | | | | | | | | | | |
| | | Three months
ended
June 30, 2005 | | | Three months
ended
June 30, 2006 | | | Six months
ended
June 30,
2005 | | | Six months
ended
June 30,
2006 | |
Revenues | | $ | 35,502 | | | $ | 40,116 | | | $ | 71,424 | | | $ | 80,162 | |
Cost of services | | | 12,102 | | | | 14,147 | | | | 24,304 | | | | 28,244 | |
| | | | | | | | | | | | | | | | |
Gross margin | | | 23,400 | | | | 25,969 | | | | 47,120 | | | | 51,918 | |
| | | | | | | | | | | | | | | | |
Other expenses: | | | | | | | | | | | | | | | | |
Selling, general and administrative | | | 6,529 | | | | 7,112 | | | | 13,082 | | | | 14,296 | |
Interest - net | | | 12,240 | | | | 13,364 | | | | 24,307 | | | | 26,438 | |
Depreciation and amortization | | | 9,796 | | | | 9,810 | | | | 19,630 | | | | 19,576 | |
| | | | | | | | | | | | | | | | |
Total other expenses | | | 28,565 | | | | 30,286 | | | | 57,019 | | | | 60,310 | |
| | | | | | | | | | | | | | | | |
Loss before income taxes | | | (5,165 | ) | | | (4,317 | ) | | | (9,899 | ) | | | (8,392 | ) |
Income tax benefit | | | (1,844 | ) | | | (1,382 | ) | | | (3,498 | ) | | | (2,679 | ) |
| | | | | | | | | | | | | | | | |
Net loss | | $ | (3,321 | ) | | $ | (2,935 | ) | | $ | (6,401 | ) | | $ | (5,713 | ) |
| | | | | | | | | | | | | | | | |
See notes to condensed consolidated financial statements.
2
LANGUAGE LINE HOLDINGS, INC. AND SUBSIDIARIES
(An Indirect Wholly-Owned Subsidiary of Language Line Holdings, LLC)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| | | | | | | | |
| | | Six months
ended
June 30, 2005 | | | Six months
ended
June 30, 2006 | |
Cash flows from operating activities: | | | | | | | | |
Net loss | | $ | (6,401 | ) | | $ | (5,713 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | | | | |
Depreciation and amortization | | | 19,630 | | | | 19,576 | |
Amortization of deferred financing costs | | | 1,064 | | | | 1,090 | |
Deferred taxes on income | | | (5,278 | ) | | | (5,700 | ) |
Stock based compensation expense | | | 184 | | | | 208 | |
Loss from derivative instruments | | | 4 | | | | — | |
Accretion of discount on long-term debt | | | 4,369 | | | | 5,002 | |
Effect of changes in operating assets and liabilities: | | | | | | | | |
Accounts receivable | | | 227 | | | | (1,093 | ) |
Prepaid expenses and other current assets | | | (744 | ) | | | 193 | |
Other assets | | | 62 | | | | (115 | ) |
Accounts payable | | | 163 | | | | (415 | ) |
Income taxes payable/refundable | | | (3,009 | ) | | | 1,350 | |
Accrued payroll and other liabilities | | | 2,857 | | | | 1,354 | |
| | | | | | | | |
Net cash provided by operating activities | | | 13,128 | | | | 15,737 | |
| | | | | | | | |
Cash flows from investing activities : | | | | | | | | |
Purchase of property | | | (493 | ) | | | (2,026 | ) |
| | | | | | | | |
Net cash used in investing activities | | | (493 | ) | | | (2,026 | ) |
| | | | | | | | |
Cash flows from financing activities : | | | | | | | | |
Long-term debt repayments | | | (18,661 | ) | | | (11,558 | ) |
Repurchase of restricted stock units | | | — | | | | (14 | ) |
Capital contribution from Parent | | | 995 | | | | — | |
| | | | | | | | |
Net cash used in financing activities | | | (17,666 | ) | | | (11,572 | ) |
Net (decrease) increase in cash and cash equivalents | | | (5,031 | ) | | | 2,139 | |
Cash and cash equivalents - beginning of period | | | 12,164 | | | | 13,991 | |
| | | | | | | | |
Cash and cash equivalents - end of period | | $ | 7,133 | | | $ | 16,130 | |
| | | | | | | | |
Supplemental cash flow disclosures: | | | | | | | | |
Cash paid for interest | | $ | 15,837 | | | $ | 20,325 | |
| | | | | | | | |
Cash paid for income taxes | | $ | 4,789 | | | $ | 1,664 | |
| | | | | | | | |
See notes to condensed consolidated financial statements.
3
LANGUAGE LINE HOLDINGS, 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 three months ended June 30, 2006 and the six months ended June 30, 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 of Language Line Holdings, Inc., which are included in the Form 10-K filed with the SEC on April 12, 2006.
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 Language Line, 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. Language Line Acquisition, Inc. is a Delaware corporation formed in April 2004 and also had no significant operations prior to LLI’s acquisition of Predecessor. Subsequent to the Merger, Language Line Acquisition, Inc., an indirect wholly-owned subsidiary of Language Line Holdings, LLC, was renamed Language Line Holdings, Inc. (“LLHI” or the “Company”).
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 equivalents—Cash equivalents are short-term, highly liquid investments with original or remaining maturities of three months or less when purchased.
Principles of Consolidation—The condensed consolidated financial statements include the accounts of LLHI, LLI, LLC and LLC’s wholly-owned subsidiaries as 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 Income – SFAS No. 130,Reporting Comprehensive Income, requires that the Company report comprehensive income, which includes net income as well as other changes in assets and liabilities recorded directly to equity, in its financial statements. There were no components of comprehensive income other than net income for all periods presented.
Stock-Based Compensation – Under the Company’s restricted stock unit plan, officers, employees and outside directors have received or may receive grants of restricted stock units. Effective January 1, 2006, the Company adopted the provisions of 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
4
Company adopted SFAS No. 123(R) using the modified prospective method and, as a result, periods prior to January 1, 2006 have not been restated. The Company recognized stock-based compensation for grants of restricted stock units in the Selling, General and Administrative line item of the Condensed Consolidated Statement of Operations. Additionally, no modifications were made to outstanding restricted stock units prior to the adoption of SFAS No. 123(R), and no cumulative adjustments were recorded in the Company’s financial statements.
Prior to January 1, 2006, the Company accounted for the plans under the measurement and recognition provisions of Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), and related Interpretations as permitted by SFAS No. 123 (“SFAS 123”), Accounting for Stock Based Compensation. Under APB 25, the Company recorded stock-based compensation expense for restricted stock and restricted stock units in its Financial Statements. Stock-based compensation expense was included as a pro forma disclosure in the financial statement footnotes.
The following table illustrates the effect on net income if the Predecessor and the Company had applied the fair value recognition provisions of SFAS No. 123 and in accordance with SFAS No. 148, Accounting of Stock-Based Compensation – Transition and Disclosure, An amendment of FASB Statement No. 123, to stock-based employee compensation prior to January 1, 2006 (in thousands):
| | | | | | | | |
| | | Three Months
Ended
June 30, 2005 | | | Six Months
Ended June 30, 2005 | |
Net income (loss), as reported | | $ | (3,321 | ) | | $ | (6,401 | ) |
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) | | $ | (3,321 | ) | | $ | (6,401 | ) |
| | | | | | | | |
Under both SFAS 123 and SFAS 123(R), the Company determines the fair value of restricted stock units from 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 possible future liquidity events. SFAS 123(R) requires that the Company recognize compensation expense for only the portion of restricted stock units that are expected to vest, rather than recording forfeitures when they occur, as previously permitted. If the actual number of forfeitures differs from those estimated by management, additional adjustments to compensation expense may be required in future periods.
On January 1, 2006, deferred 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 compensation expense related to restricted stock units of Language Line Holdings, LLC, the Company’s ultimate parent, recognized under SFAS 123(R) for the three months and six months ended June 30, 2006 was $113,000 and $208,000, respectively. As of June 30, 2006, total unrecognized compensation cost, net of estimated forfeitures, was $1.4 million related to restricted stock units. The unrecognized compensation cost is expected to be recognized over the next 5 years.
The restricted stock units will vest according to a specified schedule and will be expensed to compensation over the vesting period of five years. Vesting will accelerate upon a change of control of Language Line Holdings, LLC and upon certain types of sales. Vesting will cease if the individual ceases to be employed by Language Line Holdings, LLC or any of its
5
subsidiaries. If the individual ceases to be employed by Language Line Holdings, LLC or any of its subsidiaries, Language Line Holdings, LLC will have the option to purchase all or any portion of the vested and/or the unvested restricted stock units. The aggregate purchase price for all unvested units will be $1.00, and the purchase price for each vested unit will be the fair market value for such unit as of the date of individual’s termination. If, however, the Company terminates the individual’s employment for cause, the aggregate purchase price of all vested units will be $1.00. Language Line Holdings, LLC’s right to repurchase the individual’s units will terminate upon a “change of control” (as such term is defined in their incentive unit agreement), provided that the individual is employed by Language Line Holdings, LLC or any of its subsidiaries at the time of the “change of control.”
The following table reflects activity under the restricted stock unit plan from December 31, 2005 through June 30, 2006 (in thousands, except per share amounts):
| | | | | | | | |
| | | Number of Units (000) | | | Weighted Average
Grant
Date Fair
Value | | Weighted Average
Remaining
Contractual
Term |
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 |
| | | | | | | | |
A summary of the status of the Company’s nonvested shares as of June 30, 2006 and changes during the period is presented below:
| | | | | | |
Nonvested Units | | Number of Units (000) | | | Weighted Average
Grant
Date 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 |
| | | | | | |
Restricted stock units granted vest over a 5 year cliff vesting schedule. During the three months and six months ended June 30, 2006 no units vested. Recipients of restricted stock units do not pay any cash consideration for the units, do not have the right to vote, and do not receive dividends with respect to such units. Compensation expense for restricted stock units is recognized on a straight-line basis over the vesting period, using the restricted stock unit’s fair value on the grant date.
Recent Accounting Pronouncements - In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for 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.
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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 not guaranteed by LLHI. 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 LLHI (the “Registrant”), LLI, 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.
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| | | | | | | | | | | | | | | | | | | | | | | | | | |
Condensed Consolidated Balance Sheets as of December 31, 2005 (In thousands) | | LLHI | | | Company
Issuer | | | Guarantor
Subsidiaries | | Non-Guarantor
Subsidiaries | | 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 | | | — | | | | — | | | | 2,073 | | | 608 | | | 2,681 | | | | — | | | | 2,681 | |
Refundable income taxes | | | 147 | | | | — | | | | — | | | — | | | 147 | | | | (147 | ) | | | — | |
Deferred taxes on income | | | (5 | ) | | | 626 | | | | — | | | — | | | 621 | | | | — | | | | 621 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Total current assets | | | 142 | | | | 626 | | | | 116,172 | | | 1,548 | | | 118,488 | | | | (78,866 | ) | | | 39,622 | |
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 | | | 1,748 | | | | 11,425 | | | | — | | | — | | | 13,173 | | | | — | | | | 13,173 | |
Investment in subsidiaries | | | 277,397 | | | | 748,117 | | | | 857 | | | — | | | 1,026,371 | | | | (1,026,371 | ) | | | — | |
Other assets | | | — | | | | — | | | | 9 | | | 87 | | | 96 | | | | — | | | | 96 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 279,287 | | | $ | 760,168 | | | $ | 932,170 | | $ | 3,343 | | $ | 1,974,968 | | | $ | (1,105,237 | ) | | $ | 869,731 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities, Member’s Capital and Stockholders’ Equity | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Accounts payable | | $ | — | | | $ | — | | | $ | 1,208 | | $ | — | | $ | 1,208 | | | $ | — | | | $ | 1,208 | |
Intercompany payable | | | 164 | | | | 76,554 | | | | — | | | 2,001 | | | 78,719 | | | | (78,719 | ) | | | — | |
Accrued interest | | | — | | | | 4,821 | | | | 27 | | | — | | | 4,848 | | | | — | | | | 4,848 | |
Accrued payroll and related benefits | | | — | | | | — | | | | 779 | | | 38 | | | 817 | | | | — | | | | 817 | |
Accrued cost of interpreters | | | — | | | | — | | | | 986 | | | 302 | | | 1,288 | | | | — | | | | 1,288 | |
Other accrued liabilities | | | — | | | | — | | | | 1,641 | | | 145 | | | 1,786 | | | | — | | | | 1,786 | |
Income taxes payable | | | — | | | | (2,816 | ) | | | 5,304 | | | — | | | 2,488 | | | | (147 | ) | | | 2,341 | |
Current portion of long-term debt | | | — | | | | 17,703 | | | | 935 | | | — | | | 18,638 | | | | — | | | | 18,638 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Total current liabilities | | | 164 | | | | 96,262 | | | | 10,880 | | | 2,486 | | | 109,792 | | | | (78,866 | ) | | | 30,926 | |
Long-term debt | | | — | | | | 236,431 | | | | — | | | — | | | 236,431 | | | | — | | | | 236,431 | |
Senior subordinated notes | | | — | | | | 161,315 | | | | — | | | — | | | 161,315 | | | | — | | | | 161,315 | |
Senior discount notes | | | 67,996 | | | | — | | | | — | | | — | | | 67,996 | | | | — | | | | 67,996 | |
Deferred income taxes | | | (3,545 | ) | | | (11,237 | ) | | | 174,425 | | | — | | | 159,643 | | | | — | | | | 159,643 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Total liabilities | | | 64,615 | | | | 482,771 | | | | 185,305 | | | 2,486 | | | 735,177 | | | | (78,866 | ) | | | 656,311 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Member’s capital | | | — | | | | — | | | | 746,865 | | | 857 | | | 747,722 | | | | (747,722 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Stockholders’ equity: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock | | | — | | | | — | | | | — | | | — | | | — | | | | — | | | | — | |
Additional paid-in-capital | | | 228,015 | | | | 281,064 | | | | — | | | — | | | 509,079 | | | | (281,064 | ) | | | 228,015 | |
Accumulated deficit | | | (13,343 | ) | | | (3,667 | ) | | | — | | | — | | | (17,010 | ) | | | 3,667 | | | | (13,343 | ) |
Deferred stock compensation | | | — | | | | — | | | | — | | | — | | | — | | | | (1,252 | ) | | | (1,252 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Total stockholders’ equity | | | 214,672 | | | | 277,397 | | | | — | | | — | | | 492,069 | | | | (278,649 | ) | | | 213,420 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Total liabilities, member’s capital and stockholders’ equity | | $ | 279,287 | | | $ | 760,168 | | | $ | 932,170 | | $ | 3,343 | | $ | 1,974,968 | | | $ | (1,105,237 | ) | | $ | 869,731 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
8
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Condensed Consolidated Balance Sheets as of June 30, 2006 (In thousands) | | LLHI | | | Company
Issuer | | | Guarantor
Subsidiaries | | | Non-Guarantor
Subsidiaries | | 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 | | | — | | | | — | | | | 1,961 | | | | 527 | | | 2,488 | | | | — | | | | 2,488 | |
Refundable income taxes | | | 190 | | | | — | | | | — | | | | — | | | 190 | | | | (190 | ) | | | — | |
Deferred taxes on income | | | (2 | ) | | | 812 | | | | — | | | | — | | | 810 | | | | — | | | | 810 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total current assets | | | 188 | | | | 812 | | | | 134,380 | | | | 1,619 | | | 136,999 | | | | (94,149 | ) | | | 42,850 | |
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 | | | 1,631 | | | | 10,452 | | | | — | | | | — | | | 12,083 | | | | — | | | | 12,083 | |
Investment in subsidiaries | | | 274,189 | | | | 758,138 | | | | 1,151 | | | | — | | | 1,033,478 | | | | (1,033,478 | ) | | | — | |
Other assets | | | — | | | | — | | | | 124 | | | | 87 | | | 211 | | | | — | | | | 211 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 276,008 | | | $ | 769,402 | | | $ | 932,992 | | | $ | 3,659 | | $ | 1,982,061 | | | $ | (1,127,627 | ) | | $ | 854,434 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities, Member’s Capital and Stockholders’ Equity | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Accounts payable | | $ | — | | | $ | — | | | $ | 793 | | | $ | — | | $ | 793 | | | $ | — | | | $ | 793 | |
Intercompany payable | | | 162 | | | | 91,653 | | | | — | | | | 2,146 | | | 93,961 | | | | (93,961 | ) | | | — | |
Accrued interest | | | — | | | | 4,939 | | | | — | | | | — | | | 4,939 | | | | — | | | | 4,939 | |
Accrued payroll and related benefits | | | — | | | | — | | | | 1,445 | | | | — | | | 1,445 | | | | — | | | | 1,445 | |
Accrued cost of interpreters | | | — | | | | — | | | | 1,409 | | | | 58 | | | 1,467 | | | | — | | | | 1,467 | |
Other accrued liabilities | | | — | | | | — | | | | 1,936 | | | | 306 | | | 2,242 | | | | — | | | | 2,242 | |
Income taxes payable | | | — | | | | 5,543 | | | | (1,662 | ) | | | — | | | 3,881 | | | | (190 | ) | | | 3,691 | |
Current portion of long-term debt | | | — | | | | 14,158 | | | | — | | | | — | | | 14,158 | | | | — | | | | 14,158 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total current liabilities | | | 162 | | | | 116,293 | | | | 3,921 | | | | 2,510 | | | 122,886 | | | | (94,151 | ) | | | 28,735 | |
Long-term debt | | | — | | | | 229,353 | | | | — | | | | — | | | 229,353 | | | | — | | | | 229,353 | |
Senior subordinated notes | | | — | | | | 161,514 | | | | — | | | | — | | | 161,514 | | | | — | | | | 161,514 | |
Senior discount notes | | | 72,799 | | | | — | | | | — | | | | — | | | 72,799 | | | | — | | | | 72,799 | |
Deferred income taxes | | | (4,854 | ) | | | (11,947 | ) | | | 170,933 | | | | — | | | 154,132 | | | | — | | | | 154,132 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total liabilities | | | 68,107 | | | | 495,213 | | | | 174,854 | | | | 2,510 | | | 740,684 | | | | (94,151 | ) | | | 646,533 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Member’s capital | | | — | | | | — | | | | 758,138 | | | | 1,151 | | | 759,289 | | | | (759,289 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stockholders’ equity: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common stock | | | — | | | | — | | | | — | | | | — | | | — | | | | — | | | | — | |
Additional paid-in-capital | | | 226,957 | | | | 280,005 | | | | — | | | | — | | | 506,962 | | | | (280,005 | ) | | | 226,957 | |
Accumulated deficit | | | (19,056 | ) | | | (5,816 | ) | | | — | | | | — | | | (24,872 | ) | | | 5,816 | | | | (19,056 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total stockholders’ equity | | | 207,901 | | | | 274,189 | | | | — | | | | — | | | 482,090 | | | | (274,189 | ) | | | 207,901 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total liabilities, member’s capital and stockholders’ equity | | $ | 276,008 | | | $ | 769,402 | | | $ | 932,992 | | | $ | 3,661 | | $ | 1,982,063 | | | $ | (1,127,629 | ) | | $ | 854,434 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
9
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Condensed Consolidated Statements of Operations for the Three Months Ended June 30, 2005 (In thousands) | | LLHI | | | Company
Issuer | | | Guarantor
Subsidiaries | | | Non-Guarantor
Subsidiaries | | Total | | | Eliminations | | | Consolidated | |
Revenues | | $ | — | | | $ | — | | | $ | 35,297 | | | $ | 4,431 | | $ | 39,728 | | | $ | (4,226 | ) | | $ | 35,502 | |
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 | | | 2,165 | | | | 10,205 | | | | (130 | ) | | | — | | | 12,240 | | | | — | | | | 12,240 | |
Depreciation and amortization | | | — | | | | — | | | | 9,603 | | | | 193 | | | 9,796 | | | | — | | | | 9,796 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total other expenses | | | 2,165 | | | | 10,205 | | | | 19,331 | | | | 1,090 | | | 32,791 | | | | (4,226 | ) | | | 28,565 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) from operations | | | (2,165 | ) | | | (10,205 | ) | | | 7,007 | | | | 198 | | | (5,165 | ) | | | — | | | | (5,165 | ) |
Equity earnings (losses) from subsidiaries | | | (3,000 | ) | | | 7,205 | | | | 198 | | | | — | | | 4,403 | | | | (4,403 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) before income taxes | | | (5,165 | ) | | | (3,000 | ) | | | 7,205 | | | | 198 | | | (762 | ) | | | (4,403 | ) | | | (5,165 | ) |
Income tax provision (benefit) | | | (1,844 | ) | | | (1,237 | ) | | | 2,990 | | | | 82 | | | (9 | ) | | | (1,835 | ) | | | (1,844 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | (3,321 | ) | | $ | (1,763 | ) | | $ | 4,215 | | | $ | 116 | | $ | (753 | ) | | $ | (2,568 | ) | | $ | (3,321 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
10
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Condensed Consolidated Statements of Operations for the Three Months Ended June 30, 2006 (In thousands) | | LLHI | | | Company
Issuer | | | Guarantor
Subsidiaries | | | Non-Guarantor
Subsidiaries | | 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 | | | 2,474 | | | | 11,035 | | | | (145 | ) | | | 0 | | | 13,364 | | | | — | | | | 13,364 | |
Depreciation and amortization | | | — | | | | — | | | | 9,569 | | | | 241 | | | 9,810 | | | | — | | | | 9,810 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total other expenses | | | 2,474 | | | | 11,035 | | | | 20,440 | | | | 1,280 | | | 35,229 | | | | (4,943 | ) | | | 30,286 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) from operations | | | (2,474 | ) | | | (11,035 | ) | | | 8,955 | | | | 237 | | | (4,317 | ) | | | — | | | | (4,317 | ) |
Equity earnings (losses) from subsidiaries | | | (1,843 | ) | | | 9,192 | | | | 237 | | | | — | | | 7,585 | | | | (7,585 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) before income taxes | | | (4,317 | ) | | | (1,843 | ) | | | 9,192 | | | | 237 | | | 3,268 | | | | (7,585 | ) | | | (4,317 | ) |
Income tax provision (benefit) | | | (1,382 | ) | | | (700 | ) | | | 3,492 | | | | 90 | | | 1,500 | | | | (2,882 | ) | | | (1,382 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | (2,935 | ) | | $ | (1,143 | ) | | $ | 5,700 | | | $ | 147 | | $ | 1,768 | | | $ | (4,703 | ) | | $ | (2,935 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
11
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Condensed Consolidated Statements of Operations for the Six Months Ended June 30, 2005 (In thousands) | | LLHI | | | Company
Issuer | | | Guarantor
Subsidiaries | | | Non-Guarantor
Subsidiaries | | Total | | | Eliminations | | | Consolidated | |
Revenues | | $ | — | | | $ | — | | | $ | 71,048 | | | $ | 8,607 | | $ | 79,655 | | | $ | (8,231 | ) | | $ | 71,424 | |
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 | | | 4,306 | | | | 20,112 | | | | (111 | ) | | | — | | | 24,307 | | | | — | | | | 24,307 | |
Depreciation and amortization | | | — | | | | — | | | | 19,211 | | | | 419 | | | 19,630 | | | | — | | | | 19,630 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total other expenses | | | 4,306 | | | | 20,112 | | | | 38,663 | | | | 2,169 | | | 65,250 | | | | (8,231 | ) | | | 57,019 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) from operations | | | (4,306 | ) | | | (20,112 | ) | | | 14,153 | | | | 366 | | | (9,899 | ) | | | — | | | | (9,899 | ) |
Equity earnings (losses) from subsidiaries | | | (5,593 | ) | | | 14,519 | | | | 366 | | | | — | | | 9,292 | | | | (9,292 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) before income taxes | | | (9,899 | ) | | | (5,593 | ) | | | 14,519 | | | | 366 | | | (607 | ) | | | (9,292 | ) | | | (9,899 | ) |
Income tax provision (benefit) | | | (3,498 | ) | | | (2,291 | ) | | | 5,959 | | | | 151 | | | 321 | | | | (3,819 | ) | | | (3,498 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | (6,401 | ) | | $ | (3,302 | ) | | $ | 8,560 | | | $ | 215 | | $ | (928 | ) | | $ | (5,473 | ) | | $ | (6,401 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
12
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Condensed Consolidated Statements of Operations for the Six Months Ended June 30, 2006 (In thousands) | | LLHI | | | Company
Issuer | | | Guarantor
Subsidiaries | | | Non-Guarantor
Subsidiaries | | | 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 | | | 4,919 | | | | 21,709 | | | | (188 | ) | | | (2 | ) | | | 26,438 | | | | — | | | | 26,438 | |
Depreciation and amortization | | | — | | | | — | | | | 19,143 | | | | 433 | | | | 19,576 | | | | — | | | | 19,576 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total other expenses | | | 4,919 | | | | 21,709 | | | | 40,986 | | | | 2,459 | | | | 70,073 | | | | (9,763 | ) | | | 60,310 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) from operations | | | (4,919 | ) | | | (21,709 | ) | | | 17,760 | | | | 476 | | | | (8,392 | ) | | | — | | | | (8,392 | ) |
Equity earnings (losses) from subsidiaries | | | (3,473 | ) | | | 18,236 | | | | 476 | | | | — | | | | 15,239 | | | | (15,239 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) before income taxes | | | (8,392 | ) | | | (3,473 | ) | | | 18,236 | | | | 476 | | | | 6,847 | | | | (15,239 | ) | | | (8,392 | ) |
Income tax provision (benefit) | | | (2,679 | ) | | | (1,324 | ) | | | 6,968 | | | | 182 | | | | 3,147 | | | | (5,826 | ) | | | (2,679 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | (5,713 | ) | | $ | (2,149 | ) | | $ | 11,268 | | | $ | 294 | | | $ | 3,700 | | | $ | (9,413 | ) | | $ | (5,713 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
13
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2005 (In thousands) | | LLHI | | | Company
Issuer | | | Guarantor
Subsidiaries | | | Non-Guarantor
Subsidiaries | | | Total | | | Eliminations | | | Consolidated | |
Cash flows from operating activities | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | (6,401 | ) | | $ | (3,302 | ) | | $ | 8,560 | | | $ | 215 | | | $ | (928 | ) | | $ | (5,473 | ) | | $ | (6,401 | ) |
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 | | | 117 | | | | 947 | | | | — | | | | — | | | | 1,064 | | | | — | | | | 1,064 | |
Deferred taxes on income | | | (1,162 | ) | | | (2,679 | ) | | | (1,437 | ) | | | — | | | | (5,278 | ) | | | — | | | | (5,278 | ) |
Stock based compensation expense | | | — | | | | — | | | | 184 | | | | — | | | | 184 | | | | — | | | | 184 | |
Accretion of discount on long-term debt | | | 4,190 | | | | 179 | | | | — | | | | — | | | | 4,369 | | | | — | | | | 4,369 | |
Loss from derivative instruments | | | — | | | | 4 | | | | — | | | | — | | | | 4 | | | | — | | | | 4 | |
Equity in earnings (losses) of subsidiaries | | | 3,302 | | | | (8,560 | ) | | | (215 | ) | | | — | | | | (5,473 | ) | | | 5,473 | | | | — | |
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 | | | (46 | ) | | | (6,091 | ) | | | 3,128 | | | | — | | | | (3,009 | ) | | | — | | | | (3,009 | ) |
Accrued liabilities | | | — | | | | 2,963 | | | | (202 | ) | | | 96 | | | | 2,857 | | | | — | | | | 2,857 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net cash provided by 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 and cash equivalents | | | — | | | | — | | | | (5,228 | ) | | | 197 | | | | (5,031 | ) | | | — | | | | (5,031 | ) |
Cash and cash equivalents-beginning of period | | | — | | | | — | | | | 11,983 | | | | 181 | | | | 12,164 | | | | — | | | | 12,164 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents-end of period | | $ | — | | | $ | — | | | $ | 6,755 | | | $ | 378 | | | $ | 7,133 | | | $ | — | | | $ | 7,133 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
14
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2006 (In thousands) | | LLHI | | | Company
Issuer | | | Guarantor
Subsidiaries | | | Non-Guarantor
Subsidiaries | | | Total | | | Eliminations | | | Consolidated | |
Cash flows from operating activities | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | (5,713 | ) | | $ | (2,149 | ) | | $ | 11,268 | | | $ | 294 | | | $ | 3,700 | | | $ | (9,413 | ) | | $ | (5,713 | ) |
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 | | | 118 | | | | 972 | | | | — | | | | — | | | | 1,090 | | | | — | | | | 1,090 | |
Deferred taxes on income | | | (1,312 | ) | | | (893 | ) | | | (3,495 | ) | | | — | | | | (5,700 | ) | | | — | | | | (5,700 | ) |
Stock based compensation expense | | | — | | | | — | | | | 208 | | | | — | | | | 208 | | | | — | | | | 208 | |
Accretion of discount on long-term debt | | | 4,802 | | | | 200 | | | | — | | | | — | | | | 5,002 | | | | — | | | | 5,002 | |
Equity in earnings (losses) of subsidiaries | | | 2,149 | | | | (11,268 | ) | | | (294 | ) | | | — | | | | (9,413 | ) | | | 9,413 | | | | — | |
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 | | | (1 | ) | | | 15,282 | | | | (15,427 | ) | | | 146 | | | | — | | | | — | | | | — | |
Income taxes payable/refundable | | | (43 | ) | | | 8,361 | | | | (6,968 | ) | | | — | | | | 1,350 | | | | — | | | | 1,350 | |
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 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
15
| 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, we helped more than 19 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.
16
Results of Operations
The following table sets forth the percentages of revenue that certain items of operating data constitute for the periods indicated:
| | | | | | | | | | | | |
| | | Three Months
Ended
June 30,
2005 | | | Three Months Ended June 30,
2006 | | | Six Months
Ended
June 30,
2005 | | | Six Months
Ended
June 30,
2006 | |
Statement of Operations data: | | | | | | | | | | | | |
Revenues | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
| | | | | | | | | | | | |
Cost of services | | 34.1 | % | | 35.3 | % | | 34.0 | % | | 35.2 | % |
| | | | | | | | | | | | |
Gross margin | | 65.9 | % | | 64.7 | % | | 66.0 | % | | 64.8 | % |
| | | | | | | | | | | | |
Other expenses: | | | | | | | | | | | | |
Selling, general and administrative | | 18.4 | % | | 17.7 | % | | 18.3 | % | | 17.8 | % |
Interest, net | | 34.5 | % | | 33.3 | % | | 34.0 | % | | 33.0 | % |
Depreciation and amortization | | 27.6 | % | | 24.5 | % | | 27.5 | % | | 24.4 | % |
| | | | | | | | | | | | |
Total other expenses | | 80.5 | % | | 75.5 | % | | 79.8 | % | | 75.2 | % |
| | | | | | | | | | | | |
Income (loss) before income taxes | | (14.6 | )% | | (10.8 | )% | | (13.8 | )% | | (10.5 | )% |
Income tax provision (benefit) | | (5.2 | )% | | (3.4 | )% | | (4.9 | )% | | (3.3 | )% |
| | | | | | | | | | | | |
Net income (loss) | | (9.4 | )% | | (7.3 | )% | | (8.9 | )% | | (7.1 | )% |
| | | | | | | | | | | | |
Three 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 $13.4 million as compared to $12.2 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 $1.4 million as compared to $1.8 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 $2.9 million for the three months ended June 30, 2006 as compared to a net loss of $3.3 million for the three months ended June 30, 2005.
17
Six Months Ended June 30, 2006 Compared to the Six Months Ended June 30, 2005.
Revenues for the six months ended June 30, 2006 were $80.2 million as compared to $71.4 million for the six months ended June 30, 2005, an increase of $8.8 million or 12.2%. The majority of the increase in revenue is driven by a 19% increase in OPI billed minutes offset by a 6% 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 six months ended June 30, 2006, cost of services were $28.2 million as compared to $24.3 million for the six months ended June 30, 2005, an increase of $3.9 million or 16.2%. This increase was primarily due to increased interpretation minutes.
Selling, general and administrative expenses for the six months ended June 30, 2006 were $14.3 million as compared to $13.1 million for the six months ended June 30, 2005, an increase of $1.2 million or 9.3%. 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 six months ended June 30, 2006 was $26.4 million as compared to $24.3 million for the six months ended June 30, 2005. This increase was primarily the result of an increase in interest rates.
Depreciation and amortization was $19.6 million for the six months ended June 30, 2006 which was the same as compared to $19.6 million for the six months ended June 30, 2005.
The tax benefit on loss for the six months ended June 30, 2006 was $2.7 million as compared to $3.5 million of tax benefit on loss for the six months ended June 30, 2005.
As a result of the factors described above, net loss was $5.7 million for the six months ended June 30, 2006 as compared to a net loss of $6.4 million for the six months ended June 30, 2005.
Liquidity and Capital Resources
Operating Activities. Net cash provided by operating activities for the six months ended June 30, 2006 was $15.7 million compared with net cash provided by operating activities during the six months ended June 30, 2005 of $13.1 million. This increase is mainly attributable to the timing of tax payments offset by a decrease attributable to accounts receivable.
Investing Activities. Net cash used in investing activities was $2 million for the six months ended June 30, 2006, compared to $493,000 for the six months ended June 30, 2005. This increase was attributable to capital expenditures spending.
Financing Activities. Net cash used in financing activities during the six months ended June 30, 2006 was $11.6 million, compared to $17.7 million during the six months ended June 30, 2005. The decrease of $6.1 million is the result of a decrease in principal payments made on our senior secured debt.
Our 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 $477.8 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.
18
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.
Our senior discount notes mature in 2013 and rank senior to all subordinated indebtedness.
Capital Expenditures. We expect to spend approximately $3.0 million in 2006 and approximately $3.0 million in 2007 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 30, 2006 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | |
| | | Total | | Remainder
of 2006 | | 2007 | | 2008 | | 2009 | | 2010 | | Thereafter |
Senior secured credit facilities | | $ | 243,511 | | $ | 7,079 | | $ | 14,158 | | $ | 14,158 | | $ | 14,158 | | $ | 14,158 | | $ | 179,800 |
Senior subordinated notes offered by Language Line, Inc. | | | 165,000 | | | — | | | — | | | — | | | — | | | — | | | 165,000 |
Senior discount notes | | | 108,993 | | | — | | | — | | | — | | | — | | | — | | | 108,993 |
Interest payments | | | 273,930 | | | 20,951 | | | 40,867 | | | 39,488 | | | 45,807 | | | 52,125 | | | 74,692 |
Operating leases | | | 10,177 | | | 2,050 | | | 3,892 | | | 2,499 | | | 883 | | | 769 | | | 84 |
| | | | | | | | | | | | | | | | | | | | | |
Total cash contractual obligations | | $ | 801,611 | | $ | 30,080 | | $ | 58,917 | | $ | 56,145 | | $ | 60,848 | | $ | 67,052 | | $ | 528,569 |
| | | | | | | | | | | | | | | | | | | | | |
Interest payments with respect to the senior secured credit facilities assume a variable rate of 9.74%, which represents the most recent rate applicable to these facilities. Both the senior subordinated notes offered by Language Line, Inc. and the senior discount notes are 11 1/8% and 14 1/8% fixed rate notes, respectively.
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. 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. We might not continue to experience the same loss rates that we have in the past. If the financial condition of individual customers or the general worldwide economy were to vary materially from the estimates and assumptions made by us, the allowance may require adjustment in the future. We evaluate the adequacy of the allowance on a regular basis, modifying, as necessary, its assumptions, updating its record of historical experience and adjusting reserves as appropriate.
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.
19
Impairment of Long-Lived Assets - We assess the impairment of long-lived assets at least annually or when 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 annually. 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 base on changes in the economy or industry trends.
Claims and Legal Proceedings
In the normal course of business, we are party of 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. We are not currently involved in any material legal proceedings.
| Item 3. | Quantitative and Qualitative Disclosure About Market Risk |
We are exposed to certain market risks as part of our on-going business operations. Primary exposure includes changes in interest rates as borrowings under our senior credit facilities bear interest at floating rates based on LIBOR or the prime rate, in each case plus an applicable borrowing margin. We will manage our interest rate risk by balancing the amount of fixed-rate and floating-rate debt. For fixed-rate debt, interest rate changes affect the fair market value but do not affect 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.
We may use derivative financial instruments, where appropriate, to manage our interest rate risks. However, as a matter of policy we will not enter into derivative or other financial investments for trading or speculative purposes. We do not have any speculative or leveraged derivative transactions. Most of our revenue is denominated in U.S. dollars; thus our financial results are not subject to any material foreign currency exchange risks.
| Item 4. | Controls and Procedures. |
The Company’s 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.
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
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 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 reporting.
PART 2. OTHER INFORMATION
Language Line Holdings, Inc. is not currently involved in any material legal proceedings.
20
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.
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.
None.
| Item 6. | Exhibits and Reports on Form 8-K |
| | |
| |
| 31.1 | | Certification by Dennis G. Dracup pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| |
| 31.2 | | Certification by Matthew T. Gibbs 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. |
None.
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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 14, 2006.
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LANGUAGELINE HOLDINGS, INC. |
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| /s/ Dennis G. Dracup |
Dennis G. Dracup Chief Executive Officer and Director |
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| /s/ Matthew T. Gibbs II |
Matthew T. Gibbs II Chief Financial Officer and Director |
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