Language Line Holdings, Inc.
One Lower Ragsdale Dr.
Building two
Monterey, CA 93940
(877) 886-3885
November 11, 2008
Larry Spirgel
Assistant Director
Division of Corporation Finance
United States Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549
| Re: | Language Line Holdings, Inc., Form 10-K for Fiscal Year Ended December 31, 2007 |
| Form 10-Q for Fiscal Quarters Ended March 31, 2008 and June 30, 2008 |
Dear Mr. Spirgel:
Reference is made to your letter dated October 20, 2008 (the “Letter”) regarding a comment provided by the staff of the Division of Corporation Finance (the “Staff”) of the Securities and Exchange Commission (the “Commission”) to Language Line Holdings, Inc. (the “Company”) with respect to the above referenced Form 10-K filing made by the Company with the Commission on March 26, 2008. For your convenience of reference, your comments are reproduced below in bold quoted text, prior to the related response by the Company.
1. “You state that income taxes payable includes $1,727,000, representing amounts due to Language Line Holdings, II Inc. as of December 31, 2007. Clarify where this amount is classified in your balance sheet. In this regard, we note that the line item “income taxes payable” has a balance of $300,000 at December 31, 2007”.
The Company has historically classified amounts due to/from tax authoritiesand amounts due to Language Line Holdings, II Inc. for tax benefits resulting from operating losses generated by Language Line Holdings, II Inc. within the line item “income taxes payable.” The operations of the Company and subsidiaries are included in the consolidated federal and state income tax returns of its parent, Language Line Holdings, II Inc. The Company and subsidiaries manage the respective tax payments and refunds for Language Line Holdings, II Inc. As disclosed in Note 5 “Income Taxes” in the Company’s Form 10-K for the year ended December 31, 2007, the amount due to Language Line Holdings, II Inc. represents amounts due to Language Line Holdings, II Inc. for tax benefits reflected on the consolidated tax returns resulting from operating losses generated by Language Line Holdings, II Inc. In addition, similar disclosures were made in Note 9 “Related Party Transactions” in the Company’s Form 10-K for the year ended December 31, 2007.
Effective with the Company’s Form 10-Q for the quarterly period ended September 30, 2008, the Company will modify the presentation of its Consolidated Balance Sheet to separately report amounts due to/from tax authorities and amounts due to Language Line Holdings, II Inc. (i.e., for tax benefits resulting from operating losses generated by Language Line Holdings, II Inc.) Further, a footnote to the financial statements will be added whereby the amounts payable to or receivable from both entities will be disclosed, along with a discussion of how the Company classifies these amounts and what they represent. The Company believes this new classification will provide increased understanding and transparency for investors.
To illustrate the modified presentation discussed in the previous paragraph, shown below is the Company’s Consolidated Balance Sheet at December 31, 2007 and the effect of the revision:
| December 31, 2007 | ||||||||||||
| As Previously Reported | Revision | As Revised | ||||||||||
Assets | ||||||||||||
Current assets: | ||||||||||||
Cash and cash equivalents | $ | 13,898 | $ | — | $ | 13,898 | ||||||
Accounts receivable - net of allowance for doubtful accounts | 28,696 | — | 28,696 | |||||||||
Prepaid expenses and other current assets | 1,965 | — | 1,965 | |||||||||
Income taxes receivable | — | 1,427 | 1,427 | |||||||||
Deferred taxes on income | 1,382 | — | 1,382 | |||||||||
Total current assets | 45,941 | 1,427 | 47,368 | |||||||||
Property and equipment, net | 5,913 | — | 5,913 | |||||||||
Goodwill | 408,793 | — | 408,793 | |||||||||
Intangible assets - net of accumulated amortization | 340,222 | — | 340,222 | |||||||||
Deferred financing costs - net of accumulated amortization | 10,566 | — | 10,566 | |||||||||
Other assets | 241 | — | 241 | |||||||||
Total assets | $ | 811,676 | $ | 1,427 | $ | 813,103 | ||||||
Liabilities and Stockholders’ Equity | ||||||||||||
Current liabilities | ||||||||||||
Accounts payable | $ | 1,603 | $ | — | $ | 1,603 | ||||||
Accrued interest | 2,339 | — | 2,339 | |||||||||
Accrued compensation and interpreter costs | 5,930 | — | 5,930 | |||||||||
Other accrued liabilities | 2,339 | — | 2,339 | |||||||||
Dividends payable | 1,000 | — | 1,000 | |||||||||
Due to Language Line Holdings, II Inc. | — | 1,727 | 1,727 | |||||||||
Income taxes payable | 300 | (300 | ) | — | ||||||||
Current portion of long-term debt | 17,730 | — | 17,730 | |||||||||
Total current liabilities | 31,241 | 1,427 | 32,668 | |||||||||
Other Liabilities | 3,463 | — | 3,463 | |||||||||
Long-term debt | 201,451 | — | 201,451 | |||||||||
Senior subordinated notes | 162,185 | — | 162,185 | |||||||||
Senior discount notes | 89,338 | — | 89,338 | |||||||||
Deferred taxes on income | 140,126 | — | 140,126 | |||||||||
Total liabilities | 627,804 | 1,427 | 629,231 | |||||||||
Commitments and contingencies (notes 8 and 10) | ||||||||||||
Stockholders’ equity | ||||||||||||
Common stock | — | — | — | |||||||||
Additional paid-in capital | 206,538 | — | 206,538 | |||||||||
Accumulated deficit | (22,666 | ) | — | (22,666 | ) | |||||||
Total stockholders’ equity | 183,872 | — | 183,872 | |||||||||
Total liabilities and stockholders’ equity | $ | 811,676 | $ | 1,427 | $ | 813,103 | ||||||
2
Following is the footnote the Company is currently drafting for inclusion in its Form 10-Q for the quarterly period ending September 30, 2008.
“The operations of the Company and subsidiaries are included in the consolidated federal and state income tax returns of its parent, Language Line Holdings, II Inc. The Company and subsidiaries manage the respective tax payments and refunds for Language Line Holdings, II Inc. Included in the accompanying consolidated balance sheet at September 30, 2008 and December 31, 2007 are amounts owed to Language Line Holdings, II Inc. of $x,xxx,xxx and $1,727,000 under this arrangement. These amounts are presented separately from the amounts that are receivable or payable (from /to taxing authorities) for federal and state income taxes. In prior periods amounts owed to Language Line Holdings, II Inc. were offset against amounts due from/to taxing authorities in the balance sheet. The Company has revised this presentation in the accompanying condensed consolidated balance sheet at December 31, 2007.”
Note the dollar amount at September 30, 2008 above will be known and included in the Form 10-Q when the Company has completed its quarterly close and preparation of its financial statements.
2) “We urge all persons who are responsible for the accuracy and adequacy of the disclosure in the filing to be certain that the filing includes all information required under the Securities Exchange Act of 1934 and that they have provided all information investors require for an informed investment decision. Since the company and its management are in possession of all facts relating to a company’s disclosure, they are responsible for the accuracy and adequacy of the disclosures they have made.
In connection with responding to our comment, please provide, in writing, a statement from the company acknowledging that
| • | the company is responsible for the adequacy and accuracy of the disclosure in the filings; |
| • | staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filings; and |
| • | the company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.” |
We hereby represent that:
| • | we are responsible for the adequacy and accuracy of the disclosure in the filings; |
| • | Staff comments or changes to disclosure in response to Staff comments do not foreclose the Commission from taking any action with respect to the filings; and |
| • | we may not assert Staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States. |
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We appreciate the Staff’s comments and request the Staff contact the undersigned at 831-648-7171 with any questions or comments regarding this letter.
Respectfully submitted,
| Language Line Holdings, Inc. | ||
| /s/ Michael F. Schmidt | ||
| By: | Michael F. Schmidt | |
| Chief Financial Officer, Senior Vice President, Secretary and Director | ||
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