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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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Form 10-Q



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(Mark One)

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

For the quarterly period ended September 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



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Language Line Holdings, Inc.

(Exact name of registrant as
specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|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.)



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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

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.



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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.



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LANGUAGE LINE HOLDINGS, 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 - 7       
|                              |  |                                                                                                                               
|                              |  | Condensed Consolidated Balance Sheets  December 31, 2005 and September 30, 2006                                               |  | 1           
|                              |  |                                                                                                                               
|                              |  | Condensed Consolidated Statements of Operations  Three months and Nine Months ended September 30, 2005 and September 30, 2006 |  | 2           
|                              |  |                                                                                                                               
|                              |  | Condensed Consolidated Statements of Cash Flows  Nine Months ended September 30, 2005 and September 30, 2006                  |  | 3           
|                              |  |                                                                                                                               
|                              |  | Notes to Condensed Consolidated Financial Statements                                                                           |  | 4           
|                              |  |                                                                                                                               
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                          |  | 8           
|                              |  |                                                                                                                               
|Item 3.                       |  | Quantitative and Qualitative Disclosures of Market Risk                                                                        |  | 12          
|                              |  |                                                                                                                               
|Item 4.                       |  | Controls and Procedures                                                                                                        |  | 12          
|                              | 
|Part 2. Other Information     |  |                                                                                                                               
|                              |  |                                                                                                                               
|Item 1.                       |  | Legal Proceedings                                                                                                              |  | 13          
|                              |  |                                                                                                                               
|Item 1A.                      |  | Risk Factors                                                                                                                   |  | 13          
|                              |  |                                                                                                                               
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                    |  | 13          
|                              |  |                                                                                                                               
|Item 3.                       |  | Defaults Upon Senior Securities                                                                                                |  | 13          
|                              |  |                                                                                                                               
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                                            |  | 13          
|                              |  |                                                                                                                               
|Item 5.                       |  | Other Information                                                                                                              |  | 13          
|                              |  |                                                                                                                               
|Item 6.                       |  | Exhibits and Reports on Form 8-K                                                                                               |  | 14          
|                              | 
|Signatures                    |  | 15                                                                                                                            
|                              | 
|Certifications                |  | Exhibit 31.1                                                                                                                  
|                              |  |                                                                                                                                |  | Exhibit 31.2
|                              |  |                                                                                                                                |  | Exhibit 32.1
|                              |  |                                                                                                                                |  | Exhibit 32.2



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##### Table of Contents

PART 1. FINANCIAL INFORMATION

Item 1.Financial Statements

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)



|                                                                                           |  |                    |         |   |                   |   |         |  
|------------------------------------------------------------------------------------------ |  | ------------------ | ------- | - | ----------------- | - | ------- | -
|                                                                                           |  | September 30, 2006 |         |   | December 31, 2005 |  
|Assets                                                                                     |  |                    |         |   |                   |   |         |  
|Current assets:                                                                            |  |                    |         |   |                   |   |         |  
|Cash and cash equivalents                                                                  |  | $                  | 25,617  |   |                   | $ | 13,991  |  
|Accounts receivable, net                                                                   |  |                    | 23,903  |   |                   |   | 22,329  |  
|Prepaid expenses and other current assets                                                  |  |                    | 2,232   |   |                   |   | 2,681   |  
|Deferred taxes                                                                             |  |                    | 1,073   |   |                   |   | 621     |  
|                                                                                           |  |                    |         |   |                   |   |         |  
|Total current assets                                                                       |  |                    | 52,825  |   |                   |   | 39,622  |  
|Property and equipment, net                                                                |  |                    | 5,651   |   |                   |   | 4,991   |  
|Goodwill                                                                                   |  |                    | 408,793 |   |                   |   | 408,793 |  
|Intangible assets, net                                                                     |  |                    | 377,048 |   |                   |   | 403,056 |  
|Deferred financing costs, net                                                              |  |                    | 11,538  |   |                   |   | 13,173  |  
|Other assets                                                                               |  |                    | 319     |   |                   |   | 96      |  
|                                                                                           |  |                    |         |   |                   |   |         |  
|Total assets                                                                               |  | $                  | 856,174 |   |                   | $ | 869,731 |  
|                                                                                           |  |                    |         |   |                   |   |         |  
|Liabilities and Stockholders Equity                                                       |  |                    |         |   |                   |   |         |  
|Current liabilities:                                                                       |  |                    |         |   |                   |   |         |  
|Accounts payable                                                                           |  | $                  | 2,950   |   |                   | $ | 1,208   |  
|Accrued interest                                                                           |  |                    | 9,769   |   |                   |   | 4,848   |  
|Accrued payroll and related benefits                                                       |  |                    | 1,783   |   |                   |   | 817     |  
|Accrued cost of interpreters                                                               |  |                    | 968     |   |                   |   | 1,288   |  
|Other accrued liabilities                                                                  |  |                    | 2,406   |   |                   |   | 1,786   |  
|Income taxes payable                                                                       |  |                    | 2,644   |   |                   |   | 2,341   |  
|Current portion of long-term debt                                                          |  |                    | 14,158  |   |                   |   | 18,638  |  
|                                                                                           |  |                    |         |   |                   |   |         |  
|Total current liabilities                                                                  |  |                    | 34,678  |   |                   |   | 30,926  |  
|Long-term debt                                                                             |  |                    | 225,813 |   |                   |   | 236,431 |  
|Senior subordinated notes                                                                  |  |                    | 161,619 |   |                   |   | 161,315 |  
|Senior discount notes                                                                      |  |                    | 75,354  |   |                   |   | 67,996  |  
|Deferred taxes                                                                             |  |                    | 151,929 |   |                   |   | 159,643 |  
|                                                                                           |  |                    |         |   |                   |   |         |  
|Total liabilities                                                                          |  |                    | 649,393 |   |                   |   | 656,311 |  
|                                                                                           |  |                    |         |   |                   |   |         |  
|Stockholders equity:                                                                      |  |                    |         |   |                   |   |         |  
|Common stock, $.01 par value per share and 1,000 shares authorized, issued and outstanding |  |                    |        |   |                   |   |        |  
|Additional paid-in capital                                                                 |  |                    | 227,061 |   |                   |   | 228,015 |  
|Accumulated deficit                                                                        |  |                    | (20,280 | ) |                   |   | (13,343 | )
|Deferred stock compensation                                                                |  |                    |        |   |                   |   | (1,252  | )
|                                                                                           |  |                    |         |   |                   |   |         |  
|Total stockholders equity                                                                 |  |                    | 206,781 |   |                   |   | 213,420 |  
|                                                                                           |  |                    |         |   |                   |   |         |  
|Total liabilities and stockholders equity                                                 |  | $                  | 856,174 |   |                   | $ | 869,731 |  
|                                                                                           |  |                    |         |   |                   |   |         |  

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 monthsendedSeptember 30,2006 |        |   | Three monthsendedSeptember 30,2005 |   |        | Nine monthsendedSeptember 30,2006 |  |   | Nine monthsendedSeptember 30,2005 |  
|Revenues                            |  | $                                  | 41,039 |   |                                    | $ | 36,362 |                                   |  | $ | 121,201                           |   |  | $ | 107,786 |  
|Cost of services                    |  |                                    | 14,332 |   |                                    |   | 12,243 |                                   |  |   | 42,575                            |   |  |   | 36,547  |  
|Other expenses:                     |  |                                    |        |   |                                    |   |        |                                   |  |   |                                   |   |  |   |         |  
|Selling, general and administrative |  |                                    | 7,067  |   |                                    |   | 5,603  |                                   |  |   | 21,364                            |   |  |   | 18,685  |  
|Interest - net                      |  |                                    | 13,701 |   |                                    |   | 12,607 |                                   |  |   | 40,139                            |   |  |   | 36,914  |  
|Depreciation and amortization       |  |                                    | 8,249  |   |                                    |   | 9,797  |                                   |  |   | 27,826                            |   |  |   | 29,427  |  
|                                    |  |                                    |        |   |                                    |   |        |                                   |  |   |                                   |   |  |   |         |  
|Total other expenses                |  |                                    | 29,017 |   |                                    |   | 28,007 |                                   |  |   | 89,329                            |   |  |   | 85,026  |  
|                                    |  |                                    |        |   |                                    |   |        |                                   |  |   |                                   |   |  |   |         |  
|Other income:                       |  |                                    |        |   |                                    |   |        |                                   |  |   |                                   |   |  |   |         |  
|Special Payment Received (Note 2)   |  |                                    | 795    |   |                                    |   |        |                                   |  |   | 795                               |   |  |   |         |  
|                                    |  |                                    |        |   |                                    |   |        |                                   |  |   |                                   |   |  |   |         |  
|Total other income                  |  |                                    | 795    |   |                                    |   |       |                                   |  |   | 795                               |   |  |   |        |  
|                                    |  |                                    |        |   |                                    |   |        |                                   |  |   |                                   |   |  |   |         |  
|Loss before income taxes            |  |                                    | (1,515 | ) |                                    |   | (3,888 | )                                 |  |   | (9,908                            | ) |  |   | (13,787 | )
|Income tax expense (benefit)        |  |                                    | (291   | ) |                                    |   | (1,317 | )                                 |  |   | (2,971                            | ) |  |   | (4,815  | )
|                                    |  |                                    |        |   |                                    |   |        |                                   |  |   |                                   |   |  |   |         |  
|Net loss                            |  | $                                  | (1,224 | ) |                                    | $ | (2,571 | )                                 |  | $ | (6,937                            | ) |  | $ | (8,972  | )
|                                    |  |                                    |        |   |                                    |   |        |                                   |  |   |                                   |   |  |   |         |  

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 CASH FLOWS

(In thousands)

(Unaudited)



|                                                                                |  |                                   |         |   |                                   |   |         |  
|------------------------------------------------------------------------------- |  | --------------------------------- | ------- | - | --------------------------------- | - | ------- | -
|                                                                                |  | Nine monthsendedSeptember 30,2006 |         |   | Nine monthsendedSeptember 30,2005 |  
|Cash flows from operating activities:                                           |  |                                   |         |   |                                   |   |         |  
|Net loss                                                                        |  | $                                 | (6,937  | ) |                                   | $ | (8,972  | )
|Adjustments to reconcile net loss to net cash provided by operating activities: |  |                                   |         |   |                                   |   |         |  
|Depreciation and amortization                                                   |  |                                   | 27,826  |   |                                   |   | 29,427  |  
|Amortization of deferred financing costs                                        |  |                                   | 1,635   |   |                                   |   | 1,596   |  
|Deferred taxes                                                                  |  |                                   | (8,166  | ) |                                   |   | (9,041  | )
|Stock based compensation expense                                                |  |                                   | 313     |   |                                   |   | 276     |  
|Loss from derivative instruments                                                |  |                                   |        |   |                                   |   | 4       |  
|Accretion of discount on notes                                                  |  |                                   | 7,662   |   |                                   |   | 6,692   |  
|Effect of changes in operating assets and liabilities:                          |  |                                   |         |   |                                   |   |         |  
|Accounts receivable                                                             |  |                                   | (1,574  | ) |                                   |   | (1,667  | )
|Prepaid expenses and other current assets                                       |  |                                   | 449     |   |                                   |   | (382    | )
|Other assets                                                                    |  |                                   | (223    | ) |                                   |   | 62      |  
|Accounts payable                                                                |  |                                   | 1,742   |   |                                   |   | (219    | )
|Income taxes payable/refundable                                                 |  |                                   | 303     |   |                                   |   | (609    | )
|Accrued interest, payroll and other liabilities                                 |  |                                   | 6,187   |   |                                   |   | 7,343   |  
|                                                                                |  |                                   |         |   |                                   |   |         |  
|Net cash provided by operating activities                                       |  |                                   | 29,217  |   |                                   |   | 24,510  |  
|                                                                                |  |                                   |         |   |                                   |   |         |  
|Cash flows from investing activities :                                          |  |                                   |         |   |                                   |   |         |  
|Purchase of property                                                            |  |                                   | (2,478  | ) |                                   |   | (999    | )
|                                                                                |  |                                   |         |   |                                   |   |         |  
|Net cash used in investing activities                                           |  |                                   | (2,478  | ) |                                   |   | (999    | )
|                                                                                |  |                                   |         |   |                                   |   |         |  
|Cash flows from financing activities :                                          |  |                                   |         |   |                                   |   |         |  
|Long-term debt repayments                                                       |  |                                   | (15,098 | ) |                                   |   | (21,422 | )
|Repurchase of restricted stock units                                            |  |                                   | (15     | ) |                                   |   |        |  
|Capital contribution from Parent                                                |  |                                   |        |   |                                   |   | 995     |  
|                                                                                |  |                                   |         |   |                                   |   |         |  
|Net cash used in financing activities                                           |  |                                   | (15,113 | ) |                                   |   | (20,427 | )
|Net increase in cash and cash equivalents                                       |  |                                   | 11,626  |   |                                   |   | 3,084   |  
|Cash and cash equivalents - beginning of period                                 |  |                                   | 13,991  |   |                                   |   | 12,164  |  
|                                                                                |  |                                   |         |   |                                   |   |         |  
|Cash and cash equivalents - end of period                                       |  | $                                 | 25,617  |   |                                   | $ | 15,248  |  
|                                                                                |  |                                   |         |   |                                   |   |         |  
|Supplemental cash flow disclosures:                                             |  |                                   |         |   |                                   |   |         |  
|Cash paid for interest                                                          |  | $                                 | 26,143  |   |                                   | $ | 20,800  |  
|                                                                                |  |                                   |         |   |                                   |   |         |  
|Cash paid for income taxes                                                      |  | $                                 | 4,893   |   |                                   | $ | 4,835   |  
|                                                                                |  |                                   |         |   |                                   |   |         |  

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)

Notes to Condensed Consolidated Financial Statements

(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 September 30, 2006 and the nine months ended September 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 September 30, 2006, and for the three months ended
September 30, 2005 and 2006 and for the nine months ended September 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 (loss) 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 (loss) 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



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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 MonthsEndedSeptember 30,2005 |        |   | Nine MonthsEndedSeptember 30,2005 |  
|Net income (loss), as reported                                                                                                             |  | $                                  | (2,571 | ) |                                   | $ | (8,972 | )
|Add total stock-based employee compensation expense included in reported net income, net of related tax effects                            |  |                                    | 57     |   |                                   |   | 171    |  
|Deduct total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                                    | (57    | ) |                                   |   | (171   | )
|                                                                                                                                           |  |                                    |        |   |                                   |   |        |  
|Pro forma net income (loss)                                                                                                                |  | $                                  | (2,571 | ) |                                   | $ | (8,972 | )
|                                                                                                                                           |  |                                    |        |   |                                   |   |        |  

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) requires 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 nine months ended September 30, 2006 was
$105,000 and $313,000, respectively. As of September 30, 2006, total unrecognized compensation cost, net of estimated forfeitures, was $1.2 million related to restricted stock units. The unrecognized compensation cost is expected to be
recognized over a weighted-average period of 3.1 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 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



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##### Table of Contents

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 September 30, 2006 (in thousands, except per share amounts):



|                                |  |                      |   |  |                                      |      |                                           |     
|------------------------------- |  | -------------------- | - |  | ------------------------------------ | ---- | ----------------------------------------- | ----
|                                |  | Number ofUnits (000) |   |  | WeightedAverage GrantDate Fair Value |      | Weighted AverageRemainingContractual Term
|Outstanding, December 31, 2005  |  | 19,405               |   |  | $                                    | 0.09 |                                           |     
|Granted                         |  | 3,700                |   |  | $                                    | 0.09 |                                           |     
|Repurchased                     |  | (154                 | ) |  | $                                    | 0.09 |                                           |     
|Forfeited                       |  | (777                 | ) |  | $                                    | 0.09 |                                           |     
|                                |  |                      |   |  |                                      |      |                                           |     
|Outstanding, September 30, 2006 |  | 22,174               |   |  | $                                    | 0.09 |                                           | 3.23
|                                |  |                      |   |  |                                      |      |                                           |     

A summary of the status of the Companys nonvested shares as of September 30, 2006 and changes during
the period is presented below:



|                                |  |                      |   |  |                                       |     
|------------------------------- |  | -------------------- | - |  | ------------------------------------- | ----
|Nonvested Units                 |  | Number ofUnits (000) |   |  | Weighted Average GrantDate Fair Value
|Outstanding, December 31, 2005  |  | 17,464               |   |  | $                                     | 0.09
|Granted                         |  | 3,700                |   |  | $                                     | 0.09
|Vested                          |  | (3,705               | ) |  | $                                     | 0.09
|Repurchased                     |  | (139                 | ) |  | $                                     | 0.09
|Forfeited                       |  | (704                 | ) |  | $                                     | 0.09
|                                |  |                      |   |  |                                       |     
|Outstanding, September 30, 2006 |  | 16,616               |   |  | $                                     | 0.09
|                                |  |                      |   |  |                                       |     

Restricted stock units granted vest over a 5 year cliff vesting schedule. During both the three months and nine
months ended September 30, 2006 3.7 million 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 Financial Accounting Standards Board (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.

In September 2006, the FASB issued SFAS No. 157 (SFAS 157) Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value under generally accepted accounting
principles, and expands disclosures about fair value measurements. SFAS 157 applies to other accounting pronouncements that require or permit fair value measurements. It is effective for us beginning in fiscal year 2008. We are currently in the
process of determining the effect that the adoption of this statement will have on our consolidated financial statements.



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In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting
Bulletin No. 108 (SAB 108), Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. SAB 108 requires companies to evaluate the materiality of
identified unadjusted errors on each financial statement and related financial statement disclosure using both the rollover approach and the iron curtain approach. The roll-over method focuses primarily on the effect of a misstatement on
the income statement, including the reversing effect of prior year misstatements, but can lead to the accumulation of misstatements in the balance sheet. The iron-curtain method focuses primarily on the effect of correcting the
period-end balance sheet with less emphasis on the reversing effects of prior year errors on the income statement. SAB 108 requires that the materiality be evaluated using the dual approach on each of the affected financial statement and related
financial statement disclosure. If the analysis indicates that the prior year financial statements are materially misstated when all relevant quantitative and qualitative factors are considered, then they would need to be restated in accordance with
SFAS No. 154, Accounting Changes and Error Corrections. If the misstatement was material to the current year, but immaterial to the prior year financial statements, the prior year financial statements would need to be
corrected, but would not require previously filed reports to be amended.

At initial application of SAB 108, two alternative methods are
available to correct all identified misstatements that were previously considered immaterial, but may be material under the guidance of SAB 108, either by (1) the retrospective adjustments to prior period financial statements or (2) the
cumulative effect adjustment to the opening retained earnings balance. The cumulative effect method is available only at the time of initial application and requires disclosure of the nature and amount of each individual amount being corrected as
well as information about how and when each error arose.

SAB 108 will be effective for us at the end of this fiscal year ending
December 31, 2006. We are currently in the process of determining the effect that the adoption of this statement will have on our consolidated financial condition and results of operations.

2. Special Payment Received

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. Final settlement of
potential obligations was reached with the previous owners on July 25, 2006. The Company concluded there is not a clear and direct link to the original purchase price for the settlement of the escrow account, and the settlement is more general
in nature for potential tax liabilities. Therefore, since there was no direct and clear link to the original purchase price, the final settlement of $795,000 was recorded into other income in the third quarter of 2006.

3. Guarantor and Non-Guarantor Subsidiaries

The
Companys outstanding public debt (the Senior Subordinated Notes) is jointly and severally, fully and unconditionally guaranteed by the Company and certain of its subsidiaries (the Guarantor Subsidiaries). The Company or
Parent Company has no independent assets or operations. The subsidiaries are 100% owned by the Company. At September 30, 2006, a total of approximately $161.6 million of Senior Subordinated Notes were outstanding. The Guarantor Subsidiaries and
non-guarantor subsidiaries are direct or indirect wholly-owned subsidiaries of the Company. Separate financial statements of the Company and each of the Guarantor Subsidiaries are not presented because the guarantees are full and unconditional and
the Guarantor Subsidiaries are jointly and severally liable.

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.

There are no current restrictions on the ability of the Guarantor Subsidiaries to make payments under the guarantees referred to above. The obligations of each guarantor under its guarantee are limited to the maximum
amount permitted under Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act, or any similar Federal or state law (e.g. laws requiring adequate capital to pay dividends) respecting fraudulent conveyance or
fraudulent transfer.



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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.



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##### Table of Contents

Results of Operations

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



|                                    |  |                                    |    |  |                                    |    |  |                                   |    |  |                                   |   
|----------------------------------- |  | ---------------------------------- | -- |  | ---------------------------------- | -- |  | --------------------------------- | -- |  | --------------------------------- | --
|                                    |  | Three MonthsEndedSeptember 30,2006 |    |  | Three MonthsEndedSeptember 30,2005 |    |  | Nine MonthsEndedSeptember 30,2006 |    |  | Nine MonthsEndedSeptember 30,2005 |   
|Statement of Operations data:       |  |                                    |    |  |                                    |    |  |                                   |    |  |                                   |   
|Revenues                            |  | 100.0                              | %  |  | 100.0                              | %  |  | 100.0                             | %  |  | 100.0                             | % 
|Cost of services                    |  | 34.9                               | %  |  | 33.7                               | %  |  | 35.1                              | %  |  | 33.9                              | % 
|Other expenses:                     |  |                                    |    |  |                                    |    |  |                                   |    |  |                                   |   
|Selling, general and administrative |  | 17.2                               | %  |  | 15.4                               | %  |  | 17.6                              | %  |  | 17.3                              | % 
|Interest, net                       |  | 33.4                               | %  |  | 34.7                               | %  |  | 33.1                              | %  |  | 34.2                              | % 
|Depreciation and amortization       |  | 20.1                               | %  |  | 26.9                               | %  |  | 23.0                              | %  |  | 27.3                              | % 
|                                    |  |                                    |    |  |                                    |    |  |                                   |    |  |                                   |   
|Total other expenses                |  | 70.7                               | %  |  | 77.0                               | %  |  | 73.7                              | %  |  | 78.9                              | % 
|                                    |  |                                    |    |  |                                    |    |  |                                   |    |  |                                   |   
|Other income:                       |  |                                    |    |  |                                    |    |  |                                   |    |  |                                   |   
|Special Payment Received            |  | 1.9                                | %  |  | 0.0                                | %  |  | 0.7                               | %  |  | 0.0                               | % 
|                                    |  |                                    |    |  |                                    |    |  |                                   |    |  |                                   |   
|Total other income                  |  | 1.9                                | %  |  | 0.0                                | %  |  | 0.7                               | %  |  | 0.0                               | % 
|                                    |  |                                    |    |  |                                    |    |  |                                   |    |  |                                   |   
|Income (loss) before income taxes   |  | (3.7                               | )% |  | (10.7                              | )% |  | (8.1                              | )% |  | (12.8                             | )%
|Income tax provision (benefit)      |  | (0.7                               | )% |  | (3.6                               | )% |  | (2.5                              | )% |  | (4.5                              | )%
|                                    |  |                                    |    |  |                                    |    |  |                                   |    |  |                                   |   
|Net income (loss)                   |  | (3.0                               | )% |  | (7.1                               | )% |  | (5.6                              | )% |  | (8.3                              | )%
|                                    |  |                                    |    |  |                                    |    |  |                                   |    |  |                                   |   

Three Months Ended September 30, 2006 Compared to the Three Months Ended September 30, 2005.

Revenues for the three months ended September 30, 2006 were $41.0 million as compared to $36.3 million for the three months ended
September 30, 2005, an increase of $4.7 million or 12.9%. The majority of the increase in revenue is driven by a 19.9% increase in OPI billed minutes offset by a 6.2% 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 September 30, 2006, cost of services were $14.3 million as compared to $12.2 million for the three months ended September 30, 2005, an increase of $2.1
million or 17.2%. This increase was primarily due to increased interpretation minutes.

Selling, general and administrative expenses for
the three months ended September 30, 2006 were $7.1 million as compared to $5.6 million for the three months ended September 30, 2005, an increase of $1.5 million or 26.8%. This increase was primarily due to the results of an increase in
marketing and sales initiatives, in addition to increased audit and tax related fees.

Interest expense for the three months ended
September 30, 2006 was $13.7 million as compared to $12.6 million for the three months ended September 30, 2005. This increase was primarily the result of an increase in interest rates.

Depreciation and amortization was $8.2 million for the three months ended September 30, 2006 compared to $9.8 million for the three months ended
September 30, 2005.

The tax benefit on loss for the three months ended September 30, 2006 was $0.3 million as compared to $1.3
million of tax benefit on loss for the three months ended September 30, 2005, a decrease of $1.0 million, primarily due to a decrease in loss before income taxes. The effective tax rate for the three months ended September 30, 2006 was
19.2% as compared to 33.9% for the three months ended September 30, 2005. The decrease in the effective rate of the tax benefit is primarily a result of an increase in the amount of expenses not deductible for tax purposes (principally
nondeductible interest related to senior discount notes and expenses related to a deferred stock compensation plan) in conjunction with a significantly reduced loss before income taxes.

As a result of the factors described above, net loss was $1.2 million for the three months ended September 30, 2006 as compared to a net loss of
$2.6 million for the three months ended September 30, 2005.



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Nine Months Ended September 30, 2006 Compared to the Nine Months Ended September 30, 2005.

Revenues for the nine months ended September 30, 2006 were $121.2 million as compared to $107.8 million for the nine months ended
September 30, 2005, an increase of $13.4 million or 12.5%. The majority of the increase in revenue is driven by a 19.0% increase in OPI billed minutes offset by a 6.0% 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 nine months ended September 30, 2006, cost of services was $42.6 million as compared to $36.5 million for the nine months ended September 30, 2005, an increase of $6.1
million or 16.4%. This increase was primarily due to increased interpretation minutes.

Selling, general and administrative expenses for
the nine months ended September 30, 2006 were $21.4 million as compared to $18.7 million for the nine months ended September 30, 2005, an increase of $2.7 million or 14.4%. This increase was primarily due to the results of an increase in
marketing and sales initiatives, in addition to increased audit and tax related fees.

Interest expense for the nine months ended
September 30, 2006 was $40.1 million as compared to $36.9 million for the nine months ended September 30, 2005. This increase was primarily the result of an increase in interest rates.

Depreciation and amortization was $27.8 million for the nine months ended September 30, 2006 as compared to $29.4 million for the nine months ended
September 30, 2005.

The tax benefit on loss for the nine months ended September 30, 2006 was $3.0 million as compared to $4.8
million of tax benefit on loss for the nine months ended September 30, 2005, a decrease of $1.8 million, primarily due to a decrease in loss before income taxes. The effective tax rate for the nine months ended September 30, 2006 was 29.9%
compared to 34.9% for the nine months ended September 30, 2005. The decrease in the effective rate of the tax benefit is primarily a result of an increase in the amount of expenses not deductible for tax purposes (principally nondeductible
interest related to senior discount notes and expenses related to a deferred stock compensation plan) in conjunction with a significantly reduced loss before income taxes.

As a result of the factors described above, net loss was $6.9 million for the nine months ended September 30, 2006 as compared to a net loss of $9.0
million for the nine months ended September 30, 2005.

Liquidity and Capital Resources

Operating Activities. Net cash provided by operating activities for the nine months ended September 30, 2006 was $29.2 million compared with
net cash provided by operating activities during the nine months ended September 30, 2005 of $24.5 million. This increase is mainly attributable to the timing of accounts payable related payments offset by a decrease attributable to accounts
receivable.

Investing Activities. Net cash used in investing activities was $2.5 million for the nine months ended
September 30, 2006, compared to $1 million for the nine months ended September 30, 2005. This increase was attributable to capital expenditures spending.

Financing Activities. Net cash used in financing activities during the nine months ended September 30, 2006 was $15.1 million, compared to $20.4 million during the nine months ended September 30,
2005. The decrease of $5.3 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 September 30, 2006, we had total indebtedness of $476.9 million and $40.0 million of
borrowings available under our revolver credit facility, as defined in our loan agreement and subject to customary conditions.



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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 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 September 30, 2006 (dollars in thousands):



|                                                         |  |       |         |                  |   |        |  |      |        |      |   |        |  |            |        |  |   |        |  |   |        
|-------------------------------------------------------- |  | ----- | ------- | ---------------- | - | ------ |  | ---- | ------ | ---- | - | ------ |  | ---------- | ------ |  | - | ------ |  | - | -------
|                                                         |  | Total |         | Remainder of2006 |   | 2007   |  | 2008 |        | 2009 |   | 2010   |  | Thereafter
|Senior secured credit facilities                         |  | $     | 239,971 |                  | $ | 3,539  |  | $    | 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                                        |  |       | 268,000 |                  |   | 15,021 |  |      | 40,867 |      |   | 39,488 |  |            | 45,807 |  |   | 52,125 |  |   | 74,692 
|Operating leases                                         |  |       | 9,142   |                  |   | 1,015  |  |      | 3,892  |      |   | 2,499  |  |            | 883    |  |   | 769    |  |   | 84     
|                                                         |  |       |         |                  |   |        |  |      |        |      |   |        |  |            |        |  |   |        |  |   |        
|Total cash contractual obligations                       |  | $     | 791,106 |                  | $ | 19,575 |  | $    | 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.



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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.

Stock-Based CompensationWe account for stock-based compensation in accordance with SFAS No. 123(R), Share Based
Payments. Under 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.

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.



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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

Item 1.Legal Proceedings

Language Line Holdings, 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.

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

The following table
provides information about the restricted stock units repurchased by the Company during the three months and nine months ended, September 30, 2006:



|                                      |  |                                               |  |                                           |     
|------------------------------------- |  | --------------------------------------------- |  | ----------------------------------------- | ----
|Fiscal Period                         |  | Total Numberof RestrictedStock UnitsPurchased |  | Average PricePaid perRestrictedStock Unit
|Three Months Ended September 30, 2006 |  | 0                                             |  |                                           | N/A 
|Nine Months Ended September 30, 2006  |  | 154,345                                       |  | $                                         | 0.09

Item 3.Defaults upon Senior Securities

None.

Item 4.Submission of Matters to a Vote of Security Holders

None.

Item 5.Other Information

None.



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##### Table of Contents

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 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.



| | (b) | Reports of Form 8-K
| | --- | -------------------

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 November 3, 2006.



LANGUAGE LINE HOLDINGS, INC./s/ Dennis G. DracupDennis G. DracupChief Executive Officer and Director/s/ Matthew T. Gibbs IIMatthew T. Gibbs IIChief Financial Officer and Director




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