UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2006

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

For the transition period from                      to                     

Coinmach Service Corp.

(Exact name of registrant as specified in its charter)

Delaware		20-0809839
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

303 Sunnyside Blvd., Suite 70, Plainview, New York		11803
(Address of principal executive offices)		(Zip Code)

(516) 349-8555
(Registrant’s telephone number, including area code)

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

     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.

Large accelerated filer o      Accelerated filer þ      Non-accelerated filer o

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

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

Class		Outstanding at July 31, 2006
Class A common stock, $0.01 par value per share		29,113,641 shares
Class B common stock, $0.01 par value per share		23,374,450 shares

     The registrant publicly trades Income Deposit Securities (“IDSs”) and shares of Class A common stock separately on the American Stock Exchange. Each IDS is comprised of one underlying share of Class A common stock and an underlying 11% senior secured note due 2024 in a principal amount of $6.14. As of July 31, 2006, there were 13,003,511 IDSs outstanding.

 

 

COINMACH SERVICE CORP. AND SUBSIDIARIES

INDEX

		Page No.
PART I. Financial Information
Item 1. Financial Statements			3
Condensed Consolidated Balance Sheets — June 30, 2006 (Unaudited) and March 31, 2006			3
Condensed Consolidated Statements of Operations (Unaudited) — Three months ended June 30, 2006 and 2005			4
Condensed Consolidated Statement of Stockholders’ Equity for the Three months ended June 30, 2006			5
Condensed Consolidated Statements of Cash Flows (Unaudited) — Three months ended June 30, 2006 and 2005			6
Notes to Condensed Consolidated Financial Statements (Unaudited)			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			32
Item 3. Quantitative and Qualitative Disclosures About Market Risk			54
Item 4. Controls and Procedures			55
PART II. Other Information
Item 1. Legal Proceedings			56
Item 1A. Risk Factors			56
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			56
Item 3. Defaults Upon Senior Securities			56
Item 4. Submission of Matters to a Vote of Security Holders			56
Item 5. Other Information			56
Item 6. Exhibits			56
Signature Page			57
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.1: CERTIFICATION
EX-32.2: CERTIFICATION

COINMACH SERVICE CORP. AND SUBSIDIARIES

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands of dollars, except share data)

		June 30, 2006				March 31, 20061
		(Unaudited)
ASSETS:
Current assets:
Cash and cash equivalents		$	34,301			$	62,008
Receivables, net			6,557				5,635
Inventories			13,630				11,458
Prepaid expenses			4,807				4,375
Interest rate swap asset			5,598				2,615
Other current assets			2,093				1,796
Total current assets			66,986				87,887
Advance location payments			66,574				67,242
Property, equipment and leasehold improvements, net of accumulated depreciation and amortization of $421,254 and $403,024			251,188				252,398
Contract rights, net of accumulated amortization of $117,986 and $114,535			303,367				296,912
Goodwill			207,997				206,196
Other assets			9,822				11,531
Total assets		$	905,934			$	922,166
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current liabilities:
Accounts payable and accrued expenses		$	36,247			$	32,656
Accrued rental payments			31,782				33,044
Accrued interest			6,732				3,563
Current portion of long-term debt			4,770				11,151
Total current liabilities			79,531				80,414
Deferred income taxes			51,337				49,984
Long-term debt			652,918				653,102
Total liabilities			783,786				783,500
Stockholders’ equity:
Class A Common Stock — $0.01 par value; 100,000,000 shares authorized; 29,113,641 shares issued and outstanding			291				291
Class B Common Stock — $0.01 par value; 100,000,000 shares authorized; 23,374,450 shares issued and outstanding			234				234
Capital in excess of par value			389,644				389,616
Carryover basis adjustment			(7,988	)			(7,988	)
Accumulated other comprehensive income, net of tax			3,311				1,547
Accumulated deficit			(263,344	)			(245,034	)
Total stockholders’ equity			122,148				138,666
Total liabilities and stockholders’ equity		$	905,934			$	922,166

See accompanying notes.

COINMACH SERVICE CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands of dollars, except share data)

		Three Months Ended
		June 30, 2006				June 30, 2005
REVENUES		$	139,285			$	133,830
COSTS AND EXPENSES:
Laundry operating expenses (exclusive of depreciation and amortization and amortization of advance location payments)			94,399				90,915
General and administrative (including stock-based compensation expense of $38 and $12, respectively)			3,034				2,523
Depreciation and amortization			18,624				18,932
Amortization of advance location payments			4,900				4,135
Amortization of intangibles			3,560				3,485
			124,517				119,990
OPERATING INCOME			14,768				13,840
INTEREST EXPENSE			13,430				15,331
TRANSACTION COSTS			845				—
INCOME (LOSS) BEFORE INCOME TAXES			493				(1,491	)
PROVISION (BENEFIT) FOR INCOME TAXES:
Current			168				—
Deferred			133				(516	)
			301				(516	)
NET INCOME (LOSS)		$	192			$	(975	)
Distributed earnings per share:
Class A Common Stock		$	0.21			$	0.21
Class B Common Stock		$	0.53			$	—
Basic and diluted net (loss) income per share:
Class A Common Stock		$	(0.14	)		$	0.10
Class B Common Stock		$	0.18			$	(0.11	)
Weighted average common stock outstanding:
Class A Common Stock			29,046,528				18,911,532
Class B Common Stock			23,374,450				24,980,445
Cash dividends per share:
Class A Common Stock		$	0.21			$	0.21
Class B Common Stock		$	0.53			$	—

See accompanying notes.

COINMACH SERVICE CORP. AND SUBSIDIARIES

Condensed Consolidated Statement of Stockholders’ Equity

(in thousands of dollars)

																		Accumulated
																		Other
		Class A				Class B				Capital				Carryover				Comprehensive
		Common				Common				in Excess				Basis				Income, net of				Accumulated				Stockholders’
		Stock				Stock				of Par Value				Adjustment				tax				Deficit				Equity
Balance, March 31, 2006		$	291			$	234			$	389,616			$	(7,988	)		$	1,547			$	(245,034	)		$	138,666
Issuance costs			—				—				(9	)			—				—				—				(9	)
Comprehensive Income:
Net income			—				—				—				—				—				192				192
Gain on derivative instruments			—				—				—				—				1,764				—				1,764
Total comprehensive income																											1,956
Dividends			—				—				—				—				—				(18,502	)			(18,502	)
Stock-based compensation			—				—				37				—				—				—				37
Balance, June 30, 2006		$	291			$	234			$	389,644			$	(7,988	)		$	3,311			$	(263,344	)		$	122,148

See accompanying notes.

COINMACH SERVICE CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of dollars)

		Three Months Ended
		June 30, 2006				June 30, 2005
OPERATING ACTIVITIES:
Net income (loss)		$	192			$	(975	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization			18,624				18,932
Amortization of advance location payments			4,900				4,135
Amortization of intangibles			3,560				3,485
Deferred income taxes			133				(516	)
Amortization of deferred issue costs			200				531
Write off of deferred issue costs			414				—
Premium on redemption of 11% senior secured notes due 2024			417				—
Gain on sale of equipment			(77	)			(112	)
Stock based compensation			38				12
Change in operating assets and liabilities, net of businesses acquired:
Other assets			311				(1,693	)
Receivables, net			(751	)			295
Inventories and prepaid expenses			(2,177	)			853
Accounts payable and accrued expenses, net			1,635				1,479
Accrued interest			3,169				7,094
Net cash provided by operating activities			30,588				33,520
INVESTING ACTIVITIES:
Additions to property, equipment and leasehold improvements			(14,534	)			(15,008	)
Advance location payments to location owners			(3,346	)			(2,904	)
Acquisition of net assets related to acquisitions of businesses, net of cash acquired			(14,541	)			—
Proceeds from sale of property and equipment			293				299
Net cash used in investing activities			(32,128	)			(17,613	)
FINANCING ACTIVITIES:
Repayments under credit facility			(575	)			(1,240	)
Redemption of 11% senior secured notes due 2024			(5,649	)			—
Payment of premium on 11% senior secured notes due 2024			(417	)			—
Principal payments on capitalized lease obligations			(945	)			(1,438	)
Repayments from bank and other borrowings			(70	)			(60	)
Debt issuance costs			(9	)			—
Cash dividends paid			(18,502	)			(3,898	)
Net cash used in financing activities			(26,167	)			(6,636	)
Net (decrease) increase in cash and cash equivalents			(27,707	)			9,271
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			62,008				57,271
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	34,301			$	66,542
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid		$	10,061			$	7,706
Income taxes paid		$	90			$	58
NON CASH FINANCING ACTIVITIES:
Acquisition of fixed assets through capital leases		$	674			$	2,664

See accompanying notes.

COINMACH SERVICE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. Basis of Presentation

     The condensed consolidated financial statements include the accounts of Coinmach Service Corp., a Delaware corporation (“CSC”), and all of its subsidiaries, including Coinmach Corporation, a Delaware corporation (“Coinmach”). All significant intercompany profits, transactions and balances have been eliminated in consolidation. CSC was incorporated on December 23, 2003 as a wholly-owned subsidiary of Coinmach Holdings, LLC, a Delaware limited liability company (“Holdings”). Unless otherwise specified herein, references to the “Company,” “we,” “us” and “our” shall mean CSC and its subsidiaries.

     CSC and its wholly-owned subsidiaries are providers of outsourced laundry equipment services for multi-family housing properties in North America. The Company’s core business (which the Company refers to as the “route” business) involves leasing laundry rooms from building owners and property management companies, installing and servicing laundry equipment and collecting revenues generated from laundry machines. Through Appliance Warehouse of America, Inc., a Delaware corporation jointly-owned by CSC and Coinmach (“AWA”), the Company rents laundry machines and other household appliances to property owners, managers of multi-family housing properties, and to a lesser extent, individuals and corporate relocation entities. Super Laundry Equipment Corp., a Delaware corporation and a direct wholly-owned subsidiary of Coinmach (“Super Laundry”), constructs, designs and retrofits laundromats and distributes laundromat equipment.

     The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial reporting and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, such financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. GAAP requires the Company’s management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from such estimates.

     The interim results presented herein are not necessarily indicative of the results to be expected for the entire year.

     In the opinion of management of the Company, these unaudited condensed consolidated financial statements contain all adjustments of a normal recurring nature necessary for a fair presentation of the financial statements for the interim periods presented. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2006.

     The IDS Transactions

     CSC had no operating activity from the date of its incorporation through November 24, 2004. On November 24, 2004, CSC completed its initial public offerings (collectively, the “IPO”) of (i) 18,911,532 Income Deposit Securities (“IDSs”) (including a partial exercise of the

COINMACH SERVICE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)

underwriters’ overallotment option on December 21, 2004), at a price to the public of $13.64 per IDS (each IDS consisting of one share of Class A common stock, par value $0.01 per share (the “Class A Common Stock”) and an 11% senior secured note due 2024 in a principal amount of $6.14), and (ii) $20.0 million aggregate principal amount of 11% senior secured notes due 2024 separate and apart from the IDSs (such notes, together with the 11% senior secured notes underlying IDSs, the “11% Senior Secured Notes”).

     In connection with the IPO, (i) Holdings exchanged its capital stock of Coinmach Laundry Corporation, a Delaware corporation (“CLC” or “Laundry Corp.”) and all of its shares of common stock of AWA for 24,980,445 shares of the Company’s Class B common stock, par value $0.01 per share (the “Class B Common Stock”), representing all of the Class B Common Stock outstanding, and (ii) CLC, at the time a direct wholly-owned subsidiary of Holdings, became a direct wholly-owned subsidiary of CSC. As a result, the Class B Common Stock became owned entirely by Holdings.

     The IPO and related transactions and use of proceeds therefrom are referred to herein collectively as the “IDS Transactions.” The corporate reorganization transactions were recorded by CSC at carryover basis. Accordingly, the accompanying condensed financial statements include the accounts of CLC and its subsidiaries as if they had been wholly-owned by CSC as of the beginning of the earliest period reported. All significant intercompany accounts and transactions have been eliminated.

     The proceeds of the IPO were allocated to the Class A Common Stock and the underlying 11% Senior Secured Notes based on their respective relative fair values. The price paid for the IDSs was equivalent to the fair value of $7.50 per share of Class A Common Stock and $6.14 in a principal amount of an 11% Senior Secured Note underlying the IDS, and the fair value of the separate notes was equivalent to their face value.

     Net proceeds from the IPO were approximately $254.5 million after expenses including underwriting discounts and commissions. CSC used a portion of the proceeds from the IPO to make an intercompany loan (the “Intercompany Loan”) to Coinmach in the aggregate principal amount of approximately $81.7 million and a capital contribution to CLC aggregating approximately $170.8 million, of which approximately $165.6 million was contributed by CLC to Coinmach. The Intercompany Loan is represented by an intercompany note from Coinmach for the benefit of CSC (the “Intercompany Note”). The net proceeds, along with available cash, were used to (i) redeem a portion of Coinmach’s then outstanding 9% senior notes due 2010 (the “9% Senior Notes”) in an aggregate principal amount of $125.5 million (plus approximately $4.5 million of accrued interest and approximately $11.3 million of related redemption premium), which notes were redeemed on December 24, 2004, (ii) repay approximately $15.5 million of outstanding term loans under Coinmach’s old senior secured credit facility (the “Old Senior Secured Credit Facility”) and (iii) redeem approximately $91.8 million of CLC’s outstanding Class A Preferred Stock (as defined below) (representing all of its then outstanding Class A Preferred Stock) and approximately $7.4 million of CLC’s outstanding Class B Preferred Stock (as defined below) (representing a portion of its then outstanding Class B Preferred Stock).

COINMACH SERVICE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)

     As a result of the IDS Transactions, the Company incurred approximately $23.5 million in issuance costs, including underwriting discounts and commissions, of which approximately $12.4 million was recorded as a reduction of the proceeds from the sale of the equity component of the IDS equity and approximately $11.1 million related to the 11% Senior Secured Notes was capitalized as deferred financing costs to be amortized using the effective interest method through November 24, 2024. The issuance costs were allocated between equity and debt based on the ratio of the respective relative fair values of the components of the IDSs issued. In addition to the issuance costs, CSC incurred certain expenses that were classified as transaction costs on the Consolidated Statements of Operations for the fiscal year ended March 31, 2005, which included (1) the $11.3 million redemption premium on the portion of 9% Senior Notes redeemed, (2) the write-off of the unamortized deferred financing costs related to the redemption of the 9% Senior Notes and the repayment of the term loans aggregating approximately $3.5 million, (3) expenses aggregating approximately $1.8 million relating to an amendment to the Old Senior Secured Credit Facility effected on November 15, 2004 to, among other things, permit the IDS Transactions, and (4) special bonuses to senior management related to the IDS Transactions aggregating approximately $0.8 million. CSC incurred additional expenses that were classified as transaction costs on the Consolidated Statements of Operations for the fiscal year ended March 31, 2006 of approximately $0.3 million relating to the IDS Transactions.

     The Class A Common Stock Offering

     On February 8, 2006, CSC completed a public offering of 12,312,633 shares of Class A Common Stock (including a full overallotment exercise by the underwriters on February 17, 2006) at a price to the public of $9.00 per share (the “Class A Offering”). Net proceeds from the Class A Offering, including net proceeds from the exercise of the overallotment option, were approximately $102.7 million after deducting underwriting discounts, commissions and other estimated expenses. To the extent required by the indenture governing the 11% Senior Secured Notes, net proceeds from the Class A Offering were loaned to Coinmach in the form of additional indebtedness under the Intercompany Loan (such additional indebtedness is referred to as the “Additional Intercompany Loan”). Coinmach distributed the net proceeds from the Class A Offering to CLC who in turn distributed them to the Company. As a result of the Class A Offering, the Company incurred approximately $8.2 million in issuance costs, including underwriting discounts and commissions, which was recorded as a reduction of the proceeds from its sale of the Class A Common Stock. In addition to the issuance costs, CSC incurred certain expenses that were classified as transaction costs on the Consolidated Statements of Operations for the fiscal year ended March 31, 2006, which included (i) the premium (including an early tender payment of approximately $0.5 million) paid to redeem the 11% Senior Secured Notes of approximately $4.8 million, (ii) the write-off of a proportionate amount of unamortized deferred financing costs of approximately $3.4 million and (iii) certain direct expenses related to the Tender Offer (as defined below) of approximately $1.0 million which included approximately $0.5 million relating to special bonuses.

     The net proceeds of the Class A Offering, upon their distribution to CSC, were used (i) to purchase approximately $48.4 million aggregate principal amount outstanding of 11% Senior

COINMACH SERVICE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)

Secured Notes pursuant to the Tender Offer further described in Note 4, and related fees and expenses, (ii) to repurchase 2,199,413 shares of Class A Common Stock owned by an affiliate of GTCR – CLC, LLC (the controlling equity investor in Holdings) at a repurchase price of $8.505 per share or approximately $18.7 million in the aggregate, (iii) to repurchase 1,605,995 shares of Class B Common Stock that had been distributed to equity investors of Holdings (including certain CSC officers and directors) at a repurchase price of $8.505 per share or approximately $13.7 million in the aggregate and (iv) for general corporate purposes.

     Subject to the satisfaction of certain conditions, the Amended and Restated Credit Facility (as defined below) and the indenture governing the 11% Senior Secured Notes permits us to merge Laundry Corp. and Coinmach into CSC. We refer to such potential mergers collectively as the “Merger Event.” If we were to satisfy these and other applicable conditions with respect to the Merger Event and consummate the Merger Event in the future, CSC would become an operating company as well as the direct borrower under the Amended and Restated Credit Facility (as defined below) and sole owner of the capital stock of Coinmach’s subsidiaries. We are not currently contemplating completion of the Merger Event.

     Voting Rights of Common Stock

     Pursuant to CSC’s amended and restated certificate of incorporation, (i) on all matters for which a vote of CSC stockholders is required, each holder of shares of Class A Common Stock is entitled to one vote per share and (ii) only Class A common stockholders may vote, as a single class, to amend provisions of the certificate of incorporation relating to any change that materially adversely affects voting and dividend rights or restrictions solely to which shares of Class A Common Stock are entitled or subject and does not materially adversely affect the voting, dividend or redemption rights or restrictions solely to which shares of Class B Common Stock are entitled or subject, and any such amendment will require the affirmative vote of the holders of a majority of such class.

     In addition, on all matters for which a vote of CSC stockholders is required, each holder of Class B Common Stock is initially entitled to two votes per share. However, if at any time Holdings and certain permitted transferees collectively own less than 25% in the aggregate of our then outstanding shares of Class A Common Stock and Class B Common Stock (subject to adjustment in the event of any split, reclassification, combination or similar adjustments in shares of CSC common stock), at such time, and at all times thereafter, all holders of Class B Common Stock shall only be entitled to one vote per share on all matters for which a vote of CSC common stockholders is required. The dividend and redemption rights of Class B common stockholders and their exclusive right to vote on the amendment of certain provisions of CSC’s certificate of incorporation would not be affected by such event. Only the Class B common stockholders may vote, as a single class, to amend provisions of the certificate of incorporation relating to (i) an increase or decrease in the number of authorized shares of Class B Common Stock or (ii) changes that affect voting, dividend or redemption rights or restrictions solely to which shares of Class B Common Stock are entitled or subject and do not materially adversely affect the dividend or voting rights or restrictions to which the shares of Class A Common Stock

COINMACH SERVICE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)

are entitled or subject. Any such amendment will require the affirmative vote of the holders of a majority of all the outstanding shares of Class B Common Stock.

     On all matters on which all holders of the Company’s common stock are entitled to vote, such holders will vote together as a single class, and the a majority of the votes of such class will be required for the approval of any such matter.

     Dividends

     CSC currently intends to pay dividends on its Class A Common Stock on each March 1, June 1, September 1 and December 1 to holders of record as of the preceding February 25, May 25, August 25 and November 25, respectively, in each case with respect to the immediately preceding fiscal quarter. CSC paid and currently intends to pay annual dividends on its Class B Common Stock on each June 1 to holders of record as of the preceding May 25 with respect to the immediately preceding fiscal year (beginning with the fiscal year ended March 31, 2006), subject to certain limitations and exceptions with respect to such dividends, if any. The payment of dividends by CSC on its common stock is subject to the sole discretion of the board of directors of CSC, various limitations imposed by the certificate of incorporation of CSC, the terms of outstanding indebtedness of CSC and Coinmach, and applicable law. Payment of dividends on all classes of CSC common stock will not be cumulative.

2. Inventories

     Inventory costs for Super Laundry are valued at the lower of cost (first-in, first-out) or market. Inventory costs for AWA and the route business are determined principally by using the average cost method and are stated at the lower of cost or net realizable value. Machine repair parts inventory is valued using a formula based on total purchases and the annual inventory turnover. Inventory consists of the following (in thousands):

		June 30, 2006				March 31, 2006
Laundry equipment		$	9,743			$	7,884
Machine repair parts			3,887				3,574
		$	13,630			$	11,458

3. Goodwill and Contract Rights

     The Company accounts for goodwill in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 142 (“SFAS 142”) “Goodwill and Other Intangible Assets”. SFAS 142 requires an annual impairment test of goodwill. Goodwill is further tested between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. SFAS 142 requires a two-step process in evaluating goodwill. In performing the annual goodwill assessment, the first step requires comparing the fair value of the reporting unit to its carrying value. To the extent that the carrying value of the reporting unit exceeds the fair value, the Company would need to perform the second step in the impairment test to measure the amount

COINMACH SERVICE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)

of goodwill write-off. Based on present operating and strategic plans, management believes that there have not been any indications of impairment of goodwill. The fair value of the reporting units for these tests is based upon a discounted cash flow model. In step two, the fair value of the reporting unit is allocated to the reporting units’ assets and liabilities (a hypothetical purchase price allocation as if the reporting unit had been acquired on that date). The implied fair value of goodwill is calculated by deducting the allocated fair value of all tangible and intangible net assets of the reporting unit from the fair value of the reporting unit as determined in step one. The remaining fair value, after assigning fair value to all of the reporting units’ assets and liabilities, represents the implied fair value of goodwill for the reporting unit. If the implied fair value is less than the carrying value of goodwill, an impairment loss equal to the difference would be recognized. The Company has determined that its reporting units with goodwill consist of the route business, AWA and Super Laundry. Goodwill attributed to the route business, AWA and Super Laundry is as follows (in thousands):

		June 30, 2006				March 31, 2006
Route		$	196,827			$	195,026
Rental			8,253				8,253
Distribution			2,917				2,917
		$	207,997			$	206,196

     The Company performed its annual assessment of goodwill as of January 1, 2006 and determined that no impairment existed. There can be no assurances that future goodwill impairment tests will not result in a charge to income.

     Contract rights represent the value of location contracts arising from the acquisition of laundry machines on location. These amounts, which arose primarily from purchase price allocations pursuant to acquisitions, are amortized using accelerated methods over periods ranging from 30 to 35 years. The Company does not record contract rights relating to new locations signed in the ordinary course of business.

     Amortization expense for contract rights for the remainder of the fiscal year ending March 31, 2007 and each of the next five years is estimated to be as follows (in millions of dollars):

Years ending March 31,
2007 (remainder of year)		$	10.5
2008			13.6
2009			13.2
2010			12.9
2011			12.6
2012			12.3

COINMACH SERVICE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)

     The Company assesses the recoverability of contract rights in accordance with the provisions of SFAS No. 144 (“SFAS 144”) “Accounting for the Impairment and Disposal of Long-Lived Assets.” The Company has twenty-eight geographic regions to which contract rights have been allocated. The Company has contracts at every location/property, and analyzes revenue and certain direct costs on a contract-by-contract basis, however, the Company does not allocate common region costs and servicing costs to contracts, therefore regions represent the lowest level of identifiable cash flows in grouping contract rights. The assessment includes evaluating the financial results/cash flows and certain statistical performance measures for each region in which the Company operates. Factors that generally impact cash flows include commission rates paid to property owners, occupancy rates at properties, sensitivity to price increases, loss of existing machine base, and the regions general economic conditions. If as a result of this evaluation there are indicators of impairment that result in losses to the machine base, or an event occurs that would indicate that the carrying amounts may not be recoverable, the Company reevaluates the carrying value of contract rights based on future undiscounted cash flows attributed to that region and records an impairment loss based on discounted cash flows if the carrying amount of the contract rights are not recoverable from undiscounted cash flows. Based on present operations and strategic plans, management believes that there have not been any indicators of impairment of contract rights or long lived assets.

     On April 3, 2006, the Company completed the acquisition of substantially all of the assets of American Sales, Inc. (“ASI”) for a purchase price of $15.0 million subject to the outcome of certain purchase price adjustments. ASI was a leading laundry service provider to colleges and universities in the mid-west, with 40 years of experience and more than 45 partner schools. Based on a preliminary price allocation, the Company allocated approximately $1.8 million to goodwill, approximately $9.7 million to contract rights and approximately $3.5 million to working capital assets.

4. Long-Term Debt

     Long-term debt consists of the following (in thousands):

		June 30, 2006				March 31, 2006
Credit facility indebtedness		$	568,850			$	569,425
11% Senior Secured Notes			82,067				87,716
Obligations under capital leases			6,450				6,721
Other long-term debt with varying terms and maturities			321				391
			657,688				664,253
Less current portion			4,770				11,151
		$	652,918			$	653,102

11% Senior Secured Notes

     The 11% Senior Secured Notes were issued on November 24, 2004 and December 21, 2004 as part of the IPO. The 11% Senior Secured Notes, which are scheduled to mature on December 1, 2024, are senior secured obligations of the Company and are redeemable, at the Company’s option, in whole or in part, at any time or from time to time, upon not less than 30

COINMACH SERVICE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)

nor more than 60 days’ notice (i) prior to December 1, 2009, upon payment of a make-whole premium and (ii) on or after December 1, 2009, at the redemption prices set forth in the indenture governing the 11% Senior Secured Notes plus accrued and unpaid interest thereon.

     On February 8, 2006, CSC completed an offer (which offer commenced on January 5, 2006 and was amended and supplemented on January 17, 2006) to purchase for cash (the “Tender Offer”) approximately $48.4 million aggregate principal amount of its outstanding 11% Senior Secured Notes. The total consideration offered for each $6.14 principal amount of 11% Senior Secured Notes tendered was $6.754 plus accrued and unpaid interest thereon to, but excluding, the payment date for the 11% Senior Secured Notes. Such consideration consisted of (1) $6.6926 per $6.14 principal amount of 11% Senior Secured Notes and (2) an additional $0.0614 (the “Early Tender Payment”) per $6.14 principal amount of 11% Senior Secured Notes, which was paid only to such notes which were validly tendered (and not withdrawn) on or prior to January 25, 2006. The total aggregate amount paid by the Company in order to purchase the 11% Senior Secured Notes tendered in the Tender Offer was approximately $55.1 million, including accrued and unpaid interest thereon of approximately $1.8 million.

     The Company recorded a charge to operations of approximately $9.3 million in the fiscal quarter ended March 31, 2006, consisting of (i) the premium (including the Early Tender Payment of approximately $0.5 million) paid to redeem such 11% Senior Secured Notes of approximately $4.8 million, (ii) the write-off of a proportionate amount of unamortized deferred financing costs of approximately $3.4 million and (iii) certain direct expenses related to the Tender Offer of approximately $1.0 million which included approximately $0.5 million relating to special bonuses.

     Interest on the 11% Senior Secured Notes is payable quarterly, in arrears, in cash on each March 1, June 1, September 1 and December 1, to the holders of record at the close of business on the February 25, May 25, August 25 and November 25, respectively, immediately preceding the applicable interest payment date.

     The 11% Senior Secured Notes are secured by a first-priority perfected lien, subject to certain permitted liens, on substantially all of the Company’s existing and future assets, including the common stock of AWA, the capital stock of CLC, the Intercompany Note and the related guaranty. The 11% Senior Secured Notes are guaranteed on a senior secured basis by CLC. While we presently do not intend to effect the Merger Event, if we were to consummate the Merger Event, the only lien providing security for the 11% Senior Secured Notes would be a second priority perfected lien (subject to an intercreditor agreement (the “Intercreditor Agreement”) that was entered into by the trustee under the indenture governing the 11% Senior Secured Notes with the collateral agent under the Amended and Restated Credit Facility) on the capital stock of CSC’s direct domestic subsidiaries and 65% of each class of capital stock of CSC’s direct foreign subsidiaries, which lien will be contractually subordinated to the liens of the collateral agent under the Amended and Restated Credit Facility pursuant to the Intercreditor Agreement. Consequently, a second priority perfected lien on such capital stock would constitute the only security for the 11% Senior Secured Notes, and the 11% Senior Secured Notes would be effectively subordinated to the obligations outstanding under the Amended and

COINMACH SERVICE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)

Restated Credit Facility to the extent of the value of such capital stock. If we were to consummate the Merger Event, the subsidiaries of CSC would guarantee the 11% Senior Secured Notes on a senior unsecured basis.

     The indenture governing the 11% Senior Secured Notes contains a number of restrictive covenants and agreements applicable to the Company and its restricted subsidiaries, including covenants with respect to the following matters: (i) limitation on additional indebtedness; (ii) limitation on certain payments (in the form of the declaration or payment of certain dividends or distributions on the Company’s capital stock, the purchase, redemption or other acquisition of any of the Company’s capital stock, the voluntary prepayment of subordinated indebtedness, and certain investments); (iii) limitation on transactions with affiliates; (iv) limitation on liens; (v) limitation on sales of assets; (vi) limitation on the issuance of preferred stock by non-guarantor subsidiaries; (vii) limitation on conduct of business; (viii) limitation on dividends and other payment restrictions affecting subsidiaries; (ix) limitations on exercising Class B Common Stock redemption rights and consummating purchases of Class B Common Stock upon exercise of sales rights by holders; and (x) limitation on consolidations, mergers and sales of substantially all of the Company’s assets.

     On April 28, 2006, the Company purchased approximately $5.6 million aggregate principal amount of its outstanding 11% Senior Secured Notes in open market purchases at a slight premium. The total aggregate amount paid by the Company in order to purchase the 11% Senior Secured Notes was approximately $6.3 million, including accrued and unpaid interest thereon. At June 30, 2006, there was approximately $82.1 million aggregate principal amount of 11% Senior Secured Notes outstanding.

     The Company recorded a charge to operations of approximately $0.8 million in the quarter ended June 30, 2006 which represents the premium paid to purchase such 11% Senior Secured Notes of approximately $0.4 million and the write-off of a proportionate amount of unamortized deferred financing costs of approximately $0.4 million.

     At June 30, 2006, the Company was in compliance with the covenants under the indenture governing the 11% Senior Secured Notes and was not aware of any events of default pursuant to the terms of such indebtedness.

Amended and Restated Credit Facility

     On December 19, 2005, Coinmach, Laundry Corp. and certain subsidiary guarantors entered into an amendment and restatement of the Old Senior Secured Credit Facility (such amendment and restatement, the “Amended and Restated Credit Facility”). The Amended and Restated Credit Facility is comprised of a $570.0 million term loan facility and a $75.0 million revolving credit facility (subject to outstanding letters of credit). The revolver portion of the Amended and Restated Credit Facility also provides a $15.0 million letter of credit facility and short-term borrowings under a swing line facility of up to $7.5 million. The Amended and Restated Credit Facility is secured by a first priority security interest in all of Coinmach’s real and personal property and is guaranteed by each of Coinmach’s domestic subsidiaries. CLC has

COINMACH SERVICE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)

pledged the capital stock of Coinmach as collateral under the Amended and Restated Credit Facility for the benefit of the lenders thereunder.

     On December 19, 2005, Coinmach borrowed $230.0 million under the term loan facility to refinance approximately $229.3 million aggregate principal amount of then outstanding term debt under the Old Senior Secured Credit Facility and pay related expenses (the “Credit Facility Refinancing”). On February 1, 2006, Coinmach used $340.0 million of delayed draw term loans to retire all of the then outstanding $324.5 million aggregate principal amount of 9% Senior Notes (plus approximately $14.6 million of related redemption premium) and to pay related fees and expenses.

     The revolving loans accrue interest, at Coinmach’s option, at a rate per annum equal to the base rate plus a margin of 2.00% or the Eurodollar rate plus 3.00%, subject in each case to performance based adjustments. The term loans accrue interest, at Coinmach’s option, at a rate per annum equal to the base rate plus a margin of 1.50% or the Eurodollar rate plus 2.50%, subject in each case to performance based adjustments. The term loans are scheduled to be fully repaid by December 19, 2012, and the revolving credit facility is scheduled to expire on December 19, 2010. At June 30, 2006, the monthly variable Eurodollar rate was 5.25%.

     As a result of the Credit Facility Refinancing, Coinmach incurred approximately $3.1 million in issuance costs related to the Amended and Restated Credit Facility, which were capitalized as deferred financing costs to be amortized using the effective interest method through December 19, 2012. In addition to the issuance costs, Coinmach incurred certain expenses that were classified as transaction costs on the Consolidated Statement of Operations for the fiscal year ended March 31, 2006, which included (1) the write-off of the unamortized deferred financing costs related to the Old Senior Secured Credit Facility term loans repaid aggregating approximately $1.7 million and (2) expenses aggregating approximately $1.0 million related to the Old Senior Secured Credit Facility that was amended.

     The Amended and Restated Credit Facility requires Coinmach to make certain mandatory repayments, including from (a) 100% of net proceeds from asset sales by Coinmach and its subsidiaries, (b) 100% of the net proceeds from the issuance of debt (with an exception for proceeds from intercompany loans made by Coinmach to us), (c) 50% of annual excess cash flow of Coinmach and its subsidiaries, and (d) 100% of the net proceeds from insurance recovery and condemnation events of Coinmach and its subsidiaries, in each case subject to reinvestment rights, as applicable, and other exceptions generally consistent with the Old Senior Secured Credit Facility. For the fiscal year ended March 31, 2006, there was no required amount that was payable relating to the annual excess cash flow of the Company.

     The Amended and Restated Credit Facility contains a number of restrictive covenants and agreements applicable to Coinmach which, if the Merger Event were completed, would apply directly to us as borrower under such credit facility, including covenants with respect to limitations on (i) indebtedness; (ii) certain payments (in the form of the declaration or payment of certain dividends or distributions on Coinmach’s capital stock or its subsidiaries’ or the purchase, redemption or other acquisition of any of its or its subsidiaries capital stock); (iii)

COINMACH SERVICE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)

voluntary prepayments of previously existing indebtedness; (iv) Investments (as defined in the Amended and Restated Credit Facility); (v) transactions with affiliates; (vi) liens; (vii) sales or purchases of assets; (viii) conduct of business; (ix) dividends and other payment restrictions affecting subsidiaries; (x) consolidations and mergers; (xi) capital expenditures; (xii) issuances of certain of Coinmach’s equity securities; and (xiii) creation of subsidiaries. The Amended and Restated Credit Facility also requires that Coinmach satisfy certain financial ratios, including a maximum leverage ratio and a minimum consolidated interest coverage ratio.

     If we were to consummate the Merger Event, CSC would replace Coinmach as the borrower under the Amended and Restated Credit Facility. As a result of the Merger Event, the Amended and Restated Credit Facility would be secured by a first priority security interest in all of CSC’s real and personal property and would be guaranteed by each of CSC’s domestic subsidiaries.

     At June 30, 2006, the $568.9 million of term loan borrowings under the Amended and Restated Credit Facility had an interest rate of approximately 7.75% and the amount available under the revolving credit portion of the Amended and Restated Credit Facility was approximately $68.2 million. Letters of credit under the revolver portion of the Amended and Restated Credit Facility outstanding at June 30, 2006 were approximately $6.8 million.

     At June 30, 2006, Coinmach was in compliance with the covenants under the Amended and Restated Credit Facility and was not aware of any events of default pursuant to the terms of such indebtedness.

Intercompany Loan

     In connection with the IDS Transactions, CSC made the Intercompany Loan to Coinmach in an initial principal amount of approximately $81.7 million which is eliminated in consolidation. The Intercompany Loan is represented by the Intercompany Note. As a result of the Additional Intercompany Loan on February 8, 2006 and February 17, 2006, the principal amount of indebtedness represented by the Intercompany Note increased to $183.6 million. Interest under the Intercompany Loan accrues at an annual rate of 10.95% and is payable quarterly on March 1, June 1, September 1 and December 1 of each year and the Intercompany Loan is due and payable in full on December 1, 2024. The Intercompany Loan is a senior unsecured obligation of Coinmach, ranks equally in right of payment with all existing and future senior indebtedness of Coinmach (including indebtedness under the Amended and Restated Credit Facility) and ranks senior in right of payment to all existing and future subordinated indebtedness of Coinmach. Certain of Coinmach’s domestic restricted subsidiaries guarantee the Intercompany Loan on a senior unsecured basis. As a result of the retirement on February 1, 2006 of all the outstanding 9% Senior Notes, the Intercompany Loan contains covenants that are substantially the same as those provided in the terms of the Amended and Restated Credit Facility. The Intercompany Loan and the guaranty of the Intercompany Loan by certain subsidiaries of the Company were pledged by CSC to secure the repayment of the 11% Senior Secured Notes.

COINMACH SERVICE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)

     If at any time Coinmach is not prohibited from doing so under the terms of its then outstanding indebtedness, in the event that CSC undertakes an offering of IDSs or Class A Common Stock, a portion of the net proceeds of such offering, subject to certain limitations, will be loaned to Coinmach and increase the principal amount of the Intercompany Loan and the guaranty of the Intercompany Loan.

     If we were to consummate the Merger Event, the Intercompany Loan would no longer be outstanding.

     At June 30, 2006, Coinmach was in compliance with the covenants under the Intercompany Loan and was not aware of any events of default pursuant to the terms of such indebtedness.

Interest Rate Swaps

     On November 17, 2005, Coinmach entered into two separate interest rate swap agreements, effective February 1, 2006, totaling $230.0 million in aggregate notional amount that effectively convert a portion of its floating-rate term loans pursuant to the Amended and Restated Credit Facility to a fixed rate basis, thereby reducing the impact of interest rate changes on future interest expense. The two swap agreements consist of: (i) a $115.0 million notional amount interest rate swap transaction with a financial institution effectively fixing the three-month LIBOR interest rate (as determined therein) at 4.90% and expiring on November 1, 2010, and (ii) a $115.0 million notional amount interest rate swap transaction with a financial institution effectively fixing the three-month LIBOR interest rate (as determined therein) at 4.89% and expiring on November 1, 2010. These interest rate swaps used to hedge the variability of forecasted cash flows attributable to interest rate risk were designated as cash flow hedges. The Company recognized accumulated other comprehensive income of approximately $1.8 million, net of tax, in the stockholders’ equity section for the quarter ended June 30, 2006, relating to the interest rate swaps that qualify as cash flow hedges.

5. Guarantor Subsidiaries

     CLC has guaranteed the 11% Senior Secured Notes referred to in Note 4 on a full and unconditional basis. The 11% Senior Secured Notes are not currently guaranteed by any other subsidiary. Other subsidiaries, including Coinmach, are required to guarantee the 11% Senior Secured Notes on a senior unsecured basis upon the occurrence of certain events. The condensed consolidating balance sheets, the condensed consolidating statements of operations and the condensed consolidating statements of cash flows include the condensed consolidating financial information for CSC, CLC and CSC’s other indirect subsidiaries.

COINMACH SERVICE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)

     Condensed consolidating financial information for the Company and CLC is as follows (in thousands):

Condensed Consolidating Balance Sheets

		June 30, 2006
										Coinmach
						Coinmach				Corporation				Adjustments
		Coinmach				Laundry				And				and
		Service Corp.				Corporation				Subsidiaries				Eliminations				Consolidated
Assets
Current assets, consisting of cash, receivables, inventory, prepaid expenses and other current assets		$	948			$	—			$	66,099			$	(61	)		$	66,986
Advance location payments			—				—				66,574				—				66,574
Property, equipment and leasehold improvements, net			—				—				251,188				—				251,188
Intangible assets, net			—				—				511,364				—				511,364
Deferred income taxes			—				731				—				(731	)			—
Intercompany loans and advances			(7,057	)			—				—				7,057				—
Due from Parent			—				49,154				—				(49,154	)			—
Investment in subsidiaries			(154,794	)			(39,572	)			—				194,366				—
Investment in preferred stock			164,675				—				—				(164,675	)			—
Other assets			195,077				—				3,398				(188,653	)			9,822
Total assets		$	198,849			$	10,313			$	898,623			$	(201,851	)		$	905,934
Liabilities and Stockholders’ Equity (Deficit)
Current liabilities:
Accounts payable and accrued expenses		$	3,925			$	42			$	75,944			$	(5,150	)		$	74,761
Current portion of long-term debt			—				—				4,770				—				4,770
Total current liabilities			3,925				42				80,714				(5,150	)			79,531
Deferred income taxes			(8,901	)			—				60,969				(731	)			51,337
Long-term debt, less current portion			82,067				—				570,851				—				652,918
Loan Payable to Parent			—				—				183,564				(183,564	)			—
Due to parent/subsidiary			—				—				42,097				(42,097	)			—
Preferred stock and dividends payable			—				164,675				—				(164,675	)			—
Total stockholders’ equity (deficit)			121,758				(154,404	)			(39,572	)			194,366				122,148
Total liabilities and stockholders’ equity (deficit)		$	198,849			$	10,313			$	898,623			$	(201,851	)		$	905,934

COINMACH SERVICE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)

Condensed Consolidating Balance Sheets (continued)

		March 31, 2006
										Coinmach
						Coinmach				Corporation				Adjustments
		Coinmach				Laundry				and				and
		Service Corp.				Corporation				Subsidiaries				Eliminations				Consolidated
Assets
Current assets, consisting of cash, receivables, inventory, prepaid expenses and other current assets		$	940			$	—			$	87,002			$	(55	)		$	87,887
Advance location payments			—				—				67,242				—				67,242
Property, equipment and leasehold improvements, net			—				—				252,398				—				252,398
Intangible assets, net			—				—				503,108				—				503,108
Deferred income taxes			9,471				689				—				(10,160	)			—
Intercompany loans and advances			(311	)			—				—				311				—
Due from Parent			—				49,253				—				(49,253	)			—
Investment in subsidiaries			(152,462	)			(23,762	)			—				176,224				—
Investment in preferred stock			178,216				—				—				(178,216	)			—
Other assets			194,334				—				4,602				(187,405	)			11,531
Total assets		$	230,188			$	26,180			$	914,352			$	(248,554	)		$	922,166
Liabilities and Stockholders’ Equity (Deficit)
Current liabilities:
Accounts payable and accrued expenses		$	4,196			$	36			$	68,927			$	(3,896	)		$	69,263
Current portion of long-term debt			5,649				—				5,502				—				11,151
Total current liabilities			9,845				36				74,429				(3,896	)			80,414
Deferred income taxes			—				—				60,144				(10,160	)			49,984
Long-term debt, less current portion			82,067				—				571,035				—				653,102
Loan payable to Parent			—				—				183,564				(183,564	)			—
Due to parent/subsidiary			—				—				48,942				(48,942	)			—
Preferred stock and dividends payable			—				178,216				—				(178,216	)			—
Total stockholders’ equity (deficit)			138,276				(152,072	)			(23,762	)			176,224				138,666
Total liabilities and stockholders’ equity (deficit)		$	230,188			$	26,180			$	914,352			$	(248,554	)		$	922,166

COINMACH SERVICE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)

Condensed Consolidating Statements of Operations

		Three Months Ended June 30, 2006
										Coinmach
		Coinmach				Coinmach				Corporation
		Service				Laundry				and
		Corp.				Corporation				Subsidiaries				Eliminations				Consolidated
Revenues		$	—			$	—			$	139,285			$	—			$	139,285
Costs and expenses			391				105				124,021				—				124,517
Operating (loss) income			(391	)			(105	)			15,264				—				14,768
Transaction costs			845				—				—				—				845
Interest expense, net			(6,094	)			3,462				16,062				—				13,430
Income (loss) before taxes			4,858				(3,567	)			(798	)			—				493
Income tax provision (benefit)			570				(43	)			(226	)			—				301
			4,288				(3,524	)			(572	)			—				192
Equity in loss (income) of subsidiaries			4,096				572				—				(4,668	)			—
Net income (loss)		$	192			$	(4,096	)		$	(572	)		$	4,668			$	192

		Three Months Ended June 30, 2005
										Coinmach
		Coinmach				Coinmach				Corporation
		Service				Laundry				and
		Corp.				Corporation				Subsidiaries				Eliminations				Consolidated
Revenues		$	—			$	—			$	133,830			$	—			$	133,830
Costs and expenses			287				114				119,589				—				119,990
Operating (loss) income			(287	)			(114	)			14,241				—				13,840
Interest expense – non cash preferred stock dividend			(3,692	)			3,692				—				—				—
Interest expense, net			1,641				—				13,690				—				15,331
Income (loss) before taxes			1,764				(3,806	)			551				—				(1,491	)
Income tax provision (benefit)			721				(1,493	)			256				—				(516	)
			1,043				(2,313	)			295				—				(975	)
Equity in loss (income) of subsidiaries			2,018				(295	)			—				(1,723	)			—
Net (loss) income		$	(975	)		$	(2,018	)		$	295			$	1,723			$	(975	)

COINMACH SERVICE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)

Condensed Consolidating Statements of Cash Flows

		Three Months Ended June 30, 2006
										Coinmach
						Coinmach				Corporation
		Coinmach				Laundry				And
		Service Corp.				Corporation				Subsidiaries				Eliminations				Consolidated
Operating Activities
Net income (loss)		$	4,288			$	(3,524	)		$	(572	)		$	—			$	192
Noncash adjustments			(1,967	)			3,420				26,756				—				28,209
Change in operating assets and liabilities			(1,497	)			5				3,679				—				2,187
Net cash provided by (used in) operating activities			824				(99	)			29,863				—				30,588
Investing Activities
Capital expenditures			—				—				(17,880	)			—				(17,880	)
Acquisition of assets			—				—				(14,541	)			—				(14,541	)
Proceeds from sale of property and equipment			—				—				293				—				293
Net cash used in investing activities			—				—				(32,128	)			—				(32,128	)
Financing Activities
Repayment of debt			(5,649	)			—				(575	)			—				(6,224	)
Other financing items			4,853				99				(24,895	)			—				(19,943	)
Net cash (used in) provided by financing activities			(796	)			99				(25,470	)			—				(26,167	)
Net increase (decrease) in cash and cash equivalents			28				—				(27,735	)			—				(27,707	)
Cash and cash equivalents, beginning of period			880				—				61,128				—				62,008
Cash and cash equivalents, end of period		$	908			$	—			$	33,393			$	—			$	34,301

COINMACH SERVICE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)

Condensed Consolidating Statements of Cash Flows (continued)

		Three Months Ended June 30, 2005
										Coinmach
		Coinmach				Coinmach				Corporation
		Service				Laundry				and
		Corporation				Corporation				Subsidiaries				Elimination				Consolidated
Operating Activities
Net income (loss)		$	1,043			$	(2,313	)		$	295			$	—			$	(975	)
Noncash adjustments			(2,837	)			2,211				27,093				—				26,467
Change in operating assets and liabilities			(8	)			5				8,031				—				8,028
Net cash (used in) provided by operating activities			(1,802	)			(97	)			35,419				—				33,520
Investing Activities
Capital expenditures			—				—				(17,912	)			—				(17,912	)
Proceeds from sale of property and equipment			—				—				299				—				299
Net cash used in investing activities			—				—				(17,613	)			—				(17,613	)
Financing Activities
Repayment of debt			—				—				(1,240	)			—				(1,240	)
Other financing items			1,802				97				(7,295	)			—				(5,396	)
Net cash provided by (used in) financing activities			1,802				97				(8,535	)			—				(6,636	)
Net increase in cash and cash equivalents			—				—				9,271				—				9,271
Cash and cash equivalents, beginning of period			431				—				56,840				—				57,271
Cash and cash equivalents, end of period		$	431			$	—			$	66,111			$	—			$	66,542

COINMACH SERVICE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

6. Segment Information

     The Company reports segment information for the route segment, its only reportable operating segment, and provides information for its two other operating segments reported as “All other.” The route segment, which comprises the Company’s core business, involves leasing laundry rooms from building owners and property management companies typically on a long-term, renewal basis, installing and servicing the laundry equipment, collecting revenues generated from laundry machines, collection services to third party operators and operating retail laundromats. The other business operations reported in “All other” include the aggregation of the rental and distribution. The rental business involves the leasing of laundry machines and other household appliances to property owners, managers of multi-family housing properties and to a lesser extent, individuals and corporate relocation entities through the Company’s jointly-owned subsidiary, AWA. The distribution business involves constructing complete turnkey retail laundromats, retrofitting existing retail laundromats, distributing exclusive lines of coin and non-coin machines and parts, and selling service contracts through the Company’s subsidiary, Super Laundry. The Company evaluates performance and allocates resources based on EBITDA (earnings from continuing operations before interest, taxes and depreciation and amortization), cash flow and growth opportunity. The accounting policies of the segment are the same as those described in the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2006.

COINMACH SERVICE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)

     The table below presents information about the Company’s segments (in thousands):

		Three months ended June 30,
		2006				2005
Revenue:
Route		$	123,978			$	119,769
All other:
Rental			9,545				8,648
Distribution			5,762				5,413
Subtotal			15,307				14,061
Total revenue		$	139,285			$	133,830
EBITDA (1):
Route		$	40,500			$	39,371
All other:
Rental			4,122				3,517
Distribution			264				27
Subtotal			4,386				3,544
Transaction costs (2)			(845	)			—
Corporate expenses			(3,034	)			(2,523	)
Total EBITDA			41,007				40,392
Reconciling items:
Depreciation and amortization expense, amortization of advance location payments and amortization of intangibles:
Route			(23,967	)			(23,592	)
All other			(2,114	)			(2,143	)
Corporate			(1,003	)			(817	)
Total depreciation			(27,084	)			(26,552	)
Interest expense			(13,430	)			(15,331	)
Consolidated income (loss) before income taxes		$	493			$	(1,491	)

COINMACH SERVICE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)

Non-GAAP Financial Measures

     EBITDA represents earnings from continuing operations before deductions for interest, income taxes and depreciation and amortization. Management believes that EBITDA is useful as a means to evaluate the Company’s ability to service existing debt, to sustain potential future increases in debt and to satisfy capital requirements. EBITDA is also used by management as a measure of evaluating the performance of the Company’s three operating segments. Management further believes that EBITDA is useful to investors as a measure of comparative operating performance as it is less susceptible to variances in actual performance resulting from depreciation, amortization and other non-cash charges and more reflective of changes in pricing decisions, cost controls and other factors that affect operating performance. Management uses EBITDA to develop compensation plans, to measure sales force performance and to allocate capital assets. Additionally, because the Company has historically provided EBITDA to investors, management believes that presenting this non-GAAP financial measure provides consistency in financial reporting. Management’s use of EBITDA, however, is not intended to represent cash flows for the period, nor has it been presented as an alternative to either (a) operating income (as determined by U.S. generally accepted accounting principles) as an indicator of operating performance or (b) cash flows from operating, investing and financing activities (as determined by U.S. generally accepted accounting principles) as a measure of liquidity. Given that EBITDA is not a measurement determined in accordance with U.S. generally accepted accounting principles and is thus susceptible to varying calculations, EBITDA may not be comparable to other similarly titled measures of other companies. The following table reconciles the Company’s net income (loss) to EBITDA for each period presented (in millions):

		Three months ended June 30,
		2006				2005
Net income (loss)		$	0.2			$	(1.0	)
Provision (benefit) for income taxes			0.3				(0.5	)
Interest expense			13.4				15.3
Depreciation and amortization			27.1				26.6
EBITDA*		$	41.0			$	40.4

COINMACH SERVICE CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)

7. Income Taxes

     The components of the Company’s deferred tax liabilities and assets are as follows (in thousands):

		June 30, 2006				March 31, 2006
Deferred tax liabilities:
Accelerated tax depreciation and contract rights		$	94,693			$	97,084
Interest rate swap			2,288				1,063
Other			2,229				2,123
Total deferred tax liabilities			99,210				100,270
Deferred tax assets:
Net operating loss carryforwards			52,593				55,430
Covenant not to compete			1,290				1,267
Transaction costs			3,071				2,726
Other			1,649				1,593
Total deferred tax asset			58,603				61,016
Valuation allowance			(10,730	)			(10,730	)
Net deferred tax assets			47,873				50,286
Net deferred tax liability		$	51,337			$	49,984

     The net operating loss carryforwards of approximately $129 million expire between fiscal years 2008 through 2026. In addition, the net operating losses are subject to annual limitations imposed under the provisions of the Internal Revenue Code regarding changes in ownership.

     The provision (benefit) for income taxes consists of (in thousands):

		Three months ended June 30,
		2006				2005
Federal		$	104			$	(403	)
State			197				(113	)
		$	301			$	(516	)