##### Table of Contents



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 September 30, 2006
 OR
 o
    
    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: 001-32359
 Coinmach Service Corp.
  Delaware
    
    20-0809839(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)303 Sunnyside Blvd., Suite 70, Plainview, New York
    
    11803(Address of principal executive offices)
    
    (Zip Code)
 (516) 349-8555
  þ o
  o þ o
  o þ
  Class
    
    Outstanding at October 31, 2006Class A common stock, $0.01 par value per share 
Class B common stock, $0.01 par value per share
    
    29,113,641 shares
23,374,450 shares




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##### Table of Contents



COINMACH SERVICE CORP. AND SUBSIDIARIES
 INDEX
  
 Page No.PART I.
    
    FINANCIAL INFORMATION
    
    3ITEM 1.
    
    Financial Statements
    
    3Condensed Consolidated Balance Sheets - September 30, 2006 (Unaudited) and March 31, 2006
    
    3Condensed Consolidated Statements of Operations (Unaudited)  Three Months and Six months ended September 30, 2006 and 2005
    
    4Condensed Consolidated Statement of Stockholders Equity for the Six months ended September 30, 2006 (Unaudited)
    
    5Condensed Consolidated Statements of Cash Flows (Unaudited) - Six months ended September 30, 2006 and 2005
    
    6Notes To Condensed Consolidated Financial Statements (Unaudited)
    
    7ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
    
    28ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    45ITEM 4.
    
    CONTROLS AND PROCEDURES
    
    46PART II.
    
    OTHER INFORMATION
    
    47ITEM 1.
    
    Legal Proceedings
    
    47ITEM 1A.
    
    Risk Factors
    
    47ITEM 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    47ITEM 3.
    
    Defaults Upon Senior Securities
    
    47ITEM 4.
    
    Submission of Matters to a Vote of Security Holders
    
    47ITEM 5.
    
    Other Information
    
    48ITEM 6.
    
    Exhibits
    
    48Signature Page
    
    49Index to Exhibits
    
    50EX-31.1: CERTIFICATIONEX-31.2: CERTIFICAIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION
 2




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##### Table of Contents



COINMACH SERVICE CORP. AND SUBSIDIARIES
 
 PART I. FINANCIAL INFORMATION
 
 ITEM 1. Financial Statements
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
  September 30, 2006
    
    
    March 31, 20061(Unaudited)ASSETS:Current assets:Cash and cash equivalents
    
    $
    35,019
    
    
    $
    62,008Receivables, net
    
    
    7,250
    
    
    
    5,635Inventories
    
    
    13,299
    
    
    
    11,458Prepaid expenses
    
    
    4,406
    
    
    
    4,375Interest rate swap asset
    
    
    779
    
    
    
    2,615Other current assets
    
    
    2,229
    
    
    
    1,796Total current assets
    
    
    62,982
    
    
    
    87,887Advance location payments
    
    
    65,014
    
    
    
    67,242Property, equipment and leasehold improvements, net of accumulated
depreciation and amortization of $439,289 and $403,204
    
    
    250,069
    
    
    
    252,398Contract
rights, net of accumulated amortization of $121,438 and $114,535
    
    
    301,540
    
    
    
    296,912Goodwill
    
    
    208,109
    
    
    
    206,196Other assets
    
    
    10,379
    
    
    
    11,531Total assets
    
    $
    898,093
    
    
    $
    922,166LIABILITIES AND STOCKHOLDERS EQUITY:Current liabilities:Accounts payable and accrued expenses
    
    $
    38,155
    
    
    $
    32,656Accrued rental payments
    
    
    33,003
    
    
    
    33,044Accrued interest
    
    
    6,788
    
    
    
    3,563Current portion of long-term debt
    
    
    4,296
    
    
    
    11,151Total current liabilities
    
    
    82,242
    
    
    
    80,414Deferred income taxes
    
    
    49,297
    
    
    
    49,984Long-term debt
    
    
    653,737
    
    
    
    653,102Total liabilities
    
    
    785,276
    
    
    
    783,500Stockholders equity:Class A Common Stock  $0.01 par value; 100,000,000 shares authorized;
29,113,641 shares issued and outstanding
    
    
    291
    
    
    
    291Class B Common Stock  $0.01 par value; 100,000,000 shares authorized;
23,374,450 shares issued and outstanding
    
    
    234
    
    
    
    234Capital in excess of par value
    
    
    389,682
    
    
    
    389,616Carryover basis adjustment
    
    
    (7,988
    )
    
    
    (7,988
    )Accumulated other comprehensive income, net of tax
    
    
    344
    
    
    
    1,547Accumulated deficit
    
    
    (269,746
    )
    
    
    (245,034
    )Total stockholders equity
    
    
    112,817
    
    
    
    138,666Total liabilities and stockholders equity
    
    $
    898,093
    
    
    $
    922,166
  
 1
    
    The March 31, 2006 balance sheet has been derived from the audited consolidated financial
statements as of that date. 3




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##### Table of Contents



COINMACH SERVICE CORP. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  (UNAUDITED)
  Three Months Ended
    
    
    Six Months EndedSeptember 30, 2006
    
    
    September 30, 2005
    
    
    September 30, 2006
    
    
    September 30, 2005REVENUES
    
    $
    136,310
    
    
    $
    132,320
    
    
    $
    275,595
    
    
    $
    266,150COSTS AND EXPENSES:Laundry operating expenses (exclusive of
depreciation and amortization and
amortization of advance location payments)
    
    
    92,803
    
    
    
    90,117
    
    
    
    187,202
    
    
    
    181,032General and administrative (including
stock-based compensation expense of $38,
$0, $76 and $12, respectively)
    
    
    3,102
    
    
    
    3,047
    
    
    
    6,136
    
    
    
    5,570Depreciation and amortization
    
    
    18,389
    
    
    
    18,929
    
    
    
    37,013
    
    
    
    37,861Amortization of advance location payments
    
    
    4,901
    
    
    
    5,038
    
    
    
    9,801
    
    
    
    9,173Amortization of intangibles
    
    
    3,560
    
    
    
    3,485
    
    
    
    7,120
    
    
    
    6,970Other items, net
    
    
    
    
    
    
    310
    
    
    
    
    
    
    
    310122,755
    
    
    
    120,926
    
    
    
    247,272
    
    
    
    240,916OPERATING INCOME
    
    
    13,555
    
    
    
    11,394
    
    
    
    28,323
    
    
    
    25,234INTEREST EXPENSE
    
    
    13,931
    
    
    
    15,315
    
    
    
    27,361
    
    
    
    30,646TRANSACTION COSTS
    
    
    
    
    
    
    
    
    
    
    845
    
    
    
    (LOSS) INCOME BEFORE INCOME TAXES
    
    
    (376
    )
    
    
    (3,921
    )
    
    
    117
    
    
    
    (5,412
    )PROVISION (BENEFIT) FOR INCOME TAXES:Current
    
    
    214
    
    
    
    
    
    
    
    382
    
    
    
    Deferred
    
    
    (189
    )
    
    
    (1,633
    )
    
    
    (56
    )
    
    
    (2,149
    )25
    
    
    
    (1,633
    )
    
    
    326
    
    
    
    (2,149
    )NET LOSS
    
    $
    (401
    )
    
    $
    (2,288
    )
    
    $
    (209
    )
    
    $
    (3,263
    )Distributed earnings per share:Class A Common Stock
    
    $
    0.21
    
    
    $
    0.21
    
    
    $
    0.41
    
    
    $
    0.41Class B Common Stock
    
    $
    
    
    
    $
    
    
    
    $
    0.53
    
    
    $
    Basic and diluted net income (loss) per share:Class A Common Stock
    
    $
    0.09
    
    
    $
    0.07
    
    
    $
    (0.06
    )
    
    $
    0.16Class B Common Stock
    
    $
    (0.12
    )
    
    $
    (0.14
    )
    
    $
    0.06
    
    
    $
    (0.25
    )Weighted average common stock outstanding:Class A Common Stock
    
    
    29,050,722
    
    
    
    18,911,532
    
    
    
    29,048,625
    
    
    
    18,911,532Class B Common Stock
    
    
    23,374,450
    
    
    
    24,980,445
    
    
    
    23,374,450
    
    
    
    24,980,445Cash dividends per share:Class A Common Stock
    
    $
    0.21
    
    
    $
    0.21
    
    
    $
    0.41
    
    
    $
    0.41Class B Common Stock
    
    $
    
    
    
    $
    
    
    
    $
    0.53
    
    
    $
    
  4




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COINMACH SERVICE CORP. AND SUBSIDIARIES
 
 Condensed Consolidated Statement of Stockholders Equity
For the Six Months Ended September 30, 2006
(UNAUDITED)
  AccumulatedOtherClass A
    
    
    Class B
    
    
    Capital in
    
    
    Carryover
    
    
    ComprehensiveCommon
    
    
    Common
    
    
    Excess of Par
    
    
    Basis
    
    
    Income, net of
    
    
    Accumulated
    
    
    StockholdersStock
    
    
    Stock
    
    
    Value
    
    
    Adjustment
    
    
    tax
    
    
    Deficit
    
    
    EquityBalance, March 31, 2006
    
    $
    291
    
    
    $
    234
    
    
    $
    389,616
    
    
    $
    (7,988
    )
    
    $
    1,547
    
    
    $
    (245,034
    )
    
    $
    138,666Issuance costs
    
    
    
    
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9
    )Comprehensive Income:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (209
    )
    
    
    (209
    )Loss on derivative instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,203
    )
    
    
    
    
    
    
    (1,203
    )Total
comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,412
    )Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24,503
    )
    
    
    (24,503
    )Stockbased compensation
    
    
    
    
    
    
    
    
    
    
    75
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75Balance, September 30, 2006
    
    $
    291
    
    
    $
    234
    
    
    $
    389,682
    
    
    $
    (7,988
    )
    
    $
    344
    
    
    $
    (269,746
    )
    
    $
    112,817
  5




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##### Table of Contents



COINMACH SERVICE CORP. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
  Six Months EndedSeptember 30, 2006
    
    
    September 30, 2005OPERATING ACTIVITIES:Net loss
    
    $
    (209
    )
    
    $
    (3,263
    )Adjustments to reconcile net loss to net cash provided by
operating activities:Depreciation and amortization
    
    
    37,013
    
    
    
    37,861Amortization of advance location payments
    
    
    9,801
    
    
    
    9,173Amortization of intangibles
    
    
    7,120
    
    
    
    6,970Deferred income taxes
    
    
    (56
    )
    
    
    (2,149
    )Amortization of deferred issue costs
    
    
    396
    
    
    
    1,063Write off of deferred issue costs
    
    
    414
    
    
    
    Premium on redemption of 11% senior secured notes due 2024
    
    
    417
    
    
    
    (Gain) loss on sale of equipment
    
    
    (183
    )
    
    
    27Stock based compensation
    
    
    76
    
    
    
    12Change in operating assets and liabilities, net of businesses acquired:Other assets
    
    
    (481
    )
    
    
    (1,190
    )Receivables, net
    
    
    (1,444
    )
    
    
    784Inventories and prepaid expenses
    
    
    (1,445
    )
    
    
    946Accounts payable and accrued expenses, net
    
    
    4,764
    
    
    
    2,052Accrued interest
    
    
    3,225
    
    
    
    (278
    )Net cash provided by operating activities
    
    
    59,408
    
    
    
    52,008INVESTING ACTIVITIES:Additions to property, equipment and leasehold improvements
    
    
    (29,855
    )
    
    
    (29,944
    )Advance location payments to location owners
    
    
    (6,361
    )
    
    
    (7,130
    )Acquisition of net assets related to acquisitions of businesses,
net of cash acquired
    
    
    (17,136
    )
    
    
    (1,210
    )Proceeds from sale of property and equipment
    
    
    710
    
    
    
    498Net cash used in investing activities
    
    
    (52,642
    )
    
    
    (37,786
    )FINANCING ACTIVITIES:Repayments under credit facility
    
    
    (1,150
    )
    
    
    (11,223
    )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
    
    
    (1,898
    )
    
    
    (2,660
    )Repayments from bank and other borrowings
    
    
    (129
    )
    
    
    (121
    )Debt issuance costs
    
    
    (9
    )
    
    
    Cash dividends paid
    
    
    (24,503
    )
    
    
    (7,797
    )Net cash used in financing activities
    
    
    (33,755
    )
    
    
    (21,801
    )Net decrease in cash and cash equivalents
    
    
    (26,989
    )
    
    
    (7,579
    )CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    62,008
    
    
    
    57,271CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    35,019
    
    
    $
    49,692SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Interest paid
    
    $
    23,740
    
    
    $
    29,861Income taxes paid
    
    $
    144
    
    
    $
    85NON CASH FINANCING ACTIVITIES:Acquisition of fixed assets through capital leases
    
    $
    2,606
    
    
    $
    3,958Transfer of assets held for sale to fixed assets
    
    $
    
    
    
    $
    1,936
  6




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##### Table of Contents



COINMACH SERVICE CORP. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 1. Basis of Presentation
      The IDS Transactions and Class A Common Stock Offering
  7




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COINMACH SERVICE CORP. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)(continued)
     8




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##### Table of Contents



COINMACH SERVICE CORP. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)(continued)
 Dividends
  2. Inventories
  September 30, 2006
    
    
    March 31, 2006Laundry equipment
    
    $
    9,463
    
    
    $
    7,884Machine repair parts
    
    
    3,836
    
    
    
    3,574$
    13,299
    
    
    $
    11,458
 3. Goodwill and Contract Rights
  9




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##### Table of Contents



COINMACH SERVICE CORP. AND SUBSIDIARIES
 September 30, 2006
    
    
    March 31, 2006Route
    
    $
    196,939
    
    
    $
    195,026Rental
    
    
    8,253
    
    
    
    8,253Distribution
    
    
    2,917
    
    
    
    2,917$
    208,109
    
    
    $
    206,196
    Years ending March 31,2007 (remainder of year)
    
    $
    7.02008
    
    
    13.62009
    
    
    13.22010
    
    
    12.92011
    
    
    12.62012
    
    
    12.3
  10




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##### Table of Contents



COINMACH SERVICE CORP. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)(continued)
    4. Long-Term Debt
  September 30,
    
    
    March 31,2006
    
    
    2006Credit facility indebtedness
    
    $
    568,275
    
    
    $
    569,42511% Senior Secured Notes
    
    
    82,067
    
    
    
    87,716Obligations under capital leases
    
    
    7,429
    
    
    
    6,721Other long-term debt with varying terms
and maturities
    
    
    262
    
    
    
    391658,033
    
    
    
    664,253Less current portion
    
    
    4,296
    
    
    
    11,151$
    653,737
    
    
    $
    653,102
 11% Senior Secured Notes
  11




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##### Table of Contents



COINMACH SERVICE CORP. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)(continued)
       Amended and Restated Credit Facility
  12




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COINMACH SERVICE CORP. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)(continued)
      Intercompany Loan
   13




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##### Table of Contents



COINMACH SERVICE CORP. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)(continued)
  Interest Rate Swaps
  5. Guarantor Subsidiaries
  14




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##### Table of Contents



COINMACH SERVICE CORP. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)
  Condensed Consolidating Balance Sheets
 September 30, 2006CoinmachCoinmach
    
    
    Coinmach
    
    
    Corporation
    
    
    AdjustmentsService
    
    
    Laundry
    
    
    And
    
    
    andCorp.
    
    
    Corporation
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets, consisting of cash,
receivables, inventory, prepaid
expenses and other current assets
    
    $
    929
    
    
    $
    
    
    
    $
    62,121
    
    
    $
    (68
    )
    
    $
    62,982Advance location payments
    
    
    
    
    
    
    
    
    
    
    65,014
    
    
    
    
    
    
    
    65,014Property, equipment and leasehold
improvements, net
    
    
    
    
    
    
    
    
    
    
    250,069
    
    
    
    
    
    
    
    250,069Intangible assets, net
    
    
    
    
    
    
    
    
    
    
    509,649
    
    
    
    
    
    
    
    509,649Deferred income taxes
    
    
    
    
    
    
    773
    
    
    
    
    
    
    
    (773
    )
    
    
    Intercompany loans and advances
    
    
    (7,630
    )
    
    
    
    
    
    
    
    
    
    
    7,630
    
    
    
    Due from Parent
    
    
    
    
    
    
    49,075
    
    
    
    
    
    
    
    (49,075
    )
    
    
    Investment in subsidiaries
    
    
    (162,602
    )
    
    
    (47,238
    )
    
    
    
    
    
    
    209,840
    
    
    
    Investment in preferred stock
    
    
    164,756
    
    
    
    
    
    
    
    
    
    
    
    (164,756
    )
    
    
    Other assets
    
    
    194,992
    
    
    
    
    
    
    
    4,037
    
    
    
    (188,650
    )
    
    
    10,379Total assets
    
    $
    190,445
    
    
    $
    2,610
    
    
    $
    890,890
    
    
    $
    (185,852
    )
    
    $
    898,093Liabilities and Stockholders Equity
(Deficit)Current liabilities:Accounts payable and accrued
expenses
    
    $
    4,074
    
    
    $
    66
    
    
    $
    78,960
    
    
    $
    (5,154
    )
    
    $
    77,946Current portion of long-term debt
    
    
    
    
    
    
    
    
    
    
    4,296
    
    
    
    
    
    
    
    4,296Total current liabilities
    
    
    4,074
    
    
    
    66
    
    
    
    83,256
    
    
    
    (5,154
    )
    
    
    82,242Deferred income taxes
    
    
    (8,123
    )
    
    
    
    
    
    
    58,193
    
    
    
    (773
    )
    
    
    49,297Long-term debt, less current portion
    
    
    82,067
    
    
    
    
    
    
    
    571,670
    
    
    
    
    
    
    
    653,737Loan Payable to Parent
    
    
    
    
    
    
    
    
    
    
    183,564
    
    
    
    (183,564
    )
    
    
    Due to parent/subsidiary
    
    
    
    
    
    
    
    
    
    
    41,445
    
    
    
    (41,445
    )
    
    
    Preferred stock and dividends payable
    
    
    
    
    
    
    164,756
    
    
    
    
    
    
    
    (164,756
    )
    
    
    Total stockholders equity (deficit)
    
    
    112,427
    
    
    
    (162,212
    )
    
    
    (47,238
    )
    
    
    209,840
    
    
    
    112,817Total liabilities and stockholders
equity (deficit)
    
    $
    190,445
    
    
    $
    2,610
    
    
    $
    890,890
    
    
    $
    (185,852
    )
    
    $
    898,093
 15




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##### Table of Contents



COINMACH SERVICE CORP. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)
 Condensed Consolidating Balance Sheets (continued)
 March 31, 2006CoinmachCoinmach
    
    
    Corporation
    
    
    AdjustmentsCoinmach
    
    
    Laundry
    
    
    and
    
    
    andService Corp.
    
    
    Corporation
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets, consisting of cash,
receivables, inventory, prepaid
expenses and other current assets
    
    $
    940
    
    
    $
    
    
    
    $
    87,002
    
    
    $
    (55
    )
    
    $
    87,887Advance location payments
    
    
    
    
    
    
    
    
    
    
    67,242
    
    
    
    
    
    
    
    67,242Property, equipment and leasehold
improvements, net
    
    
    
    
    
    
    
    
    
    
    252,398
    
    
    
    
    
    
    
    252,398Intangible assets, net
    
    
    
    
    
    
    
    
    
    
    503,108
    
    
    
    
    
    
    
    503,108Deferred 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
    )
    
    
    11,531Total assets
    
    $
    230,188
    
    
    $
    26,180
    
    
    $
    914,352
    
    
    $
    (248,554
    )
    
    $
    922,166Liabilities and Stockholders Equity(Deficit)Current liabilities:Accounts payable and accrued expenses
    
    $
    4,196
    
    
    $
    36
    
    
    $
    68,927
    
    
    $
    (3,896
    )
    
    $
    69,263Current portion of long-term debt
    
    
    5,649
    
    
    
    
    
    
    
    5,502
    
    
    
    
    
    
    
    11,151Total current liabilities
    
    
    9,845
    
    
    
    36
    
    
    
    74,429
    
    
    
    (3,896
    )
    
    
    80,414Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    60,144
    
    
    
    (10,160
    )
    
    
    49,984Long-term debt, less current portion
    
    
    82,067
    
    
    
    
    
    
    
    571,035
    
    
    
    
    
    
    
    653,102Loan 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
    
    
    
    138,666Total liabilities and stockholders
equity (deficit)
    
    $
    230,188
    
    
    $
    26,180
    
    
    $
    914,352
    
    
    $
    (248,554
    )
    
    $
    922,166
 16




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##### Table of Contents



COINMACH SERVICE CORP. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)
 Condensed Consolidating Statements of Operations
 Three Months Ended September 30, 2006CoinmachCoinmach
    
    
    Coinmach
    
    
    CorporationService
    
    
    Laundry
    
    
    andCorp.
    
    
    Corporation
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    
    
    
    $
    136,310
    
    
    $
    
    
    
    $
    136,310Costs and expenses
    
    
    778
    
    
    
    104
    
    
    
    121,873
    
    
    
    
    
    
    
    122,755Operating (loss) income
    
    
    (778
    )
    
    
    (104
    )
    
    
    14,437
    
    
    
    
    
    
    
    13,555Interest expense, net
    
    
    (5,996
    )
    
    
    3,314
    
    
    
    16,613
    
    
    
    
    
    
    
    13,931Income (loss) before taxes
    
    
    5,218
    
    
    
    (3,418
    )
    
    
    (2,176
    )
    
    
    
    
    
    
    (376
    )Income tax provision
(benefit)
    
    
    777
    
    
    
    (42
    )
    
    
    (710
    )
    
    
    
    
    
    
    254,441
    
    
    
    (3,376
    )
    
    
    (1,466
    )
    
    
    
    
    
    
    (401
    )Equity in loss (income) of
subsidiaries
    
    
    4,842
    
    
    
    1,466
    
    
    
    
    
    
    
    (6,308
    )
    
    
    Net loss
    
    $
    (401
    )
    
    $
    (4,842
    )
    
    $
    (1,466
    )
    
    $
    6,308
    
    
    $
    (401
    )
 Three Months Ended September 30, 2005CoinmachCoinmach
    
    
    Coinmach
    
    
    CorporationService
    
    
    Laundry
    
    
    andCorp.
    
    
    Corporation
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    
    
    
    $
    132,320
    
    
    $
    
    
    
    $
    132,320Costs and expenses
    
    
    618
    
    
    
    104
    
    
    
    120,204
    
    
    
    
    
    
    
    120,926Operating (loss) income
    
    
    (618
    )
    
    
    (104
    )
    
    
    12,116
    
    
    
    
    
    
    
    11,394Interest expense  non cash
preferred stock dividend
    
    
    (3,699
    )
    
    
    3,699
    
    
    
    
    
    
    
    
    
    
    
    Interest expense, net
    
    
    1,641
    
    
    
    
    
    
    
    13,674
    
    
    
    
    
    
    
    15,315Income (loss) before taxes
    
    
    1,440
    
    
    
    (3,803
    )
    
    
    (1,558
    )
    
    
    
    
    
    
    (3,921
    )Income tax provision
(benefit)
    
    
    587
    
    
    
    (1,615
    )
    
    
    (605
    )
    
    
    
    
    
    
    (1,633
    )853
    
    
    
    (2,188
    )
    
    
    (953
    )
    
    
    
    
    
    
    (2,288
    )Equity in loss (income) of
subsidiaries
    
    
    3,141
    
    
    
    953
    
    
    
    
    
    
    
    (4,094
    )
    
    
    Net loss
    
    $
    (2,288
    )
    
    $
    (3,141
    )
    
    $
    (953
    )
    
    $
    4,094
    
    
    $
    (2,288
    )
 17




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##### Table of Contents



COINMACH SERVICE CORP. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)
 Condensed Consolidating Statements of Operations
 Six Months Ended September 30, 2006CoinmachCoinmach
    
    
    Coinmach
    
    
    CorporationService
    
    
    Laundry
    
    
    andCorp.
    
    
    Corporation
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    
    
    
    $
    275,595
    
    
    $
    
    
    
    $
    275,595Costs and expenses
    
    
    1,169
    
    
    
    209
    
    
    
    245,894
    
    
    
    
    
    
    
    247,272Operating (loss) income
    
    
    (1,169
    )
    
    
    (209
    )
    
    
    29,701
    
    
    
    
    
    
    
    28,323Transaction costs
    
    
    845
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    845Interest expense, net
    
    
    (12,090
    )
    
    
    6,776
    
    
    
    32,675
    
    
    
    
    
    
    
    27,361Income (loss) before taxes
    
    
    10,076
    
    
    
    (6,985
    )
    
    
    (2,974
    )
    
    
    
    
    
    
    117Income tax provision
(benefit)
    
    
    1,348
    
    
    
    (85
    )
    
    
    (937
    )
    
    
    
    
    
    
    3268,728
    
    
    
    (6,900
    )
    
    
    (2,037
    )
    
    
    
    
    
    
    (209
    )Equity in loss (income) of
subsidiaries
    
    
    8,937
    
    
    
    2,037
    
    
    
    
    
    
    
    (10,974
    )
    
    
    Net loss
    
    $
    (209
    )
    
    $
    (8,937
    )
    
    $
    (2,037
    )
    
    $
    10,974
    
    
    $
    (209
    )
 Six Months Ended September 30, 2005CoinmachCoinmach
    
    
    Coinmach
    
    
    CorporationService
    
    
    Laundry
    
    
    andCorp.
    
    
    Corporation
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    
    
    
    $
    266,150
    
    
    $
    
    
    
    $
    266,150Costs and expenses
    
    
    905
    
    
    
    218
    
    
    
    239,793
    
    
    
    
    
    
    
    240,916Operating (loss) income
    
    
    (905
    )
    
    
    (218
    )
    
    
    26,357
    
    
    
    
    
    
    
    25,234Interest expense  non cash
preferred stock dividend
    
    
    (7,391
    )
    
    
    7,391
    
    
    
    
    
    
    
    
    
    
    
    Interest expense, net
    
    
    3,282
    
    
    
    
    
    
    
    27,364
    
    
    
    
    
    
    
    30,646Income (loss) before taxes
    
    
    3,204
    
    
    
    (7,609
    )
    
    
    (1,007
    )
    
    
    
    
    
    
    (5,412
    )Income tax provision
(benefit)
    
    
    1,308
    
    
    
    (3,108
    )
    
    
    (349
    )
    
    
    
    
    
    
    (2,149
    )1,896
    
    
    
    (4,501
    )
    
    
    (658
    )
    
    
    
    
    
    
    (3,263
    )Equity in loss (income) of
subsidiaries
    
    
    5,159
    
    
    
    658
    
    
    
    
    
    
    
    (5,817
    )
    
    
    Net loss
    
    $
    (3,263
    )
    
    $
    (5,159
    )
    
    $
    (658
    )
    
    $
    5,817
    
    
    $
    (3,263
    )
 18




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##### Table of Contents



COINMACH SERVICE CORP. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)
 Condensed Consolidating Statements of Cash Flows
 Six Months Ended September 30, 2006CoinmachCoinmach
    
    
    CorporationCoinmach
    
    
    Laundry
    
    
    AndService Corp.
    
    
    Corporation
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedOperating ActivitiesNet income (loss)
    
    $
    8,728
    
    
    $
    (6,900
    )
    
    $
    (2,037
    )
    
    $
    
    
    
    $
    (209
    )Noncash adjustments
    
    
    (4,413
    )
    
    
    6,692
    
    
    
    52,719
    
    
    
    
    
    
    
    54,998Change in operating assets and
liabilities
    
    
    (1,329
    )
    
    
    30
    
    
    
    5,918
    
    
    
    
    
    
    
    4,619Net cash provided by (used in)
operating activities
    
    
    2,986
    
    
    
    (178
    )
    
    
    56,600
    
    
    
    
    
    
    
    59,408Investing ActivitiesCapital expenditures
    
    
    
    
    
    
    
    
    
    
    (36,216
    )
    
    
    
    
    
    
    (36,216
    )Acquisition of assets
    
    
    
    
    
    
    
    
    
    
    (17,136
    )
    
    
    
    
    
    
    (17,136
    )Proceeds from sale of property
and equipment
    
    
    
    
    
    
    
    
    
    
    710
    
    
    
    
    
    
    
    710Net cash used in investing
activities
    
    
    
    
    
    
    
    
    
    
    (52,642
    )
    
    
    
    
    
    
    (52,642
    )Financing ActivitiesRepayment of debt
    
    
    (5,649
    )
    
    
    
    
    
    
    (1,150
    )
    
    
    
    
    
    
    (6,799
    )Other financing items
    
    
    2,691
    
    
    
    178
    
    
    
    (29,825
    )
    
    
    
    
    
    
    (26,956
    )Net cash (used in) provided by
financing activities
    
    
    (2,958
    )
    
    
    178
    
    
    
    (30,975
    )
    
    
    
    
    
    
    (33,755
    )Net increase (decrease) in cash
and cash equivalents
    
    
    28
    
    
    
    
    
    
    
    (27,017
    )
    
    
    
    
    
    
    (26,989
    )Cash and cash equivalents,
beginning of period
    
    
    880
    
    
    
    
    
    
    
    61,128
    
    
    
    
    
    
    
    62,008Cash and cash equivalents, end
of period
    
    $
    908
    
    
    $
    
    
    
    $
    34,111
    
    
    $
    
    
    
    $
    35,019
 19




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##### Table of Contents



COINMACH SERVICE CORP. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)
 Condensed Consolidating Statements of Cash Flows (continued)
 Six Months Ended September 30, 2005CoinmachCoinmach
    
    
    Coinmach
    
    
    CorporationService
    
    
    Laundry
    
    
    andCorporation
    
    
    Corporation
    
    
    Subsidiaries
    
    
    Elimination
    
    
    ConsolidatedOperating ActivitiesNet income (loss)
    
    $
    1,896
    
    
    $
    (4,501
    )
    
    $
    (658
    )
    
    $
    
    
    
    $
    (3,263
    )Noncash adjustments
    
    
    (5,814
    )
    
    
    4,294
    
    
    
    54,477
    
    
    
    
    
    
    
    52,957Change in operating assets and
liabilities
    
    
    (684
    )
    
    
    8
    
    
    
    2,990
    
    
    
    
    
    
    
    2,314Net cash (used in) provided by
operating activities
    
    
    (4,602
    )
    
    
    (199
    )
    
    
    56,809
    
    
    
    
    
    
    
    52,008Investing ActivitiesCapital expenditures
    
    
    
    
    
    
    
    
    
    
    (37,074
    )
    
    
    
    
    
    
    (37,074
    )Acquisition of assets
    
    
    
    
    
    
    
    
    
    
    (1,210
    )
    
    
    
    
    
    
    (1,210
    )Proceeds from sale of
property and equipment
    
    
    
    
    
    
    
    
    
    
    498
    
    
    
    
    
    
    
    498Net cash used in investing
activities
    
    
    
    
    
    
    
    
    
    
    (37,786
    )
    
    
    
    
    
    
    (37,786
    )Financing ActivitiesRepayment of debt
    
    
    
    
    
    
    
    
    
    
    (11,223
    )
    
    
    
    
    
    
    (11,223
    )Other financing items
    
    
    4,602
    
    
    
    199
    
    
    
    (15,379
    )
    
    
    
    
    
    
    (10,578
    )Net cash provided by (used in)
financing activities
    
    
    4,602
    
    
    
    199
    
    
    
    (26,602
    )
    
    
    
    
    
    
    (21,801
    )Net decrease in cash and cash
equivalents
    
    
    
    
    
    
    
    
    
    
    (7,579
    )
    
    
    
    
    
    
    (7,579
    )Cash and cash equivalents,
beginning of period
    
    
    431
    
    
    
    
    
    
    
    56,840
    
    
    
    
    
    
    
    57,271Cash and cash equivalents, end
of period
    
    $
    431
    
    
    $
    
    
    
    $
    49,261
    
    
    $
    
    
    
    $
    49,692
 20




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##### Table of Contents



COINMACH SERVICE CORP. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 6. Segment Information
  21




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##### Table of Contents



COINMACH SERVICE CORP. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)
  Three months ended
    
    
    Six months endedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenue:Route
    
    $
    119,930
    
    
    $
    116,747
    
    
    $
    243,908
    
    
    $
    236,516All other:Rental
    
    
    9,724
    
    
    
    8,848
    
    
    
    19,268
    
    
    
    17,496Distribution
    
    
    6,656
    
    
    
    6,725
    
    
    
    12,419
    
    
    
    12,138Subtotal
    
    
    16,380
    
    
    
    15,573
    
    
    
    31,687
    
    
    
    29,634Total Revenue
    
    $
    136,310
    
    
    $
    132,320
    
    
    $
    275,595
    
    
    $
    266,150EBITDA (1):Route
    
    $
    38,606
    
    
    $
    38,122
    
    
    $
    79,106
    
    
    $
    77,493All other:Rental
    
    
    4,292
    
    
    
    3,695
    
    
    
    8,414
    
    
    
    7,212Distribution
    
    
    609
    
    
    
    386
    
    
    
    873
    
    
    
    413Subtotal
    
    
    4,901
    
    
    
    4,081
    
    
    
    9,287
    
    
    
    7,625Other items, net
    
    
    
    
    
    
    (310
    )
    
    
    
    
    
    
    (310
    )Transaction costs (2)
    
    
    
    
    
    
    
    
    
    
    (845
    )
    
    
    Corporate expenses
    
    
    (3,102
    )
    
    
    (3,047
    )
    
    
    (6,136
    )
    
    
    (5,570
    )Total EBITDA
    
    
    40,405
    
    
    
    38,846
    
    
    
    81,412
    
    
    
    79,238Reconciling items:Depreciation and amortization
expense, amortization of
advance location payments and
amortization of intangibles:Route
    
    
    (23,778
    )
    
    
    (24,507
    )
    
    
    (47,745
    )
    
    
    (48,099
    )All other
    
    
    (2,069
    )
    
    
    (2,128
    )
    
    
    (4,183
    )
    
    
    (4,271
    )Corporate
    
    
    (1,003
    )
    
    
    (817
    )
    
    
    (2,006
    )
    
    
    (1,634
    )Total depreciation
    
    
    (26,850
    )
    
    
    (27,452
    )
    
    
    (53,934
    )
    
    
    (54,004
    )Interest expense
    
    
    (13,931
    )
    
    
    (15,315
    )
    
    
    (27,361
    )
    
    
    (30,646
    )Consolidated (loss) income before
income taxes
    
    $
    (376
    )
    
    $
    (3,921
    )
    
    $
    117
    
    
    $
    (5,412
    )
 
 (1)
    
    See description of Non-GAAP Financial Measures immediately following this table for more information
regarding EBITDA and a reconciliation of net loss to EBITDA for the periods indicated above.(2)
    
    The computation of EBITDA for the six months ended September 30, 2006 has not been adjusted to exclude
transaction costs consisting of: (i) the premium paid to purchase certain 11% Senior Secured Notes of
approximately $0.4 million and (ii) the write-off of a proportionate amount of unamortized deferred
financing costs of approximately $0.4 million. 22




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##### Table of Contents



COINMACH SERVICE CORP. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)
 Non-GAAP Financial Measures
  Three Months Ended September 30,
    
    
    Six Months Ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net loss
    
    $
    (0.4
    )
    
    $
    (2.3
    )
    
    $
    (0.2
    )
    
    $
    (3.3
    )Provision (benefit) for income taxes
    
    
    
    
    
    
    (1.6
    )
    
    
    0.3
    
    
    
    (2.1
    )Interest expense
    
    
    13.9
    
    
    
    15.3
    
    
    
    27.4
    
    
    
    30.6Depreciation and amortization
    
    
    26.9
    
    
    
    27.4
    
    
    
    53.9
    
    
    
    54.0EBITDA *
    
    $
    40.4
    
    
    $
    38.8
    
    
    $
    81.4
    
    
    $
    79.2
 
 *
    
    The computation of EBITDA for the six months ended September 30, 2006 has not been
adjusted to exclude transaction costs consisting of: (i) the premium paid to purchase certain 11%
Senior Secured Notes of approximately $0.4 million and (ii) the write-off of a proportionate amount
of unamortized deferred financing costs of approximately $0.4 million. 23




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##### Table of Contents



COINMACH SERVICE CORP. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)
 7. Income Taxes
  September 30, 2006
    
    
    March 31,2006Deferred tax liabilities:Accelerated tax depreciation and contract rights
    
    $
    92,301
    
    
    $
    97,084Interest rate swap
    
    
    318
    
    
    
    1,063Other
    
    
    2,333
    
    
    
    2,123Total deferred tax liabilities
    
    
    94,952
    
    
    
    100,270Deferred tax assets:Net operating loss carryforwards
    
    
    50,399
    
    
    
    55,430Covenant not to compete
    
    
    1,316
    
    
    
    1,267Transaction costs
    
    
    3,071
    
    
    
    2,726Other
    
    
    1,599
    
    
    
    1,593Total deferred tax asset
    
    
    56,385
    
    
    
    61,016Valuation allowance
    
    
    (10,730
    )
    
    
    (10,730
    )Net deferred tax assets
    
    
    45,655
    
    
    
    50,286Net deferred tax liability
    
    $
    49,297
    
    
    $
    49,984
   Three months ended September 30,
    
    
    Six months ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Federal
    
    $
    (147
    )
    
    $
    (1,273
    )
    
    $
    (43
    )
    
    $
    (1,676
    )State
    
    
    172
    
    
    
    (360
    )
    
    
    369
    
    
    
    (473
    )$
    25
    
    
    $
    (1,633
    )
    
    $
    326
    
    
    $
    (2,149
    )
  Three months ended September 30,
    
    
    Six months ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Expected tax (benefit) provision
    
    $
    (132
    )
    
    $
    (1,373
    )
    
    $
    41
    
    
    $
    (1,896
    )State tax provision (benefit), net of
federal taxes
    
    
    113
    
    
    
    (233
    )
    
    
    241
    
    
    
    (308
    )Permanent book/tax differences
    
    
    44
    
    
    
    (27
    )
    
    
    44
    
    
    
    55Tax provision (benefit)
    
    $
    25
    
    
    $
    (1,633
    )
    
    $
    326
    
    
    $
    (2,149
    )
 24




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##### Table of Contents



COINMACH SERVICE CORP. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)
 8. Income (Loss) per Common Share
   Three months ended
    
    
    Six months endedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net loss attributable to common stockholders
    
    $
    (401
    )
    
    $
    (2,288
    )
    
    $
    (209
    )
    
    $
    (3,263
    )Add: Dividends paid on Class A common stock
    
    
    (6,002
    )
    
    
    (3,899
    )
    
    
    (24,503
    )
    
    
    (7,797
    )Undistributed loss available to Class A and Class B
common stock
    
    $
    (6,403
    )
    
    $
    (6,187
    )
    
    $
    (24,712
    )
    
    $
    (11,060
    )Basic and diluted allocation of undistributed loss:Class A Common Stock
    
    $
    (3,548
    )
    
    $
    (2,666
    )
    
    $
    (13,693
    )
    
    $
    (4,765
    )Class B Common Stock
    
    
    (2,855
    )
    
    
    (3,521
    )
    
    
    (11,019
    )
    
    
    (6,295
    )Total
    
    $
    (6,403
    )
    
    $
    (6,187
    )
    
    $
    (24,712
    )
    
    $
    (11,060
    )Weighted average common stock outstanding:Class A Common Stock
    
    
    29,050,722
    
    
    
    18,911,532
    
    
    
    29,048,625
    
    
    
    18,911,532Class B Common Stock
    
    
    23,374,450
    
    
    
    24,980,445
    
    
    
    23,374,450
    
    
    
    24,980,445Total
    
    
    52,425,172
    
    
    
    43,891,977
    
    
    
    52,423,075
    
    
    
    43,891,977Distributed earnings per share:Class A Common Stock
    
    $
    0.21
    
    
    $
    0.21
    
    
    $
    0.41
    
    
    $
    0.41Class B Common Stock
    
    $
    
    
    
    $
    
    
    
    $
    0.53
    
    
    $
    Undistributed loss per share:Class A Common Stock
    
    $
    (0.12
    )
    
    $
    (0.14
    )
    
    $
    (0.47
    )
    
    $
    (0.25
    )Class B Common Stock
    
    $
    (0.12
    )
    
    $
    (0.14
    )
    
    $
    (0.47
    )
    
    $
    (0.25
    )Basic and diluted income (loss) per shareClass A Common Stock
    
    $
    0.09
    
    
    $
    0.07
    
    
    $
    (0.06
    )
    
    $
    0.16Class B Common Stock
    
    $
    (0.12
    )
    
    $
    (0.14
    )
    
    $
    0.06
    
    
    $
    (0.25
    )
 25




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##### Table of Contents



COINMACH SERVICE CORP. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)
    9. 2004 Long-Term Incentive Plan
     26




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##### Table of Contents



COINMACH SERVICE CORP. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)
   Weighted AverageFair Value at DateShares Outstanding
    
    
    of ContractRestricted shares unvested at April 1, 2006
    
    
    67,113
    
    
    $
    9.01Vested
    
    
    8,388
    
    
    
    9.01Restricted shares unvested at September 30, 2006
    
    
    58,725
    
    
    $
    9.01
       10. New Accounting Pronouncements
 Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109.
 Fair Value Measurements.
 27




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COINMACH SERVICE CORP. AND SUBSIDIARIES
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
  Except for the historical information contained herein, certain matters discussed in this document
are forward-looking statements based on the beliefs of our management and are subject to certain
risks and uncertainties, including the risks and uncertainties discussed below, as well as other
risks set forth in the Companys Annual Report on Form 10-K for the fiscal year ended March 31,
2006 under the caption Business  Risk Factors. Should any of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, our future performance and actual
results of operations may differ materially from those expected or intended. See Special Note
Concerning Forward Looking Statements below.
  Overview
   28




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COINMACH SERVICE CORP. AND SUBSIDIARIES
 ITEM
2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
     Comparison of the three- and six-month periods ended
September 30, 2006 and September 30, 2005.
  Three months ended September 30,
    
    
    Six months ended September 30,2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005
    
    
    ChangeRoute
    
    $
    119.9
    
    
    $
    116.7
    
    
    $
    3.2
    
    
    $
    243.9
    
    
    $
    236.5
    
    
    $
    7.4Rental
    
    
    9.7
    
    
    
    8.9
    
    
    
    0.8
    
    
    
    19.3
    
    
    
    17.5
    
    
    
    1.8Distribution
    
    
    6.7
    
    
    
    6.7
    
    
    
    
    
    
    
    12.4
    
    
    
    12.1
    
    
    
    0.3$
    136.3
    
    
    $
    132.3
    
    
    $
    4.0
    
    
    $
    275.6
    
    
    $
    266.1
    
    
    $
    9.5
   29




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COINMACH SERVICE CORP. AND SUBSIDIARIES
 ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
(continued)
        30




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COINMACH SERVICE CORP. AND SUBSIDIARIES
 ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
(continued)
       31




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COINMACH SERVICE CORP. AND SUBSIDIARIES
 ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
(continued)
      32




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COINMACH SERVICE CORP. AND SUBSIDIARIES
 ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
(continued)
  Three months ended September 30,
    
    
    Six months ended September 30,2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005
    
    
    ChangeRoute
    
    $
    38.6
    
    
    $
    38.1
    
    
    $
    0.5
    
    
    $
    79.1
    
    
    $
    77.5
    
    
    $
    1.6Rental
    
    
    4.3
    
    
    
    3.7
    
    
    
    0.6
    
    
    
    8.4
    
    
    
    7.2
    
    
    
    1.2Distribution
    
    
    0.6
    
    
    
    0.4
    
    
    
    0.2
    
    
    
    0.9
    
    
    
    0.4
    
    
    
    0.5Other items, net
    
    
    
    
    
    
    (0.3
    )
    
    
    0.3
    
    
    
    
    
    
    
    (0.3
    )
    
    
    0.3Corporate expenses
    
    
    (3.1
    )
    
    
    (3.1
    )
    
    
    
    
    
    
    (6.1
    )
    
    
    (5.6
    )
    
    
    (0.5
    )Transaction costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.9
    )
    
    
    
    
    
    
    (0.9
    )Total EBITDA
    
    $
    40.4
    
    
    $
    38.8
    
    
    $
    1.6
    
    
    $
    81.4
    
    
    $
    79.2
    
    
    $
    2.2
 
 (1)
    
    The computation of EBITDA for the six-months ended September 30, 2006 has not
been adjusted to exclude transaction costs consisting of: (i) the premium paid to
purchase certain 11% Senior Secured Notes of approximately $0.4 million and (ii) the
write-off of a proportionate amount of unamortized deferred financing costs of
approximately $0.4 million. 33




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COINMACH SERVICE CORP. AND SUBSIDIARIES
 ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
(continued)
   Liquidity and Capital Resources
  34




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COINMACH SERVICE CORP. AND SUBSIDIARIES
 ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
(continued)
     Dividend Policy
    35




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COINMACH SERVICE CORP. AND SUBSIDIARIES
 ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
(continued)
     Financing Activities
  11% Senior Secured Notes
   36




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COINMACH SERVICE CORP. AND SUBSIDIARIES
 ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
(continued)
   Amended and Restated Credit Facility
    37




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COINMACH SERVICE CORP. AND SUBSIDIARIES
 ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
(continued)
  The Intercompany Loan
    Operating and Investing Activities
  Capital Expenditures
  38




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COINMACH SERVICE CORP. AND SUBSIDIARIES
 ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
(continued)
  Three months ended September 30,
    
    
    Six months ended September 30,2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005
    
    
    ChangeRoute
    
    $
    15.7
    
    
    $
    15.7
    
    
    $
    
    
    
    $
    31.6
    
    
    $
    30.4
    
    
    $
    1.2Rental
    
    
    1.2
    
    
    
    2.5
    
    
    
    (1.3
    )
    
    
    1.7
    
    
    
    3.5
    
    
    
    (1.8
    )Distribution
    
    
    
    
    
    
    0.1
    
    
    
    (0.1
    )
    
    
    
    
    
    
    0.2
    
    
    
    (0.2
    )Corporate
    
    
    1.0
    
    
    
    1.0
    
    
    
    
    
    
    
    2.2
    
    
    
    2.5
    
    
    
    (0.3
    )$
    17.9
    
    
    $
    19.3
    
    
    $
    (1.4
    )
    
    $
    35.5
    
    
    $
    36.6
    
    
    $
    (1.1
    )
  Summary of Contractual Obligations
  Payments Due in Fiscal YearTotal
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    AfterLong-Term Debt Obligations
    
    $
    650.6
    
    
    $
    1.2
    
    
    $
    2.4
    
    
    $
    3.2
    
    
    $
    5.7
    
    
    $
    5.7
    
    
    $
    632.4Interest on Long-Term Debt (1)
    
    
    433.7
    
    
    
    29.3
    
    
    
    54.0
    
    
    
    53.8
    
    
    
    53.4
    
    
    
    53.0
    
    
    
    190.2Capital Lease Obligations (2)
    
    
    8.6
    
    
    
    2.0
    
    
    
    3.2
    
    
    
    2.1
    
    
    
    0.9
    
    
    
    0.4
    
    
    
    Operating Lease Obligations
    
    
    33.6
    
    
    
    4.3
    
    
    
    7.4
    
    
    
    6.2
    
    
    
    5.2
    
    
    
    3.5
    
    
    
    7.0$
    1,126.5
    
    
    $
    36.8
    
    
    $
    67.0
    
    
    $
    65.3
    
    
    $
    65.2
    
    
    $
    62.6
    
    
    $
    829.6
 
 (1)
    
    As of September 30, 2006, $568.3 million of our long-term debt outstanding under the
Amended and Restated Credit Facility term loans was subject to variable rates of interest.
Interest expense on these variable rate borrowings for future years was calculated using a
weighted average interest rate of approximately 7.875% based on the Eurodollar rate in effect
at September 30, 2006. In addition, approximately $82.1 million of our long-term debt
outstanding was subject to a fixed interest rate of 11.0%. In connection with the Amended and
Restated Credit Facility, Coinmach is a party to two separate interest rate swap agreements
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
interest rate of approximately 7.40%, thereby reducing the impact of interest rate changes on
future interest expense.(2)
    
    Includes both principal and interest. Future Capital Needs and Resources
  39




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COINMACH SERVICE CORP. AND SUBSIDIARIES
 ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
(continued)
     40




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COINMACH SERVICE CORP. AND SUBSIDIARIES
 ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
(continued)
      41




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COINMACH SERVICE CORP. AND SUBSIDIARIES
 ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
(continued)
  Inflation and Seasonality
  Special Note Concerning Forward Looking Statements
    42




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COINMACH SERVICE CORP. AND SUBSIDIARIES
 ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
(continued)
 
    
    the restrictive debt covenants and other requirements related to our substantial
leverage that could restrict our operating flexibility;
    
    our ability to continue to renew our lease contracts with property owners and
management companies;
    
    extended periods of reduced occupancy which could result in reduced revenues and cash
flow from operations in certain areas;
    
    our ability to compete effectively in a highly competitive and capital intensive
industry which is fragmented nationally, with many small, private and family-owned
businesses operating throughout all major metropolitan areas;
    
    compliance obligations and liabilities under regulatory, judicial and environmental
laws and regulations, including, but not limited to, governmental action imposing
heightened energy and water efficiency standards or other requirements with respect to
commercial clothes washers;
    
    our ability to maintain borrowing flexibility and to meet our projected and future cash
needs, including capital expenditure requirements with respect to maintaining our machine
base, given our substantial level of indebtedness, history of net losses and cash dividends
on our common stock pursuant to our dividend policy;
    
    risks associated with expansion of our business through tuck-ins and other
acquisitions and integration of acquired operations into our existing business;
    
    as a holding company, our dependence on cash flow from our operating subsidiaries to
make payments under the 11% Senior Secured Notes, and contractual and legal restrictions on
the ability of our subsidiaries to make dividends and distributions to us;
    
    the risk of adverse tax consequences should the 11% Senior Secured Notes not be
respected as debt for U.S. federal income tax purposes;
    
    risks associated with changes in accounting standards promulgated by the Financial
Accounting Standards Board, the SEC or the American Institute of Certified Public
Accountants; and
    
    other factors discussed elsewhere in this report and in our other public filings with
the SEC.
  43




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COINMACH SERVICE CORP. AND SUBSIDIARIES
 ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
(continued)
  44




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COINMACH SERVICE CORP. AND SUBSIDIARIES
 ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
      45




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COINMACH SERVICE CORP. AND SUBSIDIARIES
 
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
    Changes in Internal Control over Financial Reporting
  46




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COINMACH SERVICE CORP. AND SUBSIDIARIES
 
 PART II. OTHER INFORMATION
 
 ITEM 1. Legal Proceedings
  
 ITEM 1A. Risk Factors
  
 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 ITEM 3. Defaults Upon Senior Securities
  
 ITEM 4. Submission of Matters to a Vote of Security Holders
   VotesVotes For
    
    Withheld1. Stephen R. Kerrigan
    
    
    69,020,128
    
    
    
    5,216,5442. James N. Chapman
    
    
    67,724,285
    
    
    
    6,512,3873. David A. Donnini
    
    
    63,266,918
    
    
    
    10,969,7544. Woody M. McGee
    
    
    74,048,055
    
    
    
    188,6175. Bruce V. Rauner
    
    
    63,946,261
    
    
    
    10,290,4116. John R. Scheessele
    
    
    73,830,043
    
    
    
    406,6297. William M. Kelly
    
    
    74,058,462
    
    
    
    178,210
  Votes For
    
    Votes Against
    
    Abstain/Non-Vote73,560,509
    
    656,751
    
    19,412
 47




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COINMACH SERVICE CORP. AND SUBSIDIARIES
 
 ITEM 5. Other Information
  
 ITEM 6. Exhibits
 ExhibitNumber
    
    Description31.1*
    
    Certificate of Chief Executive Officer pursuant to Exchange
Act Rules 13a-14 and 15d-14, as enacted by Section 302 of
the Sarbanes-Oxley Act of 200231.2*
    
    Certificate of Chief Financial Officer pursuant to Exchange
Act Rules 13a-14 and 15d-14, as enacted by Section 302 of
the Sarbanes-Oxley Act of 200232.1
    
    Certificate of Chief Executive Officer pursuant to 18
United States Code Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certificate of Chief Financial Officer pursuant to 18
United States Code Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
 48




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COINMACH SERVICE CORP. AND SUBSIDIARIES
 
 SIGNATURES
  COINMACH SERVICE CORP.Date: November 8, 2006
    /s/ Robert M. DoyleRobert M. DoyleChief Financial Officer
(on behalf of registrant and as Principal Financial Officer) 49




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##### Table of Contents



COINMACH SERVICE CORP. AND SUBSIDIARIES
  
 INDEX TO EXHIBITS
 ExhibitNumber
    
    Description31.1*
    
    Certificate of Chief Executive Officer pursuant to Exchange
Act Rules 13a-14 and 15d-14, as enacted by Section 302 of
the Sarbanes-Oxley Act of 200231.2*
    
    Certificate of Chief Financial Officer pursuant to Exchange
Act Rules 13a-14 and 15d-14, as enacted by Section 302 of
the Sarbanes-Oxley Act of 200232.1
    
    Certificate of Chief Executive Officer pursuant to 18
United States Code, Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certificate of Chief Financial Officer pursuant to 18
United States Code, Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
 
 *
    
    Filed herewith
    
    Furnished herewith 50