Table of Contents

As filed with the Securities and Exchange Commission on November 3, 2004
Registration No. 333-114421


SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Amendment No. 5

to
Form S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933


Coinmach Service Corp.

(Exact name of registrant as specified in its charter)
         
Delaware
  7215   20-0809839
(State or other jurisdiction of
incorporation or organization)
  (Primary standard industrial
classification code number)
  (I.R.S. Employer
Identification No.)
(Additional Registrants next page)


303 Sunnyside Blvd.

Suite 70
Plainview, New York 11803
(516) 349-8555
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)


Robert M. Doyle

Coinmach Service Corp.
303 Sunnyside Blvd.
Suite 70
Plainview, New York 11803
(516) 349-8555
(Name, address, including zip code, and telephone number, including area code, of agent for service)


Copies to:

     
Ronald S. Brody, Esq.
Mayer, Brown, Rowe & Maw LLP
1675 Broadway
New York, New York 10019
(212) 506-2500
  William M. Hartnett, Esq.
Cahill Gordon & Reindel LLP
80 Pine Street
New York, New York 10005
(212) 701-3000

          Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

         If the securities being registered on this form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.     o

         If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

         If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

         If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

         If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box.     o


CALCULATION OF REGISTRATION FEE

         


Proposed Maximum
Title of Each Class of Aggregate Amount of
Securities to be Registered Offering Price(1) Registration Fee(7)

Income Deposit Securities (IDSs)(2)
       

Shares of Class A common stock, par value $0.01 per share(3)
       

     % Senior Secured Notes due 2024(4)(5)
       

Subsidiary Guarantees of the   % Senior Secured Notes due 2024(6)
       

Total
  $352,062,479   $44,606


(Footnotes on following page)

         Coinmach Corporation will issue an intercompany note to Coinmach Service Corp. that will be guaranteed by its subsidiaries listed in the Table of Additional Registrants.


          The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement will thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.




Table of Contents

COINMACH SERVICE CORP.

Table of Additional Registrants

                         
Primary
Standard
Jurisdiction Industrial IRS Employer
of Incorporation Classification Identification
Name or Organization Number Number




Coinmach Laundry Corporation
    Delaware       7215       11-3258015  
Coinmach Corporation
    Delaware       7215       53-0188589  
Super Laundry Equipment Corp. 
    New York       7215       11-3292320  
Grand Wash & Dry Launderette, Inc. 
    New York       7215       11-3360790  
Appliance Warehouse of America, Inc. 
    Delaware       7215       13-4213141  
American Laundry Franchising Corp. 
    Delaware       7215       75-2993869  


(Footnotes from previous page)

(1)  Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
 
(2)  The IDSs consist of 21,083,332 shares of Class A common stock and $149.43 million aggregate principal amount of     % senior secured notes due 2024 of Coinmach Service Corp., including 2,749,999 IDSs subject to the underwriters’ over-allotment option. Assuming the underwriters’ over-allotment option is exercised in full, 21,083,332 IDSs will be sold to the public in connection with this initial public offering. Includes an indeterminate number of IDSs of the same class as the IDSs offered hereby that may be received by holders of IDSs in the future on one or more occasions in replacement of the IDSs offered hereby in the event of an additional issuance of notes or IDSs.
 
(3)  Consists of 21,083,332 shares of Coinmach Service Corp.’s Class A common stock, including 2,749,999 shares subject to the underwriters’ over-allotment option. No separate fee is payable with respect to these securities because they underlie the IDSs being registered hereby.
 
(4)  Consists of $169.43 million aggregate principal amount of     % senior secured notes due 2024, including $19.49 million aggregate principal amount of          % senior secured notes due 2024 subject to the underwriters’ over-allotment option, and $20.0 million aggregate principal amount of          % senior secured notes due 2024 that will be sold separate and apart from the IDSs in connection with this initial public offering. No separate fee is payable with respect to these securities to the extent they underlie the IDSs being registered hereby.
 
(5)  Includes an indeterminate principal amount of notes of the same class as the notes offered hereby that may be received by holders of notes in the future on one or more occasions in replacement of the notes offered hereby in the event of an additional issuance of notes or IDSs.
 
(6)  Coinmach Laundry Corporation will guarantee the notes being registered hereby. The other subsidiaries listed in the Table of Additional Registrants will guarantee the notes being registered hereby upon the occurrence of certain events. Pursuant to Rule 457(n) under the Securities Act of 1933, as amended, no separate fee is payable with respect to the guarantees.
 
(7)  Previously paid.


Table of Contents

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion

Preliminary Prospectus dated November 3, 2004

PROSPECTUS

18,333,333 Income Deposit Securities (IDSs)

Representing 18,333,333 Shares of Class A Common Stock
and $123,750,000             % Senior Secured Notes due 2024
$20,000,000          % Senior Secured Notes due 2024

Coinmach Service Corp.


          This is Coinmach Service Corp.’s initial public offering of 18,333,333 IDSs, consisting of 18,333,333 shares of its Class A common stock and $123.75 million aggregate principal amount of its     % senior secured notes due 2024. Each IDS consists of

  one share of Class A common stock; and
 
  a     % senior secured note due 2024 in a principal amount of $6.75.

          We are also selling in a separate offering $20.0 million aggregate principal amount of our     % senior secured notes due 2024 that are not in the form of IDSs, which we refer to as the “third party notes.” The completion of the third party notes offering is a condition to completion of our sale of the IDSs. Purchasers of our third party notes may not purchase IDSs in this offering. See “Description of Certain Indebtedness — The Third Party Notes.” Both the notes underlying IDSs and the third party notes will be guaranteed on a senior secured basis by our subsidiary, Coinmach Laundry Corporation. Such notes will only be guaranteed by our other subsidiaries upon the occurrence of certain events. See “Description of the Notes — Certain Covenants — Limitation on Issuances of Certain Guarantees by, and Debt Securities of, Restricted Subsidiaries.”

          Subject to certain limitations described in “Description of IDSs — Voluntary Separation and Recombination,” holders of the IDSs will have the right to separate or create IDSs. All IDSs will automatically and permanently separate on the fifteenth anniversary of the original issue date of the IDSs offered hereby. All or a portion of the IDSs will automatically separate under certain other circumstances. See “Description of IDSs — Automatic Separation.”

          Upon certain additional issuances of notes under the indenture, whether or not underlying IDSs, a portion of the notes underlying your IDSs and any separate notes may be automatically exchanged for an identical principal amount of the notes issued in such additional issuances and, in that event, your IDSs and/or separate notes will be replaced with new IDSs and/or separate notes. See “Description of the Notes — Additional Notes” and “Material United States Federal Income Tax Consequences — Consequences to U.S. Holders — Notes — Additional Issuances.”

          We anticipate that the public offering price will be between $14.25 and $15.75 per IDS and that the third party notes will be sold at 100% of their principal amount. Currently, no public market exists for the IDSs, the Class A common stock or the notes, including the third party notes. We have applied to list the IDSs on the American Stock Exchange under the trading symbol “DRY.”

          Investing in the IDSs, the underlying Class A common stock and notes and the third party notes involves risks which are described in the “Risk Factors” section beginning on page 28 of this prospectus.


                                 
Third Party
Per IDS Per Third Note
IDS(1) Total Party Note Total




Public offering price
  $       $         %     $    
Underwriting discount
  $       $         %     $    
Proceeds, before expenses, to Coinmach Service Corp. 
  $       $         %     $    

  (1)  Comprised of $6.75 allocated to each note underlying an IDS, which represents 100% of its principal amount, and $8.25 allocated to each share of Class A common stock.

          The underwriters named in this prospectus may purchase up to 2,749,999 additional IDSs from us at the public offering price less the underwriting discount within 30 days from the date of this prospectus to cover over-allotments.

          Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

          The IDSs and the third party notes will be ready for delivery on or about                   , 2004.

         
   
   
    Merrill Lynch & Co.    
Citigroup
      Jefferies & Company, Inc.
Deutsche Bank Securities
  RBC Capital Markets   SunTrust Robinson Humphrey
   
   

The date of this prospectus is                , 2004.


Table of Contents

(PROSPECTUS IMAGE)


TABLE OF CONTENTS

         
    1  
    28  
    42  
    43  
    45  
    62  
    63  
    64  
    68  
    76  
    99  
    108  
    121  
    125  
    132  
    138  
    144  
    152  
    200  
    209  
    210  
    222  
    224  
    228  
    228  
    229  
    F-1  
FORM OF THIRD PARTY NOTE PURCHASER REPRESENTATION LETTER
    A-1  
  SECOND RESTATED CERTIFICATE OF INCORPORATION
  BYLAWS
  RESTATED CERTIFICATE OF INCORPORATION
  AMENDED AND RESTATED BYLAWS
  CERTIFICATE OF INCORPORATION
  BYLAWS
  CERTIFICATE OF INCORPORATION
  BYLAWS
  AMENDED AND RESTATED BYLAWS
  CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
  BYLAWS
  INDENTURE
  REGISTRATION RIGHTS AGREEMENT
  SENIOR MANAGEMENT AGREEMENT
  EMPLOYMENT AGREEMENT
  PROMISSORY NOTE
  PURCHASE AGREEMENT
  REGISTRATION RIGHTS AGREEMENT
  MANAGEMENT CONTRIBUTION AGREEMENT
  MANAGEMENT CONTRIBUTION AGREEMENT
  MANAGEMENT CONTRIBUTION AGREEMENT
  MANAGEMENT CONTRIBUTION AGREEMENT
  MANAGEMENT CONTRIBUTION AGREEMENT
  AMENDED AND RESTATED PROMISSORY NOTE
  AMENDED AND RESTATED PROMISSORY NOTE
  AMENDED AND RESTATED PROMISSORY NOTE
  AMENDED AND RESTATED PROMISSORY NOTE
  REPLACEMENT PROMISSORY NOTE
  SENIOR MANAGEMENT EMPLOYMENT AGREEMENT
  PROMISSORY NOTE
  PROMISSORY NOTE
  PROMISSORY NOTE
  PROMISSORY NOTE
  AMENDED AND RESTATED PROMISSORY NOTE
  LIMITED LIABILITY COMPANY AGREEMENT
  PROMISSORY NOTE
  PROMISSORY NOTE
  PROMISSORY NOTE
  STATEMENT RE: COMPUTATION OF EARNINGS TO FIXED CHARGES
  CONSENT OF REGISTERED INDEPENDENT PUBLIC ACCOUNTING FIRM
  CONSENT OF JEFFERIES & COMPANY, INC.

          You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.

i


Table of Contents

SUMMARY

          This summary highlights certain information appearing elsewhere in this prospectus and should be read together with the more detailed information and financial statements and data contained elsewhere in this prospectus. Coinmach Service Corp., a Delaware corporation, is the issuer of the IDSs and third party notes.

Our Company

          We believe we are the leading provider of outsourced laundry equipment services for multi-family housing properties in North America, based on information provided by the Multi-Housing Laundry Association, a national trade association of multi-housing laundry operators and suppliers. Our core business (which we refer to as the “route” business) involves leasing laundry rooms from building owners and property management companies, installing and servicing laundry equipment, collecting revenues generated from laundry machines and operating retail laundromats. For the twelve months ended September 30, 2004, our route business represented approximately 88% of our total revenues.

          Our long-term contracts with our customers provide us with stable, recurring revenues and consistent cash flows. We estimate that approximately 90% of our locations are subject to long-term contracts with initial terms of five to ten years, most of which have automatic renewal or right of first refusal provisions. In each year since 1997, we have retained on average approximately 97% of our existing machine base.

          The existing customer base for our route business is comprised of owners of rental apartment buildings, property management companies, condominiums and cooperatives, universities and other multi-family housing properties. We typically set pricing for the use of laundry machines on location, and the owner or property manager maintains the premises and provides utilities such as natural gas, electricity and water. Our size and scale offer significant advantages over our competitors in terms of operating efficiencies and the quality of service we provide our customers.

          We have grown our route business through selective acquisitions in order to expand and geographically diversify our service territories. Since January 1995, we have enhanced our national presence by completing nine significant acquisitions (as well as numerous smaller acquisitions that we refer to as “tuck ins”), growing our washer and dryer machine base from approximately 55,000 machines in 5,000 locations to approximately 664,000 machines in approximately 70,000 locations as of September 30, 2004. As a result of this strategy, we have expanded our presence from the northeastern United States throughout North America. We also operated, as of September 30, 2004, 162 retail laundromats with approximately 11,000 machines located in Texas and Arizona.

          We have experienced net losses in each fiscal year since 2000, and as of September 30, 2004, we had an accumulated deficit of approximately $181.4 million and a total stockholders’ deficit of approximately $184.7 million. As of September 30, 2004, we had approximately $715.8 million in long-term debt and would have had approximately $714.3 million in long-term debt on a pro forma basis after giving effect to the transactions described under “— Summary of the Transactions.”

          In addition to our route business, we rent laundry machines and other household appliances to property owners, managers of multi-family housing properties, individuals and corporate entities through our subsidiary Appliance Warehouse of America, Inc., which we refer to as “AWA.” As of September 30, 2004, approximately 204,000 washers and dryers were installed with our rental customers through AWA. We also operate a laundry equipment distribution business through our subsidiary Super Laundry Equipment Corp., which we refer to as “Super Laundry.”

          We believe that our route business represents the industry-leading platform from which to continue the consolidation of the fragmented outsourced laundry equipment industry, as well as potentially

1


Table of Contents

develop and offer complementary services to other collections based route businesses such as independent payphone operators and parking meters. We intend to grow the route operation, as well as utilize our substantial sales, service, collections and security infrastructure throughout the United States to offer related services to businesses outside our existing laundry business. We also intend to continue to evaluate our investment opportunities in AWA and manage Super Laundry and the retail laundromats to improve operating efficiencies, as well as realize cost efficiencies between these businesses and our route operations.

2


Table of Contents

Summary of the Transactions

          We expect to sell 18,333,333 IDSs and $20.0 million aggregate principal amount of third party notes in the offerings. Throughout this prospectus, we have assumed an initial public offering price of $15.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus (comprised of $6.75 principal amount allocated to each note, which represents 100% of its principal amount, and $8.25 allocated to each share of Class A common stock), and an offering price per third party note of 100% of its principal amount. We estimate that we will receive net proceeds of approximately $268.3 million from the offerings after deducting underwriting discounts, commissions and other estimated offering expenses. Unless otherwise stated or the context otherwise requires, references to the outstanding number of IDSs and shares of Class A and Class B common stock and principal amount of notes underlying the IDSs assume the underwriters’ over-allotment option is not exercised, and references to us also refer to our subsidiaries upon consummation of the transactions described below.

          We intend to complete a series of corporate reorganizations and other transactions in connection with the sale of IDSs and third party notes. We refer to such reorganizations and other transactions, together with the offerings and the use of proceeds therefrom, as the “Transactions.”

Effect of the Transactions

          We have structured the Transactions in order to:

  give Coinmach Holdings, LLC, a Delaware limited liability company which we refer to as “Holdings,” voting control of us through its consolidated ownership of all of our outstanding Class B common stock;
 
  cause Coinmach Laundry Corporation, a Delaware corporation which we refer to as “Laundry Corp.,” and its subsidiaries to become our subsidiaries;
 
  •  enable Coinmach Corporation, a Delaware corporation and direct wholly-owned subsidiary of Laundry Corp. which we refer to as “Coinmach Corp.,” to redeem and repay a portion of its existing indebtedness;
 
  cause AWA to become our subsidiary; and
 
  enable certain equity holders of Holdings to liquidate a portion of their equity interests in Holdings.

Transaction Steps

          We intend to take the following steps in order to complete the Transactions:

  Holdings will exchange certain shares of preferred stock of Laundry Corp. for outstanding units of Holdings in order to redeem such Holdings units.
 
  Holdings will exchange all the remaining outstanding shares of Laundry Corp. and all of the shares of common stock of AWA for shares of our Class B common stock.
 
  We will use the net proceeds from the offerings to make a $86.3 million intercompany loan to Coinmach Corp., to be evidenced by an intercompany note, and to make an indirect $182.0 million capital contribution to Coinmach Corp.
 
  •  Coinmach Corp. will use approximately $144.4 million of the contribution proceeds to redeem a portion of its outstanding 9% senior notes due 2010, which we refer to as the “Coinmach Corp. 9% notes.” Such amount includes approximately $2.9 million of accrued interest and approximately $11.7 million of related redemption premium.
 
  •  Coinmach Corp. will use approximately $15.5 million of the intercompany loan and contribution proceeds to repay outstanding indebtedness under its senior secured credit facility.

3


Table of Contents

  •  Coinmach Corp. will use approximately $0.9 million of the proceeds to terminate existing interest rate swap agreements.
 
  •  Coinmach Corp. will distribute approximately $109.4 million, consisting of a portion of the intercompany loan and contribution proceeds and approximately $1.9 million of currently available cash, to Laundry Corp. to redeem approximately $90.0 million of its Class A preferred stock (representing all of Laundry Corp.’s outstanding Class A preferred stock) and approximately $19.4 million of its Class B preferred stock (representing a portion of Laundry Corp.’s outstanding Class B preferred stock).
 
  Laundry Corp. will use the net proceeds from any exercise of the over-allotment option to redeem its remaining preferred stock held by such unitholders. Any unredeemed Laundry Corp. preferred stock will be returned by such unitholders to Holdings in exchange for Holdings units and Holdings will then exchange such preferred stock with us for additional shares of our Class B common stock.

          Holdings’ ownership of Class B common stock rather than IDSs will result in its continued control of us due in part to the fact that the Class B common stock will be entitled to more votes per share than the Class A common stock. See “Description of Capital Stock — Common Stock — Voting Rights” for a further discussion of voting rights of the Class B common stock.

          For the period from the closing of the offerings up to and including February 14, 2007, dividends on the Class B common stock may be paid only once in any 360-day period. With respect to fiscal quarters ending prior to January 1, 2007, (i) the right of holders of shares of Class B common stock to receive cash dividends will be subordinated to the cash dividend rights of holders of shares of Class A common stock and (ii) each dividend paid in cash on shares of Class B common stock may not exceed $10.0 million in the aggregate. With respect to fiscal quarters beginning on or after January 1, 2007, (i) the right of holders of shares of Class B common stock to receive cash dividends will no longer be subordinated to cash dividend rights of holders of shares of Class A common stock, (ii) the $10.0 million limit on each payment of cash dividends to holders of Class B common stock will no longer apply and (iii) holders of shares of Class B common stock will be entitled to 110% of any dividend declared on the Class A common stock. Under certain circumstances, in lieu of cash dividend payments, we may pay dividends on the Class B common stock in the form of shares of Class C common stock. We intend for such subordination and non-cash dividend payment provisions to provide flexibility in meeting our intended initial dividend payments on the Class A common stock. See “Dividend Policy and Restrictions” for a further discussion of the dividend rights of our common stock and the initial dividend rate.

          We collectively refer to any notes issued under the indenture governing the notes offered hereby, at any time when such notes do not underlie IDSs, as “separate notes.” The separate notes initially will only include the third party notes, but may include additional notes issued in the future or notes that become separated from IDSs. We collectively refer to the separate notes and the notes underlying IDSs as the “notes.”

          For more information about the Transactions, see “Use of Proceeds,” “The Transactions,” and “Description of Certain Indebtedness.”

Over-allotment Option

          The underwriters have an option to purchase up to 2,749,999 additional IDSs (which would include 2,749,999 underlying shares of Class A common stock and $18.56 million aggregate principal amount of underlying notes) from us within 30 days of the closing date of the offerings. The over-allotment option does not include an option to purchase any additional third party notes. If the over-allotment option is exercised in full, we expect to receive approximately $38.7 million in net proceeds from such exercise. We will use the net proceeds from a full exercise of the over-allotment option to make an additional $11.1 million intercompany loan to Coinmach Corp., to be evidenced by an increase in the intercompany note, and to make a $27.6 million capital contribution to Laundry Corp. Subject to the

4


Table of Contents

terms of its outstanding indebtedness, Coinmach Corp. will then distribute $11.1 million to Laundry Corp., which will use such proceeds, combined with the $27.6 million capital contribution, to redeem its remaining outstanding Class B preferred stock then held by certain unitholders of Holdings.

          If the over-allotment option is not exercised or is exercised only in part and results in net proceeds of less than $38.7 million, such proceeds would be insufficient to redeem all of such Laundry Corp. preferred stock. In such case, Laundry Corp. would redeem such shares of its preferred stock on a pro rata basis.

          The following chart reflects our capital structure immediately prior to the Transactions:

(FLOW CHART)

5


Table of Contents

          The following chart reflects our capital structure immediately after giving effect to the Transactions:

(FLOW CHART)

Equity Investors of Holdings

          The equity investors of Holdings include GTCR-CLC, LLC (which we refer to as “GTCR”), certain other investors (which, along with GTCR, we refer to as the “equity investors”) and certain members of our management (which we refer to as the “management investors”). Upon consummation of the Transactions, the equity investors and management investors will own approximately 93% and 7% of Holdings, respectively, and Holdings will own all of our Class B common stock. Accordingly, Holdings will control approximately 74% of our total voting power, and the equity investors and management investors, through Holdings, will exert substantial control over matters submitted to our stockholders for approval. See “Risk Factors — Risks Relating to the Third Party Notes, the IDSs and the Shares of Class A Common Stock and Notes Underlying the IDSs — Voting control of us by Holdings may prevent you from receiving a premium in the event of a change of control and may create conflicts of interest” and “Description of Capital Stock.”

6


Table of Contents

          For more information with respect to the equity investors, the management investors and our relationship with Holdings, please see “Security Ownership of Certain Beneficial Owners and Management,” and “Certain Relationships and Related Party Transactions — Transactions with Holdings and Equity Investors and Management Investors.”

Our Corporate Information

          We were incorporated in December 2003 as a Delaware corporation and do not have any direct operations. Immediately following the Transactions, as the sole stockholder of Laundry Corp., we will have full ownership and control of Laundry Corp. and its direct and indirect subsidiaries, including Coinmach Corp. and Super Laundry. We will own 100% of the non-voting common stock of AWA, and Coinmach Corp. will own 100% of the voting preferred stock of AWA. We will indirectly have full ownership and control of AWA.

          Our principal office is located at 303 Sunnyside Boulevard, Suite 70, Plainview, New York 11803. Our telephone number is (516) 349-8555. We also maintain an executive office in Charlotte, North Carolina. We maintain a website at www.coinmachservicecorp.com where general information about our business is available. The information contained in our website is not part of this prospectus.

7


Table of Contents

Summary of the IDSs and Third Party Notes

          We are offering 18,333,333 Income Deposit Securities (IDSs), anticipated to be sold at an initial public offering price of $15.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus (comprised of $6.75 allocated to each note, which represents 100% of its principal amount, and $8.25 allocated to each share of Class A common stock), and $20.0 million aggregate principal amount of third party notes, anticipated to be sold at 100% of their principal amount.

What are IDSs?

          IDSs are securities consisting of our Class A common stock and      % senior secured notes due 2024.

          Each IDS consists of:

  one share of our Class A common stock; and
 
  a      % senior secured note due 2024 in a principal amount of $6.75.

What payments can I expect to receive as a holder of IDSs or third party notes?

          A holder of IDSs and third party notes will be entitled to quarterly interest payments at an annual rate of      %, or approximately $          per note per year. You may also receive quarterly dividend payments on the shares of Class A common stock underlying your IDSs if and to the extent dividends are declared by our board of directors.

          Interest and dividend payments will be subject to the terms of our then outstanding indebtedness and, in the case of dividend payments, the discretion of our board of directors and applicable law. Specifically, the indenture governing the notes will limit our ability to declare and pay dividends on our common stock as described under “Description of the Notes — Certain Covenants — Limitation on Restricted Payments,” and we will be subject to the additional limitations described under “Dividend Policy and Restrictions.”

          We intend to make our first interest and dividend payment on February 15, 2005 to holders of record as of January 1, 2005. The first payment will constitute a partial quarterly interest and dividend payment for the period commencing on the completion of the offerings and ending on December 31, 2004.

          Our first full quarterly dividend and interest payment will be made on May 15, 2005 to holders of record on April 1, 2005 with respect to the fiscal quarter ending March 31, 2005. Interest payments and, if declared, dividend payments, will be made on February 15, May 15, August 15 and November 15 of each year to holders of record on the preceding January 1, April 1, July 1 and October 1, and will cover the completed fiscal quarter that immediately precedes such payment date.

          Under our dividend policy, we intend to initially pay a quarterly cash dividend of approximately $0.1894 per share of Class A common stock, or approximately $0.7575 per share of Class A common stock for the period beginning January 1, 2005 through December 31, 2005, the first four full fiscal quarters following the closing of the offerings.

          Dividends are payable at the discretion of our board of directors. Notwithstanding our dividend policy, the amount of dividends on our Class A common stock, if any, for each dividend payment date, including the February 15, 2005 dividend payment date, will be determined by our board of directors on a quarterly basis. In making each such determination, our board of directors will take into account various factors, including our results of operations, cash requirements, financial condition, the dividend restrictions set forth in our and our subsidiaries’ indebtedness, provisions of applicable law and other factors that it may deem relevant. Dividend payments are not mandatory or guaranteed, and our board of directors may amend or repeal our initial dividend policy or decide not to declare one or more dividends or declare dividends in different amounts. In addition, our ability to pay dividends will be restricted by the terms of the indenture governing the notes and limited by our receipt of dividends and other distributions from our

8


Table of Contents

subsidiaries, which is in turn subject to, among other things, the terms of the Coinmach Corp. credit facility dated as of January 25, 2002 among Coinmach Corp., as borrower, Laundry Corp., certain subsidiaries of Coinmach Corp. as guarantors, the lenders thereunder, Deutsche Bank Trust Company Americas, as administrative agent and collateral agent, and the other agents (which we refer to as the “Coinmach Corp. credit facility”) and the indenture governing the Coinmach Corp. 9% notes. Our ability to pay dividends will also be restricted by Delaware law. Holders of our common stock do not have any legal right to receive or require the payment of dividends. See “Dividend Policy and Restrictions” and “Risk Factors — Risks Relating to the Third Party Notes, the IDSs and the Shares of Class A Common Stock and Notes Underlying the IDSs — You may not receive the level of dividends provided for in the dividend policy that our board of directors is expected to adopt upon the closing of the offerings or any dividends at all.”

          The cash used to make our interest and dividend payments is expected to be funded by dividends and other distributions to us from our subsidiaries and payments of interest and principal to us by Coinmach Corp. on the intercompany note described in “Description of Certain Indebtedness — The Intercompany Note.” However, both the Coinmach Corp. credit facility and the indenture governing the Coinmach Corp. 9% notes restrict the ability of Coinmach Corp. and its subsidiaries (including AWA) to make dividends and other distributions, which in turn could prevent us from making anticipated levels of payments on the IDSs or third party notes. Furthermore, declaration and payment of any dividends or other distributions are subject to the discretion of our subsidiaries’ respective boards of directors. See “Risk Factors — Risks Relating to the Third Party Notes, the IDSs and the Shares of Class A Common Stock and Notes Underlying the IDSs — Our subsidiaries will not guarantee the dividend payments on our Class A common stock at any time and the notes will be effectively subordinated to all indebtedness of our subsidiaries that are not guarantors of the notes.”

          No statutory, judicial or administrative tax authority, including the Internal Revenue Service (the “IRS”), has directly addressed the tax implications of payments to be made and received in connection with the IDS structure. Therefore, the U.S. federal income tax consequences for an IDS holder of the purchase, ownership and disposition of IDSs are not clear. See “—What will be the U.S. federal income tax considerations in connection with an investment in the IDSs?”

Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and notes?

          No. As a holder of IDSs, you will be the beneficial owner of the Class A common stock and notes underlying your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive dividends and interest, rights and preferences in the event of a default under the indenture governing the notes, ranking upon bankruptcy and rights to receive communications and notices, as a beneficial owner of separately held Class A common stock and/or notes, as applicable, would have through its broker or other financial institution and DTC. Since Holdings will control approximately 74% of our total voting power immediately following the Transactions, it will initially control the outcome of all matters presented to our stockholders for which a simple majority vote is required. See “Risk Factors — Risks Relating to the Third Party Notes, the IDSs and the Shares of Class A Common Stock and Notes Underlying the IDSs — Voting control of us by Holdings may prevent you from receiving a premium in the event of a change of control and may create conflicts of interest.”

Will the IDSs be listed on an exchange?

          We have applied to list our IDSs on the American Stock Exchange under the trading symbol “DRY.” Under certain circumstances, the IDSs will be delisted from the American Stock Exchange. See “Description of IDSs — Listing.”

9


Table of Contents

Will the third party notes be the same as the notes underlying the IDSs?

          Yes. The third party notes that are not being sold in the form of IDSs will be identical to the notes underlying IDSs and will be part of the same series of notes and issued under the same indenture and therefore will be entitled to the same rights. Accordingly, holders of third party notes and holders of notes underlying IDSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which holders of notes are entitled to vote under the indenture governing the notes. If you purchase third party notes in the offering, you will be required, as a condition of your purchase, to deliver to us a letter containing certain representations, including representations to the effect that neither you nor a person bearing certain relationships to you will acquire IDSs in the offering. See “Description of Certain Indebtedness — The Third Party Notes.” Such representation letters help us demonstrate that a market exists for the notes independent of the market for the IDSs. This, in turn, provides support for the opinion of our counsel, Mayer, Brown, Rowe & Maw LLP, to the effect that the notes will be treated as debt for U.S. federal income tax purposes. See “— What will be the U.S. federal income tax considerations in connection with an investment in the IDSs?” and “Material United States Federal Income Tax Consequences.”

Will the notes and the Class A common stock be separately listed on an exchange?

          Neither the notes underlying the IDSs nor the third party notes will be listed on any exchange. If either all outstanding IDSs automatically and permanently separate or a sufficient number of our outstanding shares of Class A common stock are no longer held in the form of IDSs for a period of 30 consecutive trading days, and we otherwise meet the applicable listing requirements, we will apply to list our Class A common stock on the American Stock Exchange. See “Description of IDSs — Listing” and “Description of IDSs — Automatic Separation.” The third party notes and the notes and shares of our Class A common stock underlying the IDSs offered hereby will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended, which we refer to as the “Securities Act,” unless they are acquired by “affiliates,” as that term is defined in Rule 144 under the Securities Act.

In what form will IDSs, the securities underlying the IDSs and the third party notes be issued?

          The IDSs and the underlying Class A common stock and notes, as well as the third party notes, will be issued in book-entry form only to DTC. As a result, you will not be a registered holder of IDSs, the securities underlying the IDSs or the third party notes, as the case may be, and therefore you will not receive a certificate for any such securities. You must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of any such securities. However, a holder of Class A common stock, including an IDS holder that has separated its IDSs, has a legal right under Delaware law to request that we issue a certificate for such common stock. See “Description of IDSs.”

          Holders of IDSs will be the beneficial owners of the Class A common stock and notes underlying such IDSs and will have exactly the same rights, privileges and preferences, including voting rights, rights to receive dividends and principal and interest payments, rights and preferences in the event of a default under the indenture governing the notes, ranking upon bankruptcy and rights to receive communications and notices, as a direct registered holder of the Class A common stock and the notes.

Can I separate my IDSs into shares of Class A common stock and notes?

          Yes. Each holder of IDSs will have the right, through its broker or other financial institution, to separate its IDSs into the underlying shares of Class A common stock and notes at any time after the earliest to occur of (1) 45 days from the original issue date of the IDSs, (2) the acceptance of a change of control repurchase offer or (3) the acceptance of an asset sale repurchase offer.

          A holder of IDSs will not be able to accept a change of control repurchase offer or an asset sale repurchase offer or obtain a Class A common stock certificate without the separation of its IDSs. If a holder separates its IDSs in order to obtain a Class A common stock certificate, upon issuance of such

10


Table of Contents

certificate the underlying shares of Class A common stock will no longer be DTC-eligible. The separation of IDSs may result in the delisting of IDSs from the American Stock Exchange by reducing the amount of IDSs outstanding to below the minimum required amount for listing on such exchange. Furthermore, the notes offered hereby will not be listed on any exchange, and we will undertake to list the Class A common stock on an exchange only upon the occurrence of certain events. Therefore, under certain circumstances the holders of IDSs may be able to trade on an exchange while the holders of separate shares of Class A common stock and notes may not.

          We believe it is important for U.S. federal income tax considerations that, except for restrictions disclosed herein, there be no contractual or legal restrictions to the separation or recombination of IDSs. We are not in a position to determine when or under what circumstances it may be advantageous for an IDS holder to separate or recombine IDSs, as that decision depends upon an IDS holder’s individual investment and trading strategy, tax situation and other considerations.

          Separation of IDSs may involve transaction fees charged by your broker and/or financial intermediary. See “Description of IDSs — Voluntary Separation and Recombination” and “Description of IDSs — Book-Entry Settlement and Clearance.”

          Separation of IDSs will be made in accordance with the applicable procedures of DTC. If DTC receives instructions to separate IDSs prior to 3:00 p.m. eastern time on any trading day, such separation will be effective as of the close of business on such trading day. Otherwise, such separation will be effective as of the next trading day. See “Description of IDSs — Voluntary Separation and Recombination.”

Will my IDSs automatically separate into shares of Class A common stock and notes upon the occurrence of certain events?

          Yes. All outstanding IDSs will automatically and permanently separate upon the occurrence of any of the following:

            (1) the 15th anniversary of the original issue date of the IDSs,
 
            (2) the redemption or repurchase of all of the notes ( provided , however, that a redemption or repurchase of a portion thereof will cause solely those IDSs associated with the notes redeemed or repurchased to separate), or
 
            (3) the date on which all remaining principal on the notes becomes due and payable.

          In addition, all outstanding IDSs will automatically separate upon the occurrence of any of the following:

            (1) certain events of default under the indenture governing the notes, provided that the IDSs may generally be recombined at the holder’s option upon the cure or waiver of such events of default in accordance with the indenture,
 
            (2) the last business day of any calendar month prior to the consolidation of CSC, Laundry Corp. and Coinmach Corp. (which we refer to as the “merger event”) on which both (i) more than 60% of the aggregate principal amount of the then outstanding notes is held by persons as part of the IDSs or other units that include their holdings of our equity or equity of our subsidiaries and more than 60% of the voting power or value of our then outstanding capital stock is held by persons as part of the IDSs or other units that include their holdings of our debt securities or debt securities of our subsidiaries, and (ii) in general terms, the remaining payments to be made by Coinmach Corp. to us under the intercompany note are insufficient to cover the remaining payments to be made by us on the notes, provided that IDSs may generally be recombined at the holder’s option on or after the first to occur of the merger event and any date on which we once again meet either of such tests, or

11


Table of Contents

            (3) any failure to maintain a qualified securities depositary for the IDSs, provided that IDSs may generally be recombined at the holder’s option following any such failure if we are subsequently able to establish a successor depositary.

See “Description of IDSs — Automatic Separation” for a more detailed description of the foregoing separation events.

Can I recombine shares of Class A common stock and notes to form IDSs?

          Yes. Any holder of shares of our Class A common stock and notes may generally, through his or her broker or other financial institution, recombine the applicable number of shares of Class A common stock and principal amount of notes to form IDSs. However, IDSs may not be created or recombined at any time after certain automatic and permanent IDS separation events occur, including the occurrence of the fifteenth anniversary of the original issue date of the IDSs offered hereby. In addition, if certain other automatic IDS separation events occur, IDSs may only be created or recombined under certain specified circumstances. See “Description of IDSs — Automatic Separation” for a more detailed description of events resulting in automatic, and in some cases permanent, separation of the IDSs.

          The notes offered hereby will not be listed on any exchange, and we will undertake to list the Class A common stock on an exchange only upon the occurrence of certain events. Therefore, under certain circumstances the holders of IDSs may be able to trade on an exchange while the holders of separate shares of Class A common stock and notes may not. However, any holder that has created IDSs will not be able to accept a change of control repurchase offer or an asset sale repurchase offer or obtain a Class A common stock certificate unless such holder separates its IDSs.

          We believe it is important for U.S. federal income tax considerations that, except for restrictions disclosed herein, there be no contractual or legal restrictions to the separation or recombination of IDSs. We are not in a position to determine when or under what circumstances it may be advantageous for an IDS holder to separate or recombine IDSs, as that decision depends upon an IDS holder’s individual investment and trading strategy, tax situation and other considerations.

          Recombination of IDSs may involve transaction fees charged by your broker and/or financial intermediary. See “Description of IDSs — Voluntary Separation and Recombination” and “Description of IDSs — Book-Entry Settlement and Clearance.”

          Recombination of shares of Class A common stock and notes into IDSs will be made in accordance with the applicable procedures of DTC. If DTC receives instructions to recombine into IDSs prior to 3:00 p.m. eastern time on any trading day, such recombination will be effective as of the close of business on such trading day. Otherwise, such recombination will be effective as of the next trading day. See “Description of IDSs — Voluntary Separation and Recombination.”

What will be the U.S. federal income tax considerations in connection with an investment in the IDSs?

          No statutory, judicial, or administrative authority, including the IRS, has directly addressed the U.S. federal income tax consequences of instruments having the rights of the IDSs or any similar terms. Therefore, the U.S. federal income tax consequences of the purchase, ownership and disposition of IDSs are not certain. Nonetheless, our counsel, Mayer, Brown, Rowe & Maw LLP, is of the opinion that the purchase of IDSs in this offering will constitute the purchase of shares of our Class A common stock and notes for U.S. federal income tax purposes. See “Material United States Federal Income Tax Consequences.” We will treat your purchase of IDSs as such, and by purchasing IDSs you will be bound under the indenture to follow such treatment.

          We will be required to allocate the purchase price of the IDSs between shares of Class A common stock and notes in proportion to their respective initial fair market values. That allocation will establish your initial tax basis in the Class A common stock and notes underlying IDSs. See “Material United States Federal Income Tax Consequences — Consequences to U.S. Holders — IDSs — Allocation of Purchase Price.”

12


Table of Contents

          Our counsel, Mayer, Brown, Rowe & Maw LLP, is of the opinion that the notes will be treated as debt for U.S. federal income tax purposes. See “Material United States Federal Income Tax Consequences.” If, contrary to our counsel’s opinion, the notes were treated as equity rather than debt for U.S. federal income tax purposes, then interest on the notes would not be deductible by us for U.S. federal income tax purposes. This in turn could materially increase our taxable income and significantly reduce our future cash flow. In addition, holders who are not U.S. persons could suffer adverse consequences. See “Risk Factors — Risks Relating to the Third Party Notes, the IDSs and the Shares of Class A Common Stock and Notes Underlying the IDSs — We will not be able to deduct interest on the notes if the notes are not respected as debt for U.S. federal income tax purposes.” If we are not permitted to deduct the interest payable on the notes from our income for U.S. federal income tax purposes, we may, at our option, redeem all of the notes. See “Description of the Notes — Optional Redemption — Tax Redemption.”

What will happen upon the issuance of additional notes or IDSs in the future?

          Subject to limitations under the indenture, we may issue additional notes thereunder in the future, either as part of additional IDSs or as separate notes.

          Any additional notes underlying IDSs will be treated as having original issue discount, or OID, for U.S. federal income tax purposes if the principal amount of the additional notes exceeds the portion of the issue price of those IDSs that is allocated to the notes by more than a de minimis amount. Additional separate notes will be treated as having OID for U.S. federal income tax purposes if the principal amount of the additional separate notes exceeds the issue price of those separate notes by more than a de minimis amount. You will find a more detailed explanation of the circumstances that would give rise to additional notes being treated as having OID, and the consequences thereof, under “Material United States Federal Income Tax Consequences — Consequences to U.S. Holders — Notes — Additional Issuances.”

          If additional notes are issued under the indenture (i) in a primary registered offering, including a primary registered offering of notes in exchange for substantially identical notes previously issued under the indenture that are “restricted securities,” as defined in Rule 144 under the Securities Act (we refer to such an exchange as a “registered exchange offer”), or (ii) in a private placement and are subsequently resold in a secondary registered offering that is not pursuant to a shelf registration statement (we refer to such a resale following a private placement as a “qualifying registered resale”), and such notes are treated as having OID, then the indenture will provide that all holders of such additional notes and all holders of outstanding notes that were previously issued under the indenture in a primary registered offering or in a private placement and resold pursuant to a qualifying registered resale (whether notes underlying IDSs or separate notes) will automatically exchange among themselves a ratable portion of their notes. The records will be revised to reflect such exchange without any further action by the holders. Thereafter, each such holder of separate notes will hold an identical, inseparable note unit consisting of additional notes with OID and such previously issued notes. In addition, each such holder of IDSs will hold a new IDS, consisting of such note unit and Class A common stock. The aggregate stated principal amount of notes owned by each holder, and the economic entitlements of notes previously held and thereafter forming a part of the note unit, will not change as a result of such additional issuance. See “Description of IDSs — Book-Entry Settlement and Clearance — Procedures Relating to Additional Issuances.” In the event additional notes that are “restricted securities” are issued under the indenture and treated as having OID, such an automatic exchange among holders of outstanding notes will not occur unless and until such notes (i) are exchanged pursuant to a registered exchange offer, or (ii) are resold pursuant to a qualifying registered resale. After any such automatic exchange, all such note units will be of the same series.

          After the first additional issuance and automatic exchange of notes with OID, if any, following this offering of IDSs and third party notes, each time we issue any further additional notes under the indenture in a primary registered offering and each time there is a qualifying registered resale (whether in connection with an offering of IDSs, separate notes or both), all holders of such further additional notes and all holders of outstanding note units will automatically exchange among themselves a ratable portion of their note units for a portion of the further additional notes in the manner described above.

13


Table of Contents

          The automatic exchanges of notes described above are intended to ensure that each holder of notes issued under the indenture in a primary registered offering or resold in a qualifying registered resale (whether notes underlying IDSs or separate notes) is required to report the same amount of OID for each $1.00 of principal amount of such notes held, and therefore that all notes subject to automatic exchange are fungible.

          Holders who hold any notes having OID as a result of the automatic exchange described above may not be able to recover the portion of the principal amount of their notes treated as unaccrued OID in the event of an acceleration of the notes or our bankruptcy prior to the maturity of the notes. See “Risk Factors — Risks Relating to the Third Party Notes, the IDSs and the Shares of Class A Common Stock and Notes Underlying the IDSs — Additional issuances of notes may cause you to recognize original issue discount and may have other adverse consequences.” Any purchaser of the notes offered hereby that in the future receives notes with OID as a result of an automatic exchange will nevertheless be entitled to pursue claims under applicable securities laws against us or our agents in this offering, including the underwriters listed in the section entitled “Underwriting,” for the full amount of notes purchased by such purchaser.

What will be the U.S. federal income tax considerations in connection with an additional issuance of notes?

          Because of a lack of legal authority on point, our counsel, Mayer, Brown, Rowe & Maw LLP, is unable to render an opinion as to the U.S. federal income tax consequences of an automatic exchange of notes described above under “— What will happen upon the issuance of additional notes or IDSs in the future?”

          Following an additional issuance and exchange of notes described above, we and our agents will report any OID on the additional notes ratably among all holders of notes of the same series (including separate notes and notes underlying IDSs). Under the indenture, each holder of notes or IDSs will be bound, by purchasing or holding notes or IDSs, to report OID in a manner consistent with this approach. As a result, each such holder that is subject to U.S. federal income tax in respect of income on a note would for U.S. federal income tax purposes generally be required to include this OID in income as ordinary interest income on a constant yield-to-maturity basis in advance of the receipt of cash attributable to that income. This generally would result in such holder reporting more interest income over the term of the notes than it would have reported had no such additional issuance and exchange occurred. See “Material United States Federal Income Tax Consequences — Consequences to U.S. Holders — Notes — Additional Issuances.”

          However, our counsel is unable to render an opinion that OID on the notes is properly reportable in the manner described above. The IRS may assert that any OID should be reported only to the persons that initially acquired such additional notes with OID (and their transferees) and thus may challenge the holders’ reporting of OID on their tax returns as a result of the automatic exchange of notes. Such a challenge could create significant uncertainties in the pricing of notes or IDSs and could adversely affect the market for IDSs and notes. If, following an additional issuance and exchange of notes, OID is properly reported ratably among all holders of notes of the same series (whether holders of notes underlying IDSs or separate notes), then the recombination of such notes and shares of Class A common stock to form IDSs or the separation of IDSs would not affect the OID reportable by you with respect to your notes.

          Because of a lack of legal authority on point, our counsel is unable to render an opinion as to whether an additional issuance and exchange of notes described above would result in a taxable exchange of your notes for U.S. federal income tax purposes. We intend nonetheless to take the position that any such issuance and exchange will not be treated as a taxable exchange. If the IRS were to assert successfully that such exchange is properly treated as a taxable exchange, then any gain realized on the exchange would generally be taxable to you. See “Risk Factors — Risks Relating to the Third Party Notes, the IDSs and the Shares of Class A Common Stock and Notes Underlying the IDSs — Additional issuances of notes may cause you to recognize original issue discount and may have other adverse consequences” and “Material United States Federal Income Tax Consequences — Consequences to U.S. Holders — Notes — Additional Issuances.”

14


Table of Contents

          Following any issuance of additional notes, we will file with the SEC in accordance with the Securities Exchange Act of 1934, as amended, which we refer to as the “Exchange Act,” a Current Report on Form 8-K or any other applicable form disclosing the changes, if any, to the OID that we will report as attributable to your notes as a result of such additional issuance.

          Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see “Material United States Federal Income Tax Consequences.”

15


Table of Contents

Summary of the Common Stock

 
Issuer Coinmach Service Corp.
 
Classes of common stock Our certificate of incorporation will provide for the issuance of three classes of common stock: (i) the Class A common stock, (ii) the Class B common stock and (iii) the Class C common stock. We will not have any shares of Class C common stock outstanding immediately following the closing of the offerings, and we only expect to issue shares of Class C common stock as future non-cash dividend payments to holders of Class B common stock.
 
Common stock to be outstanding immediately following the Transactions:
 
          Class A common stock
  underlying IDSs
18,333,333 shares, or 21,083,332 shares assuming the underwriters’ over-allotment option is exercised in full.
 
          Class B common stock 26,504,522 shares, or 21,504,522 shares assuming the underwriter’s over-allotment option is exercised in full, all of which will be initially owned by Holdings.
 
Voting rights Following the Transactions, assuming no exercise of the underwriters’ over-allotment option, holders of Class A common stock will control approximately 26% of our total voting power. Holdings, which will own all of our Class B common stock, will control approximately 74% of our total voting power and will own approximately 59% of our total outstanding shares of common stock.
 
As to any matter for which a vote of CSC stockholders is required, the holders of Class A common stock will be entitled to one vote per share and the holders of Class B common stock will initially be entitled to two votes per share. However, if at any time (i) Holdings, (ii) Holdings unitholders and “immediate family” (as such term is defined in Rule 16a-1 under the Exchange Act) members of a Holdings unitholder, and (iii) their respective “affiliates” (as such term is defined in Rule 12b-2 under the Exchange Act) (collectively, the “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 certain antidilution and other similar adjustments), then at such time and at all times thereafter, all holders of Class B common stock will only be entitled to one vote per share on all matters for which a vote of CSC stockholders is required. The redemption rights and dividend rights of Class B stockholders, and their exclusive right to vote on the amendment of certain provisions of our certificate of incorporation (all as described below), will not be affected by such event.
 
Unless otherwise required by applicable Delaware law, holders of Class A common stock and Class B common stock will vote together as a single class on all matters presented to our

16


Table of Contents

stockholders for a vote, including the election of directors to our board of directors, except as described below.
 
Only Class A common stockholders may vote, as a single class, to amend provisions of our certificate of incorporation in a manner that adversely affects the dividend rights which are exclusive to the Class A common stock.
 
Only holders of Class B common stock may vote, as a single class, to amend provisions of our certificate of incorporation relating to a change (i) in the number of authorized shares of Class B common stock or (ii) that adversely affects the voting, dividend or redemption rights which are exclusive to the Class B common stock.
 
Shares of Class C common stock will not be entitled to any voting rights.
 
Dividends:
 
          Dividend rights generally We intend to declare and pay quarterly dividends on shares of Class A common stock.
 
During the period from the closing of the offerings until February 14, 2007, we may pay dividends on our Class B common stock only once in any 360-day period. During such period, we expect to pay dividends on shares of Class B common stock on each February 15 to holders of record on the preceding January 1.
 
Shares of Class C common stock will not be entitled to any dividend rights.
 
          Prior to January 1, 2007 With respect to fiscal quarters ending prior to January 1, 2007, the rights of holders of shares of Class B common stock to receive cash dividends will be subordinated to the rights of holders of shares of Class A common stock to receive cash dividends. If cash dividends are paid on any share of Class A common stock for any fiscal quarter occurring during the twelve month period ending either December 31, 2005 or 2006, the Company shall declare and pay dividends in the first fiscal quarter immediately following such twelve month period on each share of Class B common stock in an amount equal to the aggregate amount of cash dividends paid on such share of Class A common stock with respect to such twelve month period, provided that (i) such dividends on each such share of Class B common stock may not be paid in cash unless and until the aggregate amount of dividends paid to holders of shares of Class A common stock for the four fiscal quarters occurring during such twelve month period are at least equal to the dividend rate set forth in our initial dividend policy and (ii) cash dividends on all outstanding shares of Class B common stock for any such twelve month period may not exceed $10.0 million in the aggregate.
 
In addition, at any time on or prior to March 31, 2005, we may declare and pay cash dividends on shares of Class B common

17


Table of Contents

stock for the period from the closing of the offerings to December 31, 2004, provided that (i) quarterly cash dividends for such period have been paid to holders of shares of Class A common stock in an aggregate amount at least equal to the dividend rate set forth in our initial dividend policy and (ii) cash dividends on all the outstanding shares of Class B common stock for such period may not exceed in the aggregate an amount equal to the product of (i) (x) the number of days from the date of the closing of the offerings up to and including December 31, 2004 divided by (y) 360, and (ii) $10.0 million.
 
To the extent cash dividends on each share of Class B common stock (i) declared with respect to the period from the closing of the offerings to December 31, 2004 are less than the aggregate cash dividend payments paid on each share of Class A common stock for such period, or (ii) declared with respect to the twelve month period ending either December 31, 2005 or 2006 are less than the aggregate quarterly cash dividend payments paid on each share of Class A common stock for any such twelve month period, then, in each case, each share of Class B common stock will receive dividends in the form of shares of Class C common stock equal to the cash dividends not so paid.
 
          On and after January 1, 2007 The rights of holders of shares of Class B common stock to receive cash dividends with respect to fiscal quarters beginning on or after January 1, 2007 will no longer be subordinated in any way to the rights of holders of shares of Class A common stock to receive cash dividends. However, shares of Class B common stock will not be entitled to receive dividends for any period unless dividends are also declared and paid on shares of Class A common stock for such period.
 

Under our certificate of incorporation, our board of directors may designate the frequency with which we will declare and pay dividends on shares of Class B common stock with respect to fiscal quarters beginning on or after January 1, 2007, provided that such payments must be at least annual and may be no more frequent than dividend payments declared and paid on shares of Class A common stock.
 

Each holder of a share of Class B common stock will be entitled to a dividend equal to 110% of the cash dividends declared on a share of Class A common stock with respect to any fiscal quarter beginning on or after January 1, 2007, payable as determined by our board of directors as described in the immediately preceding paragraph. While we may at our option pay the excess 10% in the form of shares of Class C common stock, each holder of a share of Class B common stock will have the right to receive the remainder in cash.
 

However, holders of a majority of the then outstanding shares of Class B common stock may waive their right to such cash dividends. In such case, all holders of Class B common stock will receive a dividend payment in the form of shares of Class C common stock equal to the amount of cash dividends that were waived.

18


Table of Contents

 
Sales rights of Class B common stockholders and Class C common stockholders Under certain circumstances, at any time after the date that is six months after the closing of the offerings, holders of Class B common stock and Class C common stock will have the right to have their respective shares redeemed on a pro rata basis with the proceeds of a primary registered offering of IDSs, Class A common stock not in the form of IDSs, or any combination thereof. The redemption price per share of Class B common stock and Class C common stock will be based on the price to the public of the securities offered and sold in the primary registered offering. See “Description of Capital Stock — Common Stock — Redemption of Class B Common Stock and Class C Common Stock — Sales of Class B Common Stock by Class B Common Stockholders and Class C Common Stock by Class C Common Stockholders” and “Description of the Notes — Certain Covenants — Exercise of Redemption Rights and Sales Rights.”
 

Shares of Class A common stock will not be entitled to any sales rights.
 
Redemption rights of CSC Under certain circumstances, at any time after the date that is six months after the closing of the offerings, we will have the right to redeem all or any portion of the outstanding Class B common stock and the Class C common stock on a pro rata basis. The redemption price per share of Class B common stock and Class C common stock will be equal to 55% of the average market price of the then outstanding IDSs at the close of business for each of the fifteen trading days immediately preceding the date of such redemption. If on any such trading day all IDSs are separated or delisted, the market price to be used for such day will be the market price of one share of Class A common stock at the close of business on such trading day (subject to certain antidilution and other similar adjustments). See “Description of Capital Stock — Common Stock — Redemption of Class B Common Stock and Class C Common Stock — Redemption of Class B Common Stock and Class C Common Stock by CSC” and “Description of the Notes — Certain Covenants — Exercise of Redemption Rights and Sales Rights.”
 

Shares of Class A common stock will not be subject to any redemption rights.
 
Transfer restrictions The shares of Class A common stock underlying the IDSs will be freely tradable without restriction or further registration under the Securities Act, unless they are acquired by “affiliates” as that term is defined in Rule 144 under the Securities Act. Shares of Class B common stock and Class C common stock will be “restricted securities” as that term is defined in Rule 144 under the Securities Act, and will not be listed for trading on any exchange.

19


Table of Contents

Summary of the Notes

 
Issuer Coinmach Service Corp.
 
Notes offered hereby           % senior secured notes due 2024.
 
Notes to be outstanding immediately following the Transactions $143.7 million aggregate principal amount (including the third party notes) or $162.3 million aggregate principal amount if the underwriters’ over-allotment option is exercised in full.
 
Interest Interest of           % on the notes will be payable quarterly in arrears on each February 15, May 15, August 15 and November 15, commencing on February 15, 2005. We will make each interest payment to holders of record on the immediately preceding January 1, April 1, July 1 and October 1, respectively.
 
Ranking The notes will:
 
• be our senior secured obligations;
 
• rank equally in right of payment with all our existing and future senior indebtedness; and
 
• rank senior in right of payment to all our existing and future indebtedness that expressly provides for its subordination to the notes.
 
Security The notes will be secured by a first-priority perfected lien, subject to permitted liens, on substantially all our existing and future assets, including the common stock of AWA, the capital stock of Laundry Corp., the intercompany note and the intercompany note guaranty. The guarantee by Laundry Corp. of the notes will be a senior secured obligation of Laundry Corp. and will be secured by a first-priority perfected lien, subject to permitted liens, on substantially all the existing and future assets of Laundry Corp. other than the capital stock of Coinmach Corp., as to which such guarantee will be secured by a second-priority perfected lien. The security interest in such capital stock will be contractually subordinated to the first-priority lien held by the lenders under the Coinmach Corp. credit facility pursuant to an intercreditor agreement that we will enter into with the lenders under the Coinmach Corp. credit facility and the collateral agent for the holders of the notes. The intercreditor agreement will, among other things, limit the ability of the collateral agent on behalf of the holders of the notes to exercise any remedies with respect to such capital stock.
 
Following the merger event, the surviving entity of the merger will be the issuer of the notes, and the liens and security interests on the assets of the surviving entity (other than capital stock of the direct subsidiaries of the surviving entity) will be released. The only security for the notes following the merger event will be a second priority perfected lien on all of the capital stock of the direct domestic subsidiaries and 65% of each class of capital stock of the direct foreign subsidiaries of the surviving entity, which lien will be subordinated to the lien in favor of the collateral agent under the Coinmach Corp. credit facility.

20


Table of Contents

 
Guarantees, if any, of the notes by our restricted subsidiaries other than Laundry Corp. will be unsecured and therefore effectively subordinated to any secured indebtedness permitted to be incurred by those subsidiaries under the indenture governing the notes to the extent of the assets securing such indebtedness. The security interest of the holders of the notes will be subject to important limitations and exceptions described under “Risk Factors — Risks Relating to the Third Party Notes, the IDSs and the Shares of Class A Common Stock and Notes Underlying the IDSs” and “Description of the Notes.”
 
Guarantees The notes will be guaranteed by Laundry Corp. on a senior secured basis. The notes initially will not be guaranteed by our subsidiaries other than Laundry Corp. and will only be guaranteed by other subsidiaries that are restricted subsidiaries on a senior unsecured basis upon the occurrence of certain events. Until such events occur, holders of notes will have no direct recourse against such subsidiaries other than through enforcement of the security interest in the intercompany note issued to us by Coinmach Corp. and our rights under the guarantees made by certain of Coinmach Corp.’s restricted subsidiaries in respect of such intercompany note.
 
If at any time it is not prohibited from doing so under the terms of its then outstanding indebtedness, each of Coinmach Corp. and our other domestic restricted subsidiaries will be required to guarantee the notes on a senior unsecured basis. However, if any such subsidiary refinances any of its outstanding indebtedness, it will only be required to guarantee the notes if the terms of the new indebtedness do not prohibit it from doing so. If made, these guarantees will, together with the guarantee of Laundry Corp., be joint and several obligations. See “Description of the Notes — Certain Covenants — Limitation on Issuances of Certain Guarantees by, and Debt Securities of, Restricted Subsidiaries.”
 
As of September 30, 2004, on a pro forma basis after giving effect to the Transactions, our subsidiaries other than Laundry Corp. would have had approximately $708.1 million of outstanding liabilities, including trade payables but excluding intercompany liabilities, to which the notes would have been effectively subordinated other than to the extent of the intercompany note and the intercompany note guaranty. Furthermore, as of September 30, 2004, on a pro forma basis after giving effect to the Transactions, the notes would have been effectively subordinated to approximately $241.7 million of indebtedness outstanding under the Coinmach Corp. credit facility and other secured financings to the extent of the value of the assets securing such indebtedness because the intercompany note and the intercompany note guaranty are unsecured and the lien of the collateral agent in the capital stock of Coinmach Corp. is subordinated to the lien securing the Coinmach Corp. credit facility.
 
Optional redemption Prior to                     , 2009, we may redeem all or part of the notes upon payment of a make-whole premium. On or after                     ,

21


Table of Contents

2009, we may redeem all or a pro rata portion of the notes at specified redemption prices set forth under “Description of the Notes — Optional Redemption.” If at any time we are not permitted, for U.S. federal income tax purposes, to deduct from income the interest payable on the notes, we may redeem the notes at a price equal to 100% of their principal amount.
 
Sinking fund Pursuant to a mandatory sinking fund, we are required to redeem on                     of each of the years 2016 to 2019, inclusive, notes in an aggregate principal amount equal to 10% of the aggregate principal amount of the notes originally issued under the indenture. The redemption price will be equal to 100% of the principal amount of the notes being redeemed, plus any accrued and unpaid interest to the date of redemption. See “Description of the Notes — Sinking Fund.”
 
Change of control Upon the occurrence of a “change of control,” as defined under “Description of the Notes — Change of Control,” each holder of the notes will have the right to require us to offer to repurchase that holder’s notes at a price equal to 101% of the principal amount of the notes being repurchased, plus any accrued and unpaid interest to the date of repurchase. The repurchase date will be no less than 61 days and no more than 90 days following the date that we notify the holders of the notes of the occurrence of a change of control. In order to exercise this right, an IDS holder must separate the notes and Class A common stock underlying such holder’s IDSs.
 
Restrictive covenants The indenture governing the notes will contain covenants that will restrict our ability and the ability of our restricted subsidiaries to:
 
• incur additional indebtedness or, in the case of our restricted subsidiaries, issue preferred stock or guarantees;
 
• create liens;
 
• pay dividends or make other restricted payments;
 
• make certain investments;
 
• sell or make certain dispositions of assets;
 
• engage in transactions with affiliates;
 
• place restrictions on the ability of restricted subsidiaries to pay dividends, or make other payments, to us;
 
• exercise redemption rights on the Class B common stock and the Class C common stock;
 
• consummate purchases of the Class B common stock and the Class C common stock upon exercise of sales rights by the holders thereof; and
 
• engage in mergers or consolidations and transfers of all or substantially all of our assets.
 
These covenants will be subject to important exceptions and qualifications, as described under “Description of the Notes.”

22


Table of Contents

Risk Factors

          You should carefully consider the information under the heading “Risk Factors” and all other information in this prospectus before investing in the third party notes, the IDSs and the underlying shares of Class A common stock and notes.

Market and Industry Data

          Market data used throughout this prospectus was obtained from our internal surveys and industry surveys and publications. Industry surveys and publications generally state that the information contained therein has been obtained from sources believed to be reliable, but we have not independently verified the market data. Similarly, our internal surveys, while believed to be reliable, have not been verified by any independent sources.

23


Table of Contents

Summary Consolidated Historical Financial Data

          The following tables display the summary consolidated historical financial data for the periods ended or as of the dates indicated of Laundry Corp., which data is expected to be similar in all material respects to our consolidated historical financial data after the offerings contemplated hereby. We derived certain of the historical data for the three month period from April 1, 2000 to June 30, 2000 and the nine month period from July 1, 2000 to March 31, 2001, and for the fiscal years ended March 31, 2002, 2003 and 2004 from our consolidated financial statements audited by Ernst & Young LLP. We derived certain of the historical data as of and for the twelve months ended September 30, 2004 from our unaudited condensed consolidated financial statements, which include all adjustments consisting of normal recurring adjustments that management considers necessary for a fair presentation of the financial position and results of operations for this period. The historical data for the results of operations for the twelve months ended September 30, 2004 represents the combined results of operations for the six months ended September 30, 2004 and the six months ended March 31, 2004. The historical data for the results of operations for the twelve months ended September 30, 2004 are not necessarily indicative of the results that may be expected for any other interim period or for the fiscal year ending March 31, 2005. The summary financial information set forth below should be read in conjunction with, and is qualified in its entirety by reference to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the notes thereto appearing elsewhere in this prospectus.

                                                     
Three Months Nine Months Twelve
April 1, 2000 to July 1, 2000 to Fiscal Year Ended Months
June 30, 2000 March 31, 2001
Ended
Pre-Going Private Post-Going Private March 31, March 31, March 31, September 30,
Transaction(7) Transaction(8) 2002 2003 2004 2004






(Dollars in thousands)
Operations Data:
                                               
 
Revenues
  $ 134,042     $ 393,608     $ 538,895     $ 535,179     $ 531,088     $ 535,069  
 
Other items, net(1)
                      (454 )     230       730  
 
Operating income
    10,597       17,528       36,270       55,348       47,112       47,133  
 
Net loss(2)
    (4,759 )     (29,063 )     (42,335 )     (3,200 )     (31,331 )     (32,067 )
Balance Sheet Data (at end of period):
                                               
 
Cash and cash equivalents
          $ 25,859     $ 27,820     $ 27,428     $ 31,620     $ 37,605  
 
Property and equipment, net
            276,004       284,413       286,686       283,688       276,315  
 
Contract rights, net
            373,352       348,462       335,327       323,152       316,561  
 
Advance location payments
            74,233       69,257       70,911       73,253       72,937  
 
Total assets
            1,017,012       992,075       976,163       959,508       951,386  
 
Total long-term debt(3)
            698,719       737,555       718,112       717,631       715,775  
 
Redeemable preferred stock
            200,065       220,362       241,200       265,914       279,282  
 
Stockholders’ deficit
            (51,543 )     (113,743 )     (138,460 )     (169,619 )     (184,672 )
Financial Information and
Other Data:
                                               
 
Cash flow provided by operating activities
  $ 17,314     $ 68,014     $ 77,799     $ 103,900     $ 97,052     $ 99,847  
 
Cash flow used in investing activities
    (24,273 )     (66,202 )     (82,255 )     (81,330 )     (88,449 )     (77,059 )
 
Cash flow provided by (used in) financing activities
    8,362       (530 )     6,417       (22,962 )     (4,411 )     (12,207 )
 
EBITDA(4)
    42,154       117,920       154,565       159,526       155,689       156,969  
 
EBITDA margin(5)
    31.45 %     29.96 %     28.68 %     29.81 %     29.32 %     29.34 %
 
Capital expenditures:(6)
                                               
   
Capital expenditures
  $ 24,273     $ 60,620     $ 79,464     $ 86,685     $ 86,732     $ 74,811  
   
Acquisition capital expenditures
          5,582       3,723       1,976       3,615       4,233  

24


Table of Contents


(1)  Other items, net, for the fiscal year ended March 31, 2003 consists of a gain from the sale of an investment offset by various expenses relating to (i) the AWA Transactions, (ii) the formation of American Laundry Franchise Corp., or ALFC, a wholly owned subsidiary of Super Laundry, and (iii) the consolidation of certain Super Laundry offices. Other items, net, for the fiscal year ended March 31, 2004 and the twelve months ended September 30, 2004 consists of a gain from the sale of an investment offset by various expenses relating to the consolidation of certain Super Laundry offices. For more information regarding the AWA Transactions, see “Management’s Discussion and Analysis of Financial Conditions and Results of Operations — Operating and Investing Activities — The AWA Transactions.”
 
(2)  For the year ended March 31, 2004, net loss includes approximately $24.7 million of preferred stock dividends recorded as interest expense. For the twelve months ended September 30, 2004, net loss includes approximately $26.1 million of preferred stock dividends recorded as interest expense. As required by SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equities (“SFAS No. 150”), accrued and unpaid dividends prior to adoption of SFAS No. 150 have not been reclassified to interest expense. Preferred stock dividends for the years ended March 31, 2003 and 2002 and for the nine-month period from July 1, 2000 to March 31, 2001 were approximately $20.8 million, $20.4 million and $12.7 million, respectively.
 
(3)  Total long-term debt at March 31, 2001 does not include the unamortized premium of $5,555 recorded as a result of the issuance by Coinmach Corp. of $100 million aggregate principal amount of 11 3/4% Series C Senior Notes due 2005 (the “11 3/4% Senior Notes”) in October 1997. The 11 3/4% Senior Notes were redeemed in their entirety by Coinmach Corp. on February 25, 2002 and the unamortized premium on such date was included in the determination of the loss on extinguishment of debt.
 
(4)  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 our 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 our 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 we have historically provided EBITDA to investors, we believe that presenting this non-GAAP financial measure provides consistency in our 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 accounting principles generally accepted in the United States) as an indicator of operating performance or (b) cash flows from operating, investing and financing activities (as determined by accounting principles generally accepted in the United States) as a measure of liquidity. Given that EBITDA is not a measurement determined in accordance with accounting principles generally accepted in the United States and is thus susceptible to varying calculations, EBITDA may not be comparable to other similarly titled measures of other companies. The following tables reconcile our net loss and cash flow provided by operating activities to EBITDA for each period presented (in thousands).

25


Table of Contents

                                                 
Three Months Nine Months Twelve
April 1, 2000 to July 1, 2000 to Fiscal Year Ended Months
June 30, 2000 March 31, 2001
Ended
Pre-Going Private Post-Going Private March 31, March 31, March 31, September 30,
Transaction Transaction 2002 2003 2004 2004






Net loss
  $ (4,759 )   $ (29,063 )   $ (42,335 )   $ (3,200 )   $ (31,331 )   $ (32,067 )
Depreciation and amortization
    31,557       103,142       129,697       104,178       108,577       109,836  
Interest expense
    16,685       52,461       73,036       58,167       57,377       57,294  
Interest expense — preferred stock
                            24,714       26,050  
(Benefit) provision for income taxes
    (1,329 )     (8,620 )     (5,833 )     381       (3,648 )     (4,144 )
     
     
     
     
     
     
 
EBITDA
  $ 42,154     $ 117,920     $ 154,565     $ 159,526     $ 155,689     $ 156,969  
     
     
     
     
     
     
 
                                                 
Three Months Nine Months Twelve
April 1, 2000 to July 1, 2000 to Fiscal Year Ended Months
June 30, 2000 March 31, 2001
Ended
Pre-Going Private Post-Going Private March 31, March 31, March 31, September 30,
Transaction Transaction 2002 2003 2004 2004






Cash flow provided by operating activities
  $ 17,314     $ 68,014     $ 77,799     $ 103,900     $ 97,052     $ 99,847  
Loss on extinguishment of debt(i)
                (11,402 )                  
Interest expense
    16,685       52,461       73,036       58,167       57,377       57,294  
Gain on sale of investment and equipment
                147       3,532       1,232       1,240  
Stock based compensation
    (118 )     (1,125 )     (530 )     (338 )     (176 )     (111 )
Change in operating assets and liabilities
    7,874       (1,161 )     18,100       (3,693 )     2,513       1,123  
Deferred taxes
    1,873       8,478       4,247       16       3,753       4,134  
Amortization of debt discount and deferred issue costs
    (454 )     (1,052 )     (2,008 )     (2,439 )     (2,414 )     (2,414 )
Amortization of premium on 11 3/4% Senior Notes
    309       925       1,009                    
(Benefit) provision for income taxes
    (1,329 )     (8,620 )     (5,833 )     381       (3,648 )     (4,144 )
     
     
     
     
     
     
 
EBITDA
  $ 42,154     $ 117,920     $ 154,565     $ 159,526     $ 155,689     $ 156,969  
     
     
     
     
     
     
 
 
  (i)  Loss on extinguishment of debt for the fiscal year ended March 31, 2002 consists of costs incurred in connection with Coinmach Corp.’s refinancing on January 25, 2002.

(5)  EBITDA margin represents EBITDA as a percentage of revenues. Management believes that EBITDA margin is a useful measure to evaluate CSC’s performance over various sales levels. EBITDA margin should not be considered as an alternative to measurements determined in accordance with accounting principles generally accepted in the United States.
 
(6)  Capital expenditures represent amounts expended for property as well as equipment and for advance location payments to location owners. Acquisition capital expenditures represent the amounts expended to acquire local, regional and multi-regional route operators.
 
(7)  As a result of a “going private” transaction (the “Going Private Transaction”) that was accounted for using the purchase method of accounting and, due to a practice known as “push down” accounting, as of July 1, 2000 (the beginning of the accounting period closest to the date of which control was

26


Table of Contents

effective), Laundry Corp. adjusted its consolidated assets and liabilities to their estimated fair values, based on valuations, estimations and other studies. Therefore, the financial statements presented for the “Post-Going Private Transaction” period are not comparable to the financial statements presented for the “Pre-Going Private Transaction” period. Had the Going Private Transaction taken place at April 1, 2000, on an unaudited pro-forma basis, depreciation and amortization and net loss would have been $3.5 million higher than reported for the “Pre-Going Private Transaction” period ended June 30, 2000. This includes the results of operations for the three month period from April 1, 2000 to June 30, 2000, representing the results prior to the Going Private Transaction. For more information regarding the Going Private Transaction, please see “Business — General Development of Business.”
 
(8)  Includes the results of operations for the nine month period from July 1, 2000 to March 31, 2001, representing the results subsequent to the Going Private Transaction.

27


Table of Contents

RISK FACTORS

          An investment in the third party notes or the IDSs and the underlying shares of Class A common stock and notes involves a number of risks. In addition to the other information contained in this prospectus, prospective investors should give careful consideration to the following risk factors.

Risks Relating to the Third Party Notes, the IDSs and the Shares of Class A Common Stock and Notes Underlying the IDSs

We have substantial indebtedness which could restrict our ability to pay interest and principal on the notes and to pay dividends with respect to the shares of our Class A common stock underlying the IDSs and could adversely affect our financing options and liquidity position.

          We have now and, following the Transactions, will continue to have a substantial amount of indebtedness. As of September 30, 2004, on a pro forma basis after giving effect to the Transactions, including the sale of the notes underlying the IDSs and the sale of the third party notes, we would have had total indebtedness of $714.3 million, and an additional $68.6 million would have been available for borrowing under the Coinmach Corp. credit facility.

          Our substantial indebtedness could have important consequences for you as a holder of IDSs or separate notes or Class A common stock. For example, our substantial indebtedness could:

  make it more difficult for us to satisfy our obligations with respect to the notes and our other indebtedness and/or pay dividends on our common stock;
 
  limit our flexibility to adjust to changing market conditions, reduce our ability to withstand competitive pressures and increase our vulnerability to general adverse economic and industry conditions;
 
  limit our ability to borrow additional amounts for working capital, capital expenditures, future business opportunities, including strategic acquisitions, and other general corporate requirements or hinder us from obtaining such financing on terms favorable to us or at all;
 
  limit our ability to issue new IDSs;
 
  require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, future business opportunities and other general corporate purposes;
 
  limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and
 
  limit our ability to refinance our indebtedness.

You may not receive the level of dividends provided for in the dividend policy that our board of directors is expected to adopt upon the closing of the offerings or any dividends at all.

          Following the completion of the offerings, we expect to pay quarterly dividends on our Class A common stock in accordance with the dividend policy that we intend to adopt upon completion of the offerings. However, our board of directors may, in its discretion, amend or repeal our dividend policy. Our board of directors may decrease the level of dividends provided for in the dividend policy or entirely discontinue the payment of dividends. Dividend payments are not required or guaranteed, and holders of our common stock do not have any legal right to receive or require the payment of dividends. Future dividends, if any, with respect to shares of our capital stock will depend on, among other things, our results of operations, cash requirements, financial condition and contractual restrictions, and our ability to generate cash from our operations, which in turn is dependent on our ability to attract and retain customers and our ability to service our debt obligations and capital expenditures requirements. See “Dividend Policy and Restrictions.” Other factors, including the pursuit of new business strategies or opportunities, increased

28


Table of Contents

regulatory compliance costs or lease renewal costs, changes in our competitive environment and changes in tax treatment of our debt, may also reduce cash available for dividends.

          Subject to certain limitations, at any time after the date that is six months after the closing of the offerings, we may redeem all or part of the then outstanding Class B common stock and Class C common stock on a pro rata basis. Any exercise by us of such redemption rights will reduce cash available for Class A common stock dividend payments, unless such redemption is to be funded solely with the proceeds of a primary registered offering of our securities. See “Description of Capital Stock — Common Stock — Redemption of Class B Common Stock and Class C Common Stock — Redemption of Class B Common Stock and Class C Common Stock by CSC” and “Description of the Notes — Certain Covenants — Exercise of Redemption Rights and Sales Rights.” Due to our currently contemplated cash uses, including dividend payments, we do not expect to retain enough cash from operations to be able to pay the notes, the Coinmach Corp. 9% notes, or the Coinmach Corp. credit facility when such indebtedness matures or when principal payments (other than regularly scheduled amortization payments under the Coinmach Corp. credit facility) on such indebtedness otherwise become due. Therefore, cash available for dividends will be reduced when such payments are required, unless such indebtedness is refinanced prior to such time. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Future Capital Needs and Resources.” In addition, any future issuances of Class A common stock, including but not limited to issuances pursuant to the CSC benefit plans that we expect to adopt (whether or not such shares of Class A common stock underlie IDSs), will increase the number of outstanding Class A common stock shares and consequently make it more difficult for us to pay dividends on the Class A common stock at the initial dividend rate set forth in our dividend policy. See “Management — Equity-Based Incentive Plans.”

          With respect to fiscal quarters beginning on or after January 1, 2007, the subordination of payment of any cash dividends on the Class B common stock will automatically terminate, and all shares of Class B common stock will be equally entitled to cash dividend payments with all shares of Class A common stock, subject to the Class B common stock step up dividend right described below. Therefore, any cash set aside for dividends will have to be shared by the holders of the Class A common stock and Class B common stock on a pro rata basis. Since under these circumstances less cash will be available to the holders of Class A common stock, we may be forced to reduce cash dividends on the Class A common stock.

          Holders of Class B common stock will be entitled to a step up dividend of 110% of any dividend declared on the Class A common stock with respect to fiscal quarters beginning on or after January 1, 2007. At our option, we may pay the amount in excess of a Class A common stock dividend in cash or in shares of Class C common stock. Any excess payments in cash will reduce cash available for future Class A common stock dividend payments, which may force us to reduce such Class A common stock dividend payments. See “Description of Capital Stock.”

          Furthermore, the indenture governing the notes will contain limitations on our ability to pay dividends. See “Description of the Notes — Certain Covenants — Limitation on Restricted Payments.” You may not receive the level of dividends provided for in our dividend policy or any dividends at all.

          Delaware law also restricts our ability to pay dividends. Under Delaware law, our board of directors and the boards of directors of our corporate subsidiaries may declare dividends only to the extent of our “surplus,” which is total assets at current value minus total liabilities at current value (as each may be determined in good faith by our board of directors), minus statutory capital, or if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year.

29


Table of Contents

If we have insufficient cash flow to cover the expected dividend payments under the dividend policy to be adopted by our board of directors or to make such payments in compliance with the indenture governing the notes, we will need to reduce or eliminate dividends or, to the extent permitted under our debt agreements, fund a portion of our dividends with additional borrowings.

          Under our expected dividend policy, we intend to pay a quarterly cash dividend of approximately $0.1894 per share of Class A common stock, or approximately $0.7575 per share of Class A common stock for the first four fiscal quarters following the closing of the offerings. Based on a review and analysis conducted by our management, and assuming that the number of shares of Class A common stock outstanding will not increase prior to December 31, 2005, we believe that in order to pay cash dividends on our Class A common stock as set forth in our expected dividend policy, our EBITDA for each of the four consecutive fiscal quarters ending with the fiscal quarter ending December 31, 2005 will need to be at least $38.4 million. See “Dividend Policy and Restrictions — Our Initial Dividend Rate — Basis for Initial Dividend Rate.”

          If our EBITDA for each of the four consecutive fiscal quarters ending with the fiscal quarter ending December 31, 2005 is below $38.4 million or if our assumptions as to capital expenditures or interest expense are too low or our assumptions as to the sufficiency of drawings under the Coinmach Corp. credit facility to finance our working capital needs prove incorrect, or we are otherwise unable to comply with the covenants contained in the indenture governing the notes restricting our ability to pay dividends, we may be required to do one or more of the following: (i) reduce or eliminate dividends, (ii) reduce our capital expenditures, (iii) supplement our EBITDA with borrowings under the Coinmach Corp. credit facility or (iv) evaluate other funding alternatives, such as capital markets transactions, refinancing or restructuring our consolidated indebtedness, asset sales, or financing from third parties. Additional sources of funds may not be available on commercially reasonable terms or at all or may not be permitted pursuant to the terms of our existing indebtedness. If we were to use working capital or permanent borrowings to fund dividends, we would have less cash and/or borrowing capacity available for future dividends and other purposes, which could negatively impact our future liquidity, our ability to adapt to changes in our industry and our ability to expand our business.

Our dividend policy may negatively impact our ability to finance our working capital requirements, capital expenditures or operations.

          Effective upon completion of the offerings, we expect our board of directors to adopt a dividend policy under which we intend to distribute to holders of our common stock substantially all of the cash generated by our business in excess of operating needs and amounts needed to service our indebtedness. As a result, we may not retain a sufficient amount of cash to finance growth opportunities that may arise or unanticipated capital expenditure needs or to fund our operations in the event of a significant business downturn. We may have to forego growth opportunities or capital expenditures that would otherwise be necessary or desirable if we do not find alternative sources of financing. If we do not have sufficient cash for these purposes, our financial condition and our business will suffer.

There is no active trading market for our debt-only or equity-only securities, which could prevent us from issuing debt-only or equity-only securities and may limit our ability to obtain future financing.

          If we are unable to issue additional IDSs, we may be forced to rely on the sale of debt-only or equity-only securities as an additional source of capital. However, the absence of a liquid market for separate notes or shares of our Class A common stock may make the issuance by us of separate notes or Class A common stock relatively less appealing, limiting our ability to obtain debt-only or equity-only financing on reasonable terms or at all. If we are unable to raise capital through a debt-only or equity-only financing, we may be forced to enter into more costly financing arrangements in order to fund working capital and capital expenditures and otherwise service our liquidity needs.

30


Table of Contents

We may be able to incur substantially more indebtedness, which could exacerbate the risks described above.

          We may be able to incur substantial amounts of additional indebtedness in the future, including indebtedness resulting from issuances of additional separate notes or IDSs. While the indenture governing the notes and the terms of our other indebtedness will limit our and our subsidiaries’ ability to incur additional indebtedness, those limitations will be subject to a number of exceptions. Any additional indebtedness incurred by us could increase the risks associated with our substantial indebtedness.

We are a holding company with no direct operations and, therefore, our ability to make payments under the notes or dividends on our Class A common stock depends on cash flow from our subsidiaries.

          We are a holding company with no operations. Consequently, we will depend on distributions or other intercompany transfers from our subsidiaries (including payments under the intercompany note from Coinmach Corp.) to make interest and principal payments on the notes and to pay dividends on our Class A common stock. In addition, distributions and intercompany transfers to us from our subsidiaries will depend on:

  their earnings;
 
  covenants contained in our and their debt agreements, including the amended Coinmach Corp. credit facility, the indenture governing the Coinmach Corp. 9% notes and the indenture governing the notes;
 
  covenants contained in other agreements to which we or our subsidiaries are or may become subject;
 
  business and tax considerations; and
 
  applicable law, including laws regarding the payment of dividends and distributions.

Restrictions on Coinmach Corp.’s ability to pay dividends contained in the indenture governing the Coinmach Corp. 9% notes and the Coinmach Corp. credit facility are different, and potentially more restrictive, than the restrictions on CSC’s ability to pay dividends contained in the indenture governing the notes. Therefore, circumstances may arise where, although CSC would be permitted to pay dividends under the indenture governing the notes, Coinmach Corp. would be unable to provide CSC with the cash to actually pay such dividends as well as interest on the notes. See “Dividend Policy and Restrictions — Limitations on Our Ability to Pay Dividends — Indenture Governing the Coinmach Corp. 9% Notes” and “—The Coinmach Corp. Credit Facility.”

          We cannot assure you that the operating results of our subsidiaries will be sufficient to make distributions or other payments to us or that any distributions and/or payments will be adequate to pay any amounts due under the notes or the amounts intended under our dividend policy.

Our subsidiaries will not guarantee the dividend payments on our Class A common stock at any time and the notes will be effectively subordinated to all indebtedness of our subsidiaries that are not guarantors of the notes.

          Payment of dividends, if any, are not guaranteed by us or by any of our subsidiaries. In addition, other than Laundry Corp., none of our subsidiaries (including Coinmach Corp.) will guarantee the notes immediately following the Transactions. A holder of notes will not have any claim as a creditor against our subsidiaries that are not guarantors of the notes other than through the intercompany note and the intercompany note guaranty. Otherwise, the indebtedness and other liabilities, including trade payables, whether secured or unsecured, of non-guarantor subsidiaries will be effectively senior to your claims. As of September 30, 2004, on a pro forma basis after giving effect to the Transactions, our non-guarantor subsidiaries would have had approximately $708.1 million of outstanding liabilities, including trade payables but excluding intercompany liabilities. The terms of the notes will permit our subsidiaries to incur additional indebtedness for specific purposes or under certain circumstances. See “Description of the

31


Table of Contents

Notes — Certain Covenants — Limitation on Issuances of Certain Guarantees by, and Debt Securities of, Restricted Subsidiaries.”

          If at any time it is not prohibited from doing so under the terms of its then outstanding indebtedness, each of Coinmach Corp. and our other domestic restricted subsidiaries will be required to guarantee the notes on a senior unsecured basis. However, if any such subsidiary refinances any of its outstanding indebtedness, it will only be required to guarantee the notes if the terms of the new indebtedness do not prohibit it from doing so. See “Description of the Notes — Certain Covenants — Limitation on Issuances of Certain Guarantees by, and Debt Securities of, Restricted Subsidiaries.” Any future subsidiary guarantees will be effectively subordinated to the prior claims of such subsidiary’s secured creditors to the extent of the value of the assets securing such claim, and the claims of the noteholders pursuant to such guarantees will rank equally with the claims of all other unsecured senior creditors of such subsidiary. In the event of a bankruptcy, liquidation, dissolution, reorganization or similar proceeding of any subsidiary guarantor, secured creditors of such subsidiaries will generally be entitled to payment of their claims from the proceeds of the sale of the assets securing their indebtedness before any assets are made available for distribution to the noteholders and other unsecured creditors. The noteholders and other unsecured senior creditors will be equally entitled to the proceeds from the sale of such remaining assets.

The rights of holders of the notes to receive payments on the notes will also be effectively subordinated to certain indebtedness permitted under the indenture governing the notes to be incurred by us and our subsidiaries on a secured basis.

          Immediately following the Transactions, the notes will be secured by substantially all of our existing and future assets, and the guarantee by Laundry Corp. of the notes will be secured by a first-priority perfected lien on substantially all the existing and future assets of Laundry Corp., except that the lien on the capital stock of Coinmach Corp. will be a second-priority perfected lien that is subordinated to the lien in favor of the collateral agent under the Coinmach Corp. credit facility. As a result, the guarantee of Laundry Corp. of the notes will be effectively subordinated to the obligations under the Coinmach Corp. credit facility to the extent of the value of the Coinmach Corp. capital stock.

          The indenture governing the notes will also permit us and our subsidiaries to incur significant amounts of additional debt that may be secured (including, without limitation, purchase money debt and debt arising from capitalized leases), which would result in the notes being effectively subordinated to such additional secured debt to the extent of the value of the assets securing such additional secured debt.

The value of the collateral securing the notes may not be sufficient to satisfy our obligations under the notes.

          The notes and the Laundry Corp. guarantee will be secured by collateral consisting of substantially all of our and Laundry Corp.’s existing and future assets. The collateral may also secure additional indebtedness to the extent permitted by the terms of the indenture, including additional notes under the indenture, whether as part of IDSs or otherwise. Your rights to the collateral would be diluted by any increase in the indebtedness secured by the collateral. The value of the collateral may not be sufficient to satisfy our obligations under the notes.

          Additionally, as of September 30, 2004, approximately $521.3 million, or 54.8%, of our total consolidated assets were intangible assets, consisting primarily of contract rights and goodwill. The value of these intangible assets depends significantly upon our ability to manage our business as a going concern. If we are unable to manage our business successfully, the realizable value of these intangible assets may be substantially lower and may materially reduce the value of the collateral available securing the notes.

The ability of the collateral agent to foreclose on the collateral may be limited, which may reduce or delay your recovery under the notes.

          The right of the collateral agent for the holders of the notes to foreclose upon and sell any of the collateral upon the occurrence of an event of default could be subject to limitations if we become the

32


Table of Contents

subject of a case under the United States Bankruptcy Code. Various provisions of the Bankruptcy Code could prevent the collateral agent from repossessing and disposing of the collateral if a bankruptcy case is commenced by or against us before the collateral agent repossesses and disposes of the collateral. Under the Bankruptcy Code, secured creditors such as the holders of the notes may be prohibited from repossessing their collateral from a debtor in a bankruptcy case, or from disposing of collateral repossessed from such debtor, without prior bankruptcy court approval. Furthermore, other provisions of the Bankruptcy Code permit a debtor to continue to retain and to use the collateral (and the proceeds, products, rents or profits of such collateral) so long as the secured creditor is afforded “adequate protection” of its interest in the collateral. Although the precise meaning of the term “adequate protection” may vary according to circumstances, it is intended in general to protect a secured creditor against any diminution in the value of the creditor’s interest in its collateral. Accordingly, the bankruptcy court may find that a secured creditor is “adequately protected” if, for example, the debtor makes certain cash payments or grants the creditor liens on additional or replacement collateral as security for any diminution in the value of the collateral occurring for any reason during the pendency of the bankruptcy case. In view of the lack of a precise definition of the term “adequate protection” and the broad discretionary powers of a bankruptcy court, it is impossible to predict how long payments under the notes could be delayed following commencement of a bankruptcy case, whether or when the collateral agent could repossess or dispose of the collateral, or whether or to what extent holders of the secured notes would be compensated for any delay in payment or loss of value of the collateral through the requirement of “adequate protection.”

Your rights in the collateral may be adversely affected by a failure to obtain a lien on certain collateral acquired in the future.

          The security interest in the collateral securing the notes includes our existing and future assets, both tangible and intangible. Liens on certain property and rights acquired after the closing of the offerings can only be obtained at the time such property and rights are acquired and identified. There can be no assurance that the collateral agent will monitor, or that we will inform the collateral agent of, the future acquisition of property and rights and that the necessary action will be taken to properly obtain liens on after-acquired collateral. The collateral agent for the notes does not have any obligation to monitor the acquisition of additional property or rights that constitute collateral. If we fail to inform the collateral agent of an acquisition of property that is required to be made subject to a lien, or if the proper legal requirements for the lien are not met, the notes will not have the benefit of a lien on that property. In addition, any delay in identifying property or taking steps to obtain a lien could negatively affect the priority of the lien on the property against third parties.

Any guarantee of the notes or the intercompany note by our subsidiaries may not be enforceable because of fraudulent conveyance laws.

          Any guarantee in respect of the notes or the intercompany note made by our subsidiaries may be subject to review under United States federal bankruptcy law or relevant state fraudulent conveyance laws if a bankruptcy case or lawsuit is commenced by or on behalf of the guarantors’ unpaid creditors. Under these laws, if in such a case or lawsuit a court were to find that, at the time such guarantor incurred any such guarantee, such guarantor:

  incurred such guarantee with the intent of hindering, delaying or defrauding current or future creditors; or
 
  received less than reasonably equivalent value or fair consideration for incurring such guarantee and such guarantor:

  was insolvent or was rendered insolvent,
 
  •  was engaged, or about to engage, in a business or transaction for which its remaining assets constituted unreasonably small capital to carry on its business, or

33


Table of Contents

  •  intended to incur, or believed that it would incur, debts beyond its ability to pay as such debts matured (as all of the foregoing terms are defined in or interpreted under the relevant fraudulent transfer or conveyance statutes),

then such court could avoid such guarantee of such guarantor or subordinate the amounts owing under such guarantee to such guarantor’s presently existing or future debt or take other actions detrimental to you as a noteholder.

          It may be asserted that the guarantors incurred or will incur their guarantees for our benefit and they incurred or will incur their obligations under their guarantees for less than reasonably equivalent value or fair consideration.

          The measure of insolvency for purposes of the foregoing considerations will vary depending upon the law of the jurisdiction that is being applied in any such proceeding. Generally, a company would be considered insolvent if, at the time it incurred the debt or issued the guarantee, either:

  the sum of its debts (including contingent liabilities) is greater than its assets, at fair valuation, or
 
  the present fair saleable value of its assets is less than the amount required to pay the probable liability on its total existing debts and liabilities (including contingent liabilities) as they become absolute and matured.

          If any such guarantee is avoided as a fraudulent conveyance, or found to be unenforceable for any other reason, you will not have a claim against the applicable subsidiary and will only be a creditor of us or any guarantor whose obligation was not set aside or found to be unenforceable.

Restrictive covenants in our current and future indebtedness could adversely restrict our operating flexibility.

          The indenture governing the Coinmach Corp. 9% notes contains, and the indenture governing the notes will contain, covenants that will restrict the ability of Coinmach Corp. and CSC, respectively, as well as the ability of their respective restricted subsidiaries, to:

  incur additional indebtedness or, in the case of our restricted subsidiaries, issue preferred stock;
 
  create liens;
 
  pay dividends or make other restricted payments;
 
  make certain investments;
 
  sell or make certain dispositions of assets;
 
  engage in sale and leaseback transactions;
 
  engage in transactions with affiliates;
 
  •  place restrictions on the ability of their respective restricted subsidiaries to pay dividends, or make other payments, to Coinmach Corp. or CSC; and
 
  •  engage in mergers or consolidations and transfers of all, or substantially all of the assets of Coinmach Corp. or CSC, respectively.

          In addition, the Coinmach Corp. credit facility contains, and the terms of any other indebtedness that we or our subsidiaries may enter into may contain, other and more restrictive covenants that limit our and our subsidiaries’ ability to incur indebtedness, and make capital expenditures and limit our subsidiaries’ ability to make distributions or pay dividends to us. These covenants may also require us and/or our subsidiaries to meet or maintain specified financial ratios and tests. Our ability to comply with the ratios and tests under these covenants may be affected by events beyond our control, including

34


Table of Contents

prevailing economic, financial, regulatory or industry conditions. A breach of any of such covenants, ratios or tests could result in a default under the Coinmach Corp. credit facility, the indenture governing the Coinmach Corp. 9% notes and the indenture governing the notes. The Coinmach Corp. credit facility prohibits Coinmach Corp. and its subsidiaries (including AWA, as a guarantor under such credit facility) from making certain distributions in respect of its capital stock while a default or an event of default is outstanding thereunder. If we were unable to repay those amounts, the lenders under the Coinmach Corp. credit facility or holders of the notes, as applicable, could proceed against the security granted to them to secure that indebtedness. If the lenders or holders of the notes accelerated the payment of their indebtedness, our assets may not be sufficient to repay in full our indebtedness, including indebtedness under the notes.

Lack of a significant amount of cash could adversely affect our growth, financial condition and results of operations.

          Our ability to make payments on, refinance or repay our debt (including the notes), or to fund planned capital expenditures and expand our business, will depend largely upon our future operating performance. Our future operating performance is subject to general economic, financial, competitive, legislative and regulatory factors, as well as other factors that are beyond our control. We cannot assure you that our business will generate enough cash to enable us to pay our outstanding debt or fund our other liquidity and capital needs. If we are unable to generate sufficient cash to service our debt requirements, we will be required to obtain such capital from additional borrowings or other sources, including:

  sales of certain assets to meet our debt service requirements;
 
  sales of equity; and
 
  negotiations with our lenders to restructure the applicable debt.

If we cannot satisfy our cash requirements, our growth, financial condition and results of operations could suffer.

          Additionally, our after-tax cash flow available for dividend and interest payments would be reduced if the notes were treated as equity rather than debt for U.S. federal income tax purposes. In that event, the stated interest on the notes could be treated as a dividend, and interest on the notes would not be deductible by us for U.S. federal income tax purposes. Our inability to deduct interest on the notes could materially increase our taxable income and, thus, our U.S. federal and applicable state income tax liability.

We may not have the ability to raise the funds necessary to fulfill our obligations under the notes following a change of control. This would place us in default under the indenture governing the notes.

          Under the indenture governing the notes, upon the occurrence of specified change of control events, we will be required to offer to repurchase all outstanding notes. However, we may not have sufficient funds at the time of the change of control event to make the required repurchase of the notes. In addition, a change of control could require us to repay borrowings under the Coinmach Corp. credit facility or to make an offer to repurchase the Coinmach Corp. 9% notes. Because the notes are effectively subordinated to the Coinmach Corp. credit facility and the Coinmach Corp. 9% notes, such Coinmach Corp. indebtedness would have to be repaid or repurchased by Coinmach Corp. before it could distribute funds to us to repurchase the notes. Our failure to make or complete an offer to repurchase the notes would place us in default under the indenture governing the notes. This would, in turn, be a default under the Coinmach Corp. credit facility and possibly result in a default under other debt. If the payment of any debt were to be accelerated, we may be unable to repay these amounts or make the required repurchase of the notes.

You will experience immediate and substantial dilution if you purchase IDSs in this offering.

          If you purchase IDSs in this offering, you will experience an immediate dilution of $17.49 per share of Class A common stock underlying the IDSs, assuming an initial offering price per IDS of $15.00 and an initial allocation of $8.25 per share of Class A common stock. This dilution per share is attributable to our tangible book deficit for each share of Class A common stock outstanding immediately

35


Table of Contents

after this offering. Our net tangible book deficiency as of September 30, 2004, on a pro forma basis after giving effect to the Transactions, would have been approximately $414.5 million, or $9.24 per share of Class A common stock. See “Dilution.”

Voting control of us by Holdings may prevent you from receiving a premium in the event of a change of control and may create conflicts of interest.

          Following the Transactions, Holdings will control approximately 74% of our voting power and therefore will exert substantial control over our business and over matters submitted to our stockholders for approval. Such voting control could have the effect of delaying, deferring or preventing a change in control, merger or tender offer of us, which would deprive you of an opportunity to receive a premium for your third party notes, IDSs or the underlying notes or Class A common stock and may negatively affect the market price of the third party notes, the IDSs or the underlying notes or Class A common stock. Moreover, Holdings could effectively receive a premium for transferring ownership to third parties that would not inure to your benefit.

          The interests of the equity investors and the management investors may conflict with the interests of holders of IDSs, separate notes or other holders of common stock. For example, if we encounter financial difficulties or are unable to pay our debts as they mature, the interests of these parties as indirect holders of equity might conflict with the interests of a holder of the notes. These parties also may have an interest in pursuing acquisitions, divestitures, financings or other transactions that, in their judgment, could enhance their equity investment, even though such transactions might involve risks to the holders of the notes.

We will not be able to deduct interest on the notes if the notes are not respected as debt for U.S. federal income tax purposes.

          No statutory, judicial or administrative authority directly addresses the treatment of the IDSs or instruments similar to the IDSs for U.S. federal income tax purposes. As a result, the U.S. federal income tax consequences of the purchase, ownership and disposition of IDSs are not certain. Nonetheless, our counsel, Mayer, Brown, Rowe & Maw LLP, is of the opinion that an IDS will constitute a unit representing a share of Class A common stock and $6.75 principal amount of notes, and that the notes will be treated as indebtedness for U.S. federal income tax purposes. See “Material United States Federal Income Tax Consequences.” However, the IRS may assert the position that the notes are equity for U.S. federal income tax purposes. If that position were sustained by the courts, no payments on the notes would be treated as interest. As a result, we would not be able to take a deduction for interest on the notes on our U.S. federal income tax return or any state return following the federal treatment. This would materially increase our taxable income and, thus, our U.S. federal and applicable state income tax liability. This could reduce our after-tax cash flow and materially adversely affect our ability to make interest payments on the notes and to distribute dividends on the Class A common stock. In addition, if the notes were treated as equity, such treatment could adversely affect the amount, timing, character and other U.S. federal income tax treatment of income, gain or loss in respect of your investment in IDSs. For example, holders that are not U.S. persons would be subject to U.S. federal withholding and estate taxes in the same manner as they will be with regard to the Class A common stock. For discussion of these tax-related risks, see “Material United States Federal Income Tax Consequences.”

You may have adverse tax and other consequences if our allocation of the purchase price of the IDS is not respected.

          For U.S. federal income tax purposes, the purchase price of each IDS must be allocated between the share of Class A common stock and the $6.75 principal amount of notes in proportion to their respective fair market values at the time of purchase. Under the indenture, you will be bound to follow our allocation. If, however, the IRS were to assert that our allocation to the notes is too high (and, if we were to litigate that issue, such assertion were sustained by the courts), the notes could be treated as having been issued with OID. You generally would have to include OID in income in advance of the receipt of cash attributable to that income. In addition, you generally would not be able under New York and federal

36


Table of Contents

bankruptcy law to collect the portion of your principal amount that represents unaccrued OID in the event of an acceleration of the notes or a bankruptcy of CSC prior to the notes’ maturity date.

Additional issuances of notes may cause you to recognize original issue discount and may have other adverse consequences.

          Because of a lack of statutory, judicial, and administrative authority on point, our counsel, Mayer, Brown, Rowe & Maw LLP, is unable to render an opinion as to the U.S. federal income tax consequences of an automatic exchange of notes following an issuance of additional notes, including the requirements for reporting OID after such exchange and whether such exchange will be a taxable exchange for U.S. federal income tax purposes.

          As discussed above, we may issue additional notes in the future, which may have OID and, if so, may cause an automatic exchange of notes among holders. See “Summary — Summary of the IDSs and Third Party Notes — What will happen upon the issuance of additional notes or IDSs in the future?” and “Material United States Federal Income Tax Consequences — Consequences to U.S. Holders — Notes — Additional Issuances” for a description of when such additional notes would be treated as having OID and cause an automatic exchange.

          Following such an additional issuance and exchange of notes, we and our agents will report any OID on the additional notes ratably among all holders of notes (including separate notes and notes underlying IDSs) that participated in the exchange. Under the indenture, you will be bound to report OID on your U.S. federal income tax return consistently with our reporting. Therefore, an issuance and exchange of notes could have the effect of requiring you to report OID, or increase the amount of OID that you previously reported, on your notes on your U.S. federal income tax return. OID is includible in income on a constant yield-to-maturity basis in advance of the receipt of cash attributable to that income. This generally would result in your reporting more interest income over the term of the notes than you would have reported had no such additional issuance and exchange occurred. See “Material United States Federal Income Tax Consequences — Consequences to U.S. Holders — Notes — Additional Issuances.”

          Nonetheless, as stated above, our counsel is unable to render an opinion that OID on the notes would be properly reportable in this manner. The IRS may assert that any OID should be reported only to the persons that initially acquired such additional notes with OID (and their transferees) and thus may challenge the holders’ reporting of OID on their tax returns as a result of the automatic exchange of notes. In such case, the IRS might further assert that, unless a holder can establish that it is not such a person (or transferee thereof), all of the notes held by such holder have OID. Any of these assertions by the IRS could create significant uncertainties in the pricing of IDSs and notes and could adversely affect the market for IDSs and notes.

          Holders of additional notes having OID may not be able under New York and federal bankruptcy law to collect the portion of their principal amount that represents unaccrued OID in the event of an acceleration of the notes or a bankruptcy of CSC prior to the notes’ maturity date. As a result, an automatic exchange that results in a holder receiving an OID note could have the effect of ultimately reducing the amount such holder can recover from us in the event of an acceleration or bankruptcy.

          In addition, as stated above, our counsel is unable to render an opinion as to whether an additional issuance and exchange of notes described above would result in a taxable exchange of your notes for U.S. federal income tax purposes. If the IRS were to assert successfully that such exchange is properly treated as a taxable exchange, then any gain realized on the exchange would generally be taxable to you, and any loss realized on the exchange could be disallowed. See “Material United States Federal Income Tax Consequences — Consequences to U.S. Holders — Notes — Additional Issuances.”

37


Table of Contents

If we subsequently issue notes with significant original issue discount, we may not be able to deduct all of the interest on those notes.

          It is possible that notes we issue in an additional issuance will be issued at a discount to their face value and, accordingly, may have “significant OID” and thus be classified as “applicable high yield discount obligations.” If any such notes were so treated, a portion of the OID on such notes may be nondeductible by us and the remainder would be deductible only when paid. This treatment would have the effect of increasing our taxable income and may adversely affect our cash flow available for interest payments and distributions to our equityholders.

The separation of IDSs into shares of Class A common stock and notes may diminish the value of your investment in IDSs.

          The IDSs will automatically and permanently separate into shares of Class A common stock and notes on the fifteenth anniversary of the original issue date of the IDSs offered hereby. In addition, upon the occurrence of certain other events IDSs will automatically and, in some cases, permanently, separate. Furthermore, a holder of IDSs may voluntarily separate its IDSs on and after the 45th day after the original issue date of the IDSs. See “Description of IDSs — Voluntary Separation and Recombination” and “— Automatic Separation.”

          If IDSs separate, we cannot assure you that an active trading market will develop for shares of Class A common stock and notes as separate securities. Even if an active trading market for either of such securities were to develop, the value of such separately held Class A common stock and notes may be less than that of the equivalent amount of IDSs.

          Conversely, if at any time all IDSs are not separated, we cannot predict what effect any separate trading market in Class A common stock or notes would have on the value of then outstanding IDSs. Such a separate trading market may cause the value of a security underlying an IDS to be less than the value of the same security not underlying an IDS, which in turn may make separation of then outstanding IDSs more attractive. Any reduction in outstanding IDSs would decrease the liquidity for the remaining IDSs and could cause the IDSs to be delisted.

You will not be a registered holder of IDSs or third party notes and therefore will be reliant on your broker or other financial institution to monitor and maintain your position and to provide you with information distributed to stockholders of record.

          The third party notes, the IDSs and the securities underlying the IDSs will be issued in book-entry form only. This means that, as a holder of third party notes or IDSs, you will be a beneficial and not a registered holder of third party notes, IDSs or the securities underlying the IDSs, as the case may be, and you will not receive a certificate for your third party notes, IDSs or the securities underlying the IDSs. While all holders of common stock are entitled under Delaware law to receive a certificate representing the shares of common stock owned by them, an IDS holder wishing to receive such a certificate will first be required to separate its IDSs into shares of Class A common stock and notes.

          As a holder of IDSs, separate notes (including third party notes) or Class A common stock in book-entry form, you must rely on your broker or other financial institution maintaining your book-entry position to receive the benefits and exercise the rights of a holder of such securities. See “Description of IDSs.”

If an active trading market for the IDSs, the shares of Class A common stock or the notes does not develop, their respective liquidity and value could be harmed. The price of the IDSs, the shares of Class A common stock or the notes could be subject to volatile fluctuations.

          None of the IDSs, the shares of our Class A common stock or the notes (including the third party notes) has a public market history. We do not intend to initially list our Class A common stock on any exchange, and we do not intend to list the notes on any exchange. In addition, there has not been an

38


Table of Contents

active market in the United States for securities similar to the IDSs. Although we have applied to list the IDSs on the American Stock Exchange, we cannot assure you that an active trading market for the IDSs will develop. If no active trading market develops, you may not be able to resell the IDSs, the Class A common stock or the notes at their fair market value or at all. If the notes underlying your IDSs are redeemed or mature or there is an occurrence of certain bankruptcy events, the IDSs will automatically separate and you will then hold the shares of our Class A common stock, for which there may not be an active public market.

          The initial public offering price of the third party notes and the IDSs will be determined by negotiations among us, the equity investors, the management investors and the representatives of the underwriters and may not be indicative of the market price of the third party notes or the IDSs after the offering. Factors such as quarterly variations in our financial results, announcements by us or others, developments affecting us and our customers, general interest rate levels and general market volatility could cause the market price of the third party notes and the IDSs to fluctuate significantly.

Future sales or the possibility of future sales of a substantial amount of IDSs, shares of our Class A common stock or our notes may depress the price of the IDSs and the shares of our Class A common stock.

          Future sales or the availability for sale of substantial amounts of IDSs or shares of our Class A common stock or a significant principal amount of our notes in the public market could adversely affect the prevailing market price of the IDSs and the shares of our Class A common stock and could impair our ability to raise capital through future sales of our securities.

          We may issue shares of our Class A common stock and notes, which may be in the form of IDSs, or other securities from time to time as consideration for future acquisitions and investments. In the event any such acquisition or investment is significant, the number of shares of our Class A common stock and the aggregate principal amount of notes, which may be in the form of IDSs, or the number or aggregate principal amount, as the case may be, of other securities that we may issue may in turn be significant. In addition, we may also grant registration rights covering those IDSs, shares of our Class A common stock, our notes or other securities in connection with any such acquisitions and investments.

          From time to time our employees may be granted equity-based performance incentives pursuant to CSC benefit plans, which might include the issuance of new IDSs or shares of our Class A common stock. New issuances of IDSs or Class A common stock under such plans would have a dilutive effect on our earnings per share, and could reduce the fair market value of our IDSs and Class A common stock. See “Management — Equity Based Incentive Plans.”

          Any sales or distributions of IDSs or shares of our Class A common stock or notes could adversely affect the prevailing market price of the IDSs and the shares of our Class A common stock.

Risks Relating to Our Business

We have a history of net losses and may not generate profits in the future.

          We have experienced net losses in each fiscal year since 2000. We incurred net losses of approximately $32.1 million and $16.7 million for the twelve months and six months ended September 30, 2004, respectively, and $31.3 million for the fiscal year ended March 31, 2004. These losses have resulted from a variety of costs including, but not limited to, non-cash charges such as depreciation and amortization of intangible assets and debt financing costs resulting from our growth strategy. Continuing net losses limit our ability to service our debt and fund our operations. We may not generate net income from operations in the future.

Our business could suffer if we are unsuccessful in negotiating lease renewals.

          Our business is highly dependent upon the renewal of our lease contracts with property owners and management companies. We have historically focused on obtaining long-term, renewable lease contracts, and management estimates that approximately 90% of our locations are subject to long-term

39


Table of Contents

leases with initial terms of five to ten years. If we are unable to secure long-term exclusive leases on favorable terms or at all, or if property owners or management companies choose to vacate properties as a result of economic downturns that impact occupancy levels our growth, financial condition and results of operations could be adversely affected. See “Business — Business Operations — Description of Principal Operations — Location Leasing.”

We may not be able to successfully identify attractive “tuck-in” acquisitions, successfully integrate acquired operations or realize the intended benefits of acquisitions.

          We evaluate from time to time opportunities to acquire local, regional and multi-regional route businesses. This strategy is subject to numerous risks, including:

  an inability to obtain sufficient financing to complete our acquisitions;
 
  an inability to negotiate definitive acquisition agreements on satisfactory terms;
 
  difficulty in integrating the operations, systems and management of acquired assets and absorbing the increased demands on our administrative, operational and financial resources;
 
  the diversion of our management’s attention from their other responsibilities;
 
  the loss of key employees following completion of our acquisitions;
 
  the failure to realize the intended benefits of our acquisitions; and
 
  our being subject to unknown liabilities.

          Our inability to effectively address these risks could force us to revise our business plan, incur unanticipated expenses or forego additional opportunities for expansion.

If our required capital expenditures exceed our projections, we may not have sufficient funding, which could adversely affect our growth, financial condition and results of operations.

          We must continue to make capital expenditures relating to our route business to maintain our operating base, including investments in equipment, advance location payments and laundry room improvements. Capital expenditures in connection with maintaining and expanding our machine base for the twelve months and six months ended September 30, 2004, respectively, were approximately $74.8 million (excluding approximately $4.2 million relating to acquisitions and $4.1 million relating to capital lease payments) and approximately $37.0 million (excluding approximately $0.6 million relating to acquisitions and $2.2 million relating to capital lease payments) and for the fiscal year ended March 31, 2004 were approximately $86.7 million (excluding approximately $3.6 million relating to acquisitions and $4.0 million related to capital lease payments). We may have unanticipated capital expenditure requirements in the future . If we cannot obtain such capital from increases in our cash flow from operating activities, additional borrowings or other sources, our growth, financial condition and results of operations could suffer materially.

Reduced occupancy levels could adversely affect us.

          Extended periods of reduced occupancy can adversely affect our operations. In a period of occupancy decline, we could be faced with reductions in revenues and cash flow from operations in certain areas. In past periods of occupancy decline, we designed incentive programs that were successful in maintaining stable profit margins by offering owners and management companies financial incentives relating to increased occupancy levels in exchange for certain guaranteed minimum periodic payments. Although we are geographically diversified and our revenue is derived from a large customer base, we may not be able to maintain our revenue levels or cash flow from operations in periods of low occupancy.

40


Table of Contents

Our business could be adversely affected by the loss of one or more of our key personnel.

          Our continued success will depend largely on the efforts and abilities of our executive officers and certain other key employees. We do not maintain insurance policies with respect to the retention of such employees, and our operations could be affected adversely if, for any reason, such officers or key employees do not remain with us. See “Management.”

Our industry is highly competitive, which could adversely affect our business.

          The laundry equipment services industry is highly competitive, capital intensive and requires reliable, quality service. The industry is fragmented nationally, with many small, private and family-owned businesses operating throughout all major metropolitan areas. Notwithstanding the fragmentation of the industry, there are currently three companies, including us, with significant operations in multiple regions throughout the United States. Some of our competitors may possess greater financial and other resources. Furthermore, current and potential competitors may make acquisitions or may establish relationships among themselves or with third parties to increase their ability to compete within the industry. Accordingly, it is possible that new competitors may emerge and rapidly acquire significant market share. If this were to occur, our business, operating results, financial condition and cash flows could be materially adversely affected.

Our business may be adversely affected by compliance obligations and liabilities under environmental laws and regulations.

          Our business and operations are subject to federal, state and local environmental laws and regulations that impose limitations on the discharge of, and establish standards for the handling, generation, emission, release, discharge, treatment, storage and disposal of, certain materials, substances and wastes. To the best of management’s knowledge, there are no existing or potential environmental claims against us, nor have we received any notification of responsibility for, or any inquiry or investigation regarding, any disposal, release or threatened release of any hazardous material, substance or waste generated by us that is likely to have a material adverse effect on our business or financial condition. However, we cannot predict with any certainty that we will not in the future incur any liability under environmental laws and regulations that could have a material adverse effect on our business or financial condition.

Current California, Connecticut and Maryland state law and proposed legislation in other states imposing heightened energy and water efficiency standards on commercial clothes washers could require a significant increase in our capital expenditures and consequently reduce our profit margins.

          Under current federal Department of Energy (referred to as the DOE) regulations, residential washers are subject to certain federal energy efficiency standards. States are explicitly preempted from regulating the energy efficiency of any products, including residential washers, covered by such federal regulations. However, the DOE does not consider “commercial” washers, including those similar to residential washers in all respects except for the addition of a coin slot or other device to accept payment, to be covered by its regulations. As a result, California, Connecticut and Maryland were able to adopt statewide regulations for commercial washers which are scheduled to go into effect in 2007 and 2008. Such regulations either heightened the federal DOE energy efficiency standards applicable to residential washers, or accelerated the effective date of certain federal standards scheduled to be implemented.

          If the DOE does not amend the interpretation of its existing regulations to include commercial washers and thereby preclude the implementation of the California, Connecticut and Maryland laws and the proposed legislation in other states, and if other states adopt standards similar to California’s, Connecticut’s and Maryland’s, our capital expenditures, as well as those of other industry participants, may significantly increase in order to comply with such standards. If we are unable to mitigate such increased capital through price increases, we may be unable to recover such costs and our cash flows would be materially adversely affected.

41


Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

          All statements other than statements of historical facts included in this prospectus, including, without limitation, statements regarding our future financial position, common stock dividend payments, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “project,” “estimate,” “anticipate,” “believe” or “continue” or the negative thereof or variations thereon or similar terminology. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to have been correct. We do not guarantee that the transactions and events described in this prospectus will happen as described or that any positive trends noted in this prospectus will continue. The forward-looking statements generally relate to our strategies, plans and objectives for future operations and are based upon management’s current beliefs or estimates of future results or trends and are subject to certain risks, uncertainties and assumptions relating to our operations and results of operations, competitive factors, shifts in market demand, and other risks and uncertainties that may be beyond our control. Important factors that could cause actual results to differ materially from our expectations are disclosed under “Risk Factors,” “Dividend Policy and Restrictions” and elsewhere in this prospectus, including, without limitation, in conjunction with the forward-looking statements included in this prospectus. Other risks and uncertainties also include changes or developments in social, economic, business, industry, market, legal and regulatory circumstances and conditions and actions taken or omitted to be taken by third parties, including our stockholders, customers, suppliers, competitors, legislative, regulatory, judicial and other governmental authorities. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our future performance and actual results of operations may vary significantly from those anticipated, projected, believed, estimated, expected, intended or planned.

          You should read this prospectus completely and with the understanding that actual future results may be materially different from what we expect. We will not update these forward-looking statements, even if our situation changes in the future. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements.

42


Table of Contents

USE OF PROCEEDS

          The table below includes our estimates of the aggregate proceeds from our offering of IDSs and third party notes and the use of the proceeds to effect the Transactions, assuming the offerings closed on September 30, 2004. The estimates below: (i) assume an initial public offering price of $15.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus and (ii) do not take into account the exercise by the underwriters of their over-allotment option. Actual amounts will vary from the estimates shown below.

          We will use the proceeds from the offerings, net of underwriting discounts and our fees and expenses, as follows: (i) we will lend approximately $86.3 million to Coinmach Corp., to be evidenced by the intercompany note and (ii) we will make a capital contribution to Coinmach Corp. through Laundry Corp. of approximately $182.0 million.

          Coinmach Corp. will use part of the proceeds received by it to: (i) redeem a portion of the Coinmach Corp. 9% notes in the aggregate principal amount of approximately $129.8 million (plus approximately $2.9 million of accrued interest and approximately $11.7 million of related redemption premium), (ii) repay approximately $15.5 million of outstanding term loans under the Coinmach Corp. credit facility and (iii) terminate interest rate swaps previously entered into in connection with the Coinmach Corp. credit facility at a cost of approximately $0.9 million.

          Coinmach Corp. will distribute approximately $109.4 million, consisting of a portion of the proceeds received by it and approximately $1.9 million of currently available cash, to Laundry Corp., which will use such amounts to redeem approximately $90.0 million of its outstanding Class A preferred stock (representing all of its outstanding Class A preferred stock) and to redeem approximately $19.4 million of its outstanding Class B preferred stock. At the time of such redemption, our officers, directors and certain holders of 5% or more of Holdings units will own substantially all of the Laundry Corp. preferred stock to be redeemed, and therefore will receive substantially all of the proceeds used for the redemption. If the underwriters’ over-allotment option is exercised in full, we expect to redeem an additional $38.7 million of Laundry Corp. preferred stock held by such persons.

          See “The Transactions” for a detailed description of the Transactions and “The Transactions — Over-allotment Option” for a detailed description of the use of proceeds received from any exercise of the over-allotment option.

Sources

(in millions)
         
IDSs
  $ 275.0  
Third party notes
    20.0  
Currently available cash(4)
    1.9  
     
 
Total
  $ 296.9  
     
 
Uses
(in millions)
           
Redeem Laundry Corp. Class A preferred stock
  $ 90.0  
Redeem Laundry Corp. Class B preferred stock
    19.4  
Redeem Coinmach Corp. 9% notes
    129.8  
 
Redemption premium
    11.7  
 
Accrued interest(1)
    2.9  
Repay term loans under Coinmach Corp. credit facility(2)
    15.5  
Fees, costs and expenses(3)
    27.6  
     
 
Total
  $ 296.9  
     
 

(1)  Represents accrued interest through October 31, 2004 on the portion of Coinmach Corp. 9% notes to be redeemed.

43


Table of Contents

(2)  The Coinmach Corp. credit facility consists of: (i) tranche A term loans in an aggregate principal amount of $15.5 million and tranche B term loans in an aggregate principal amount of $241.8 million, which both accrue interest at a rate of approximately 4.5% as of September 30, 2004, and which mature on January 25, 2008 and July 25, 2009, respectively, and (ii) an undrawn amount of approximately $68.6 million under a $75.0 million revolving credit facility scheduled to mature in January 2008. Interest has been paid through September 30, 2004. See “Description of Certain Indebtedness — The Coinmach Corp. Credit Facility.”
 
(3)  Amount includes an estimated $17.7 million underwriting discount in connection with our initial public offering of IDSs and third party notes, approximately $9.0 million in estimated fees, costs and expenses incurred by us and Coinmach Corp. in connection with the Transactions and approximately $0.9 million to terminate interest rate swaps previously entered into in connection with the Coinmach Corp. credit facility.
 
(4)  Represents the amount of cash on hand at Coinmach Corp. that we will use to fund a portion of the uses of proceeds.

44


Table of Contents

DIVIDEND POLICY AND RESTRICTIONS

          Pursuant to a dividend policy expected to be adopted by our board of directors effective upon completion of the offerings, we expect to declare and pay regular quarterly dividends on our Class A common stock and dividends on our Class B common stock as described below. Cash generated by us in excess of operating needs, interest and principal payments on indebtedness, and capital expenditures sufficient to maintain our properties and other assets would under this policy generally be distributed or available for distribution as regular cash dividends. However, dividends are payable at the discretion of our board of directors. As described below, dividend payments are not mandatory or guaranteed, are subject to legal and contractual restrictions, and our board of directors may amend or repeal our initial dividend policy or decide not to declare one or more dividends or declare dividends in different amounts. See “— Limitations on Our Ability to Pay Dividends — General” and “Risk Factors — Risks Relating to the Third Party Notes, the IDSs and the Shares of Class A Common Stock and Notes Underlying the IDSs — You may not receive the level of dividends provided for in the dividend policy that our board of directors is expected to adopt upon the closing of the offerings or any dividends at all.”

          We have not historically paid dividends on our common stock.

Common Stock Dividend Rights

          Our certificate of incorporation will provide for the issuance of three classes of common stock: (i) the Class A common stock, (ii) the Class B common stock and (iii) the Class C common stock. Payment of dividends on all classes of our common stock will not be cumulative. Therefore, prior to paying any dividend on our Class A common stock or Class B common stock, we will not be required to first pay any previously declared but not paid dividend on the Class A common stock or any previously declared but not paid dividend on the Class B common stock. During the period from the closing of the offerings until February 14, 2007, we may pay dividends on our Class B common stock only once in any 360-day period.

          We will not have any shares of Class C common stock outstanding upon closing of the offerings, and we only expect to issue shares of Class C common stock as non-cash dividend payments to holders of Class B common stock as described below. Shares of Class C common stock will not be entitled to any dividend rights.

 
Prior to January 1, 2007

          Our certificate of incorporation will provide that, with respect to fiscal quarters ending prior to January 1, 2007, the rights of holders of shares of Class B common stock to receive cash dividends will be subordinated to the rights of holders of shares of Class A common stock to receive cash dividends. If cash dividends are paid on any share of Class A common stock for any fiscal quarter occurring during the twelve month period ending either December 31, 2005 or 2006, the Company shall declare and pay dividends in the first fiscal quarter immediately following such twelve month period on each share of Class B common stock in an amount equal to the aggregate amount of cash dividends paid on such share of Class A common stock with respect to such twelve month period, provided that (i) such dividends on each such share of Class B common stock may not be paid in cash unless and until the aggregate amount of dividends paid to holders of shares of Class A common stock for the four fiscal quarters occurring during such twelve month period are at least equal to the dividend rate set forth in our initial dividend policy and (ii) cash dividends on all outstanding shares of Class B common stock for any such twelve month period may not exceed $10.0 million in the aggregate.

          In addition, at any time on or prior to March 31, 2005, we may declare and pay cash dividends on shares of Class B common stock for the period from the closing of the offerings to December 31, 2004, provided that (i) quarterly cash dividends for such period have been paid to holders of shares of Class A common stock in an aggregate amount at least equal to the dividend rate set forth in our initial dividend policy and (ii) cash dividends on all the outstanding shares of Class B common stock for such period may not exceed in the aggregate an amount equal to the product of (i) (x) the number of days from the date

45


Table of Contents

of the closing of the offerings up to and including December 31, 2004 divided by (y) 360, and (ii) $10.0 million.

          To the extent cash dividends on each share of Class B common stock (i) declared with respect to the period from the closing of the offerings to December 31, 2004 are less than the aggregate cash dividend payments paid on each share of Class A common stock for any such twelve month period, or (ii) declared with respect to the twelve month period ending either December 31, 2005 or 2006 are less than the aggregate quarterly cash dividend payments paid on each share of Class A common stock for any such twelve month period, then, in each case, each share of Class B common stock will receive dividends in the form of shares of Class C common stock equal to the cash dividends not so paid.

          The value of a share of Class C common stock to be issued in lieu of cash dividends payments will be deemed to be equal to 55% of the market price of an outstanding IDS as of the close of business on the first trading day immediately preceding the date of declaration of such dividend payment by our board of directors. If on such date all IDSs are separated or delisted, the value of a share of Class C common stock will be deemed to be equal to the market price of one share of Class A common stock as of the close of business on such date.

 
On and After January 1, 2007

          Under our certificate of incorporation, the rights of holders of shares of Class B common stock to receive cash dividends with respect to fiscal quarters beginning on and after January 1, 2007 will no longer be subordinated in any way to the rights of holders of shares of Class A common stock to receive cash dividends. However, shares of Class B common stock will not be entitled to receive dividends for any period unless dividends are also declared and paid on shares of Class A common stock for such period.

          Under our certificate of incorporation, our board of directors may designate the frequency with which we will declare and pay dividends on shares of Class B common stock with respect to fiscal quarters beginning on or after January 1, 2007, provided that such payments must be at least annual and may be no more frequent than dividend payments declared and paid on shares of Class A common stock.

          Each holder of a share of Class B common stock will be entitled to a dividend equal to 110% of the cash dividends declared on a share of Class A common stock with respect to any fiscal quarter beginning on or after January 1, 2007, payable as determined by our board of directors as described in the immediately preceding paragraph. While we may at our option pay the excess 10% in the form of shares of Class C common stock, each holder of a share of Class B common stock will have the right to receive the remainder in cash.

          However, holders of a majority of the then outstanding shares of Class B common stock may, voting as a single class, waive the rights of all holders of shares of Class B common stock to all or any portion of cash dividends to which they are so entitled. In such case, all holders of Class B common stock will receive a dividend payment in the form of shares of Class C common stock equal to the amount of cash dividends that were waived.

          The value of a share of Class C common stock to be issued in lieu of cash dividends payments will be deemed to be equal to 55% of the market price of an outstanding IDS as of the close of business on the first trading day immediately preceding the date of declaration of such dividend payment by our board of directors. If on such date all IDSs are separated or delisted, the value of a share of Class C common stock will be deemed to be equal to the market price of one share of Class A common stock as of the close of business on such date.

Our Initial Dividend Rate

          We intend to pay dividends on our Class A common stock on each February 15, May 15, August 15 and November 15 to holders of record as of the preceding January 1, April 1, July 1 and October 1, respectively. During the period from the closing of the offerings until February 14, 2007, we intend to pay dividends on our Class B common stock on each February 15 to holders of record as of the

46


Table of Contents

preceding January 1. In the event a scheduled dividend payment date is a Saturday, Sunday or a date on which banking institutions are otherwise not open, then such dividend payment will be made on the first business day immediately following such date. Holders of shares of Class C common stock will not be entitled to any dividend rights.

          Dividend payments on our Class A common stock will be payable in respect of the completed fiscal quarter immediately preceding a payment date. We intend to make our first dividend payment on our Class A common stock and Class B common stock on February 15, 2005 to holders of record as of January 1, 2005. The initial Class A common stock and Class B common stock dividend payment will constitute a dividend payment for the period commencing on the completion of the offerings and ending on December 31, 2004. On May 15, 2005, we expect to make a regular quarterly dividend payment on the Class A common stock for the fiscal quarter ending on March 31, 2005. For each of the four consecutive fiscal quarters ending December 31, 2005, the first four full quarterly dividend periods following the closing of the offerings, dividends for each share of our Class A common stock are expected to be approximately $0.1894 per share per quarter. Assuming full exercise of the over-allotment option, cash dividends for such four consecutive fiscal quarters would be approximately $16.0 million in the aggregate. In calculating such amounts we also assume that during such period:

  we will pay quarterly cash dividends on the Class A common stock as intended under our dividend policy;
 
  no cash dividends will be paid on the Class B common stock, since the rights of holders of shares of Class B common stock during such period to receive cash dividends will be subordinated to the cash dividend rights of holders of Class A common stock;
 
  •  consistent with the opinion of our counsel, Mayer, Brown, Rowe & Maw LLP, the notes will be treated as debt for U.S. federal income tax purposes;
 
  •  no IDSs or shares of Class A common stock will be issued pursuant to any equity-based incentive plans to be adopted by CSC; and
 
  the number of shares of Class A common stock outstanding immediately after the closing of the offerings will not increase other than through the exercise of the over-allotment option.

 
Basis for Initial Dividend Rate

          In determining our intended dividend level for the first four full fiscal quarters on the Class A common stock following the closing of the offerings, we reviewed and analyzed, among other things, the following:

  our operating and financial performance in recent years;
 
  the anticipated cash requirements associated with our new capital structure (including, but not limited to, interest payments on the notes);
 
  our anticipated capital expenditure requirements;
 
  our other expected cash needs for working capital;
 
  the terms of our debt agreements, including the indenture governing the notes, the indenture governing the Coinmach Corp. 9% notes and the Coinmach Corp. credit facility; and
 
  potential sources of liquidity, including borrowings under the Coinmach Corp. credit facility and quarterly interest payments to us by Coinmach Corp. on the intercompany note.

          If we have any cash remaining after the payment of dividends as contemplated above on our Class A common stock, our board of directors will, in its sole discretion, decide to use that cash for those purposes it deems necessary or advisable including, but not limited to, paying cash dividends on the Class B common stock, funding additional capital expenditures or acquisitions, prepaying indebtedness, paying additional dividends or for general corporate purposes. However, notwithstanding this dividend

47


Table of Contents

policy, the amount of dividends, if any, for each quarterly dividend payment date, including the initial dividend payment date, will be determined by our board of directors on a quarterly basis after taking into account the factors set forth above, the flexibility in paying cash dividends on the Class B common stock, contractual restrictions and other factors set forth herein. See “— Common Stock Dividend Rights” and “— Limitations on Our Ability to Pay Dividends.”

          The table below sets forth our calculations illustrating the amount of minimum EBITDA for the twelve months ending December 31, 2005 that would be sufficient to fund cash dividends with respect to each of the four consecutive fiscal quarters ending December 31, 2005 to holders of our Class A common stock at the initial intended dividend rate solely from cash generated by our business and that would satisfy the applicable restrictions contained in:

            (i) the indenture governing the notes, which permits quarterly dividend payments to the extent our distributable cash flow exceeds our consolidated interest expense so long as we satisfy an interest coverage test and no default is continuing;
 
            (ii) the Coinmach Corp. credit facility, which requires Coinmach Corp. to meet quarterly financial maintenance tests; and
 
            (iii) the indenture governing the Coinmach Corp. 9% notes, which contains a restricted payments covenant that limits Coinmach Corp.’s ability to make dividend payments and other distributions.

The amounts set forth in the table below assume that the over-allotment option is exercised in full and does not include the amount of dividends relating to the period commencing on the completion of the offerings and ending on December 31, 2004.

48


Table of Contents

          The rights of the holders of shares of Class B common stock to receive cash dividends with respect to fiscal quarters completed prior to January 1, 2007 will be subordinated to the cash dividend rights of holders of shares of Class A common stock. The amounts presented in the table below assume cash dividend payments will be made only on shares of Class A common stock.

Estimated Cash Available to Pay Dividends on Class A Common Stock

Based on Estimated Minimum EBITDA
           
Twelve
Months
Ending
December 31,
2005

(In thousands)
Estimated minimum EBITDA(1)(9)
  $ 153,600  
Less:
       
 
Estimated capital expenditures(2)
    70,000  
 
Estimated interest expense(3)
    57,792  
 
Estimated amortization payments on credit facility term debt
    2,480  
 
Estimated cash taxes(4)
     
     
 
Estimated cash available to pay dividends
  $ 23,328  
     
 
Intended amount of dividends on Class A common stock(5)
  $ 15,972  
Interest coverage test under the indenture governing the notes(6)(7):
       
Estimated distributable cash flow
  $ 81,120  
90% of estimated distributable cash flow
  $ 73,008  
Estimated interest expense(3)
  $ 57,792  
Permitted amount of dividends(8)
  $ 23,328  

          The preceding table illustrates our calculation of the amount of EBITDA that we believe would be necessary to pay cash dividends on our Class A common stock at the rate we intend for the twelve months ending December 31, 2005. Based upon a review and analysis conducted by our management, we believe that our EBITDA will be approximately $161.5 million for the fiscal year ending March 31, 2005 and will be at least equal to such amount for the twelve months ending December 31, 2005. EBITDA for the twelve months ended September 30, 2004 was approximately $157.0 million. We estimate that the combination of the elimination of certain unprofitable operations in Super Laundry, the impact of continued growth in AWA, and cost savings from our recent investment in technology will result in sufficient incremental EBITDA to achieve this result.

          Notwithstanding our calculations above, we believe that we would only need EBITDA of approximately $146.3 million for the twelve months ending December 31, 2005 to pay the intended cash dividends of approximately $16.0 million for that period if Coinmach Corp. were not bound by certain financial maintenance covenants contained in the Coinmach Corp. credit facility. A violation of such covenants, however, would result in a default under the Coinmach Corp. credit facility and prevent Coinmach Corp. from distributing amounts to us. For more information regarding the restrictions on dividends and distributions from Coinmach Corp. to us, see “Limitations on Our Ability to Pay Dividends — Indenture Governing the Coinmach Corp. 9% Notes” and “— The Coinmach Corp. Credit Facility.”

49


Table of Contents

          The following table sets forth our calculation illustrating, for the fiscal year ended March 31, 2004 and the twelve months and six months ended September 30, 2004, the amount of excess cash that would have been available for distributions to our stockholders, assuming, in each case, that the offerings had been consummated at the beginning of each such period, subject to the assumptions described in such table.

Pro Forma Excess Cash for the Fiscal Year Ended March 31, 2004, the Twelve Months Ended September 30, 2004 and the Six Months Ended September 30, 2004

                             
Fiscal Twelve Six
Year Months Months
Ended Ended Ended
March 31, September 30, September 30,
2004 2004 2004



Cash flow from cash flow provided by operating activities
  $ 97,052     $ 99,847     $ 48,344  
Interest expense
    57,377       57,294       28,625  
Gain on sale of investment and equipment
    1,232       1,240       54  
Stock based compensation
    (176 )     (111 )     (37 )
Change in operating assets and liabilities
    2,513       1,123       2,776  
Deferred taxes
    3,753       4,134       1,956  
Amortization of debt discount and deferred issue costs
    (2,414 )     (2,414 )     (1,207 )
Benefit for income taxes
    (3,648 )     (4,144 )     (1,921 )
     
     
     
 
EBITDA
    155,689       156,969       78,790  
Less:
                       
 
Actual capital expenditures(2):
                       
   
Additions to property and equipment
    65,460       56,591       27,670  
   
Advance location payments
    21,272       18,220       9,285  
   
Acquisition of net assets related to acquisitions of businesses
    3,615       4,233       618  
   
Payments on capitalized lease obligations
    3,995       4,139       2,224  
 
Estimated interest expense(3)
    57,792       57,792       28,896  
 
Estimated amortization payments on credit facility term debt
    2,480       2,480       1,240  
 
Assumed borrowings to fund capital expenditures(10)
    (16,514 )     (3,618 )      
 
Additional interest expense on assumed borrowings(10)
    617       160        
 
Estimated net change in working capital
                 
 
Estimated cash taxes(4)
                 
 
Additional public filing costs and one time charges(1)
    1,000       1,000       500  
     
     
     
 
 
Excess cash that would have been available to pay dividends
  $ 15,972     $ 15,972     $ 8,157  
     
     
     
 
Intended amount of dividends on Class A common stock(5)
  $ 15,972     $ 15,972     $ 7,986  
     
     
     
 


(1)  Our estimated minimum EBITDA excludes approximately $12.7 million in one-time charges that will be incurred during this period in connection with the offerings, including fees and expenses, the redemption premium on the Coinmach Corp. 9% notes and swap breakage costs. See “Use of Proceeds.” Our historical EBITDA does not include approximately $1.0 million annually in incremental ongoing expenses associated with being a public IDS issuer, including estimated incremental director and officer liability insurance, additional directors’ fees, investor and public relations expenses, expenses relating to the annual stockholders’ meeting, printing expenses, additional filing fees, additional trustee fees, registrar and transfer agent fees, listing fees, additional administrative fees and miscellaneous fees.
 
(2)  Capital expenditures represent amounts expended for property and laundry equipment, including washers and dryers and other equipment, such as our fleet of vehicles, used in servicing our

50


Table of Contents

customers and advance location payments paid to location owners. Capital expenditures do not include expenses related to repairs of our existing assets, costs of spare parts or expenses related to refurbishments or overhauls, which, in each case, are expensed in the ordinary course of our business.

The following table sets forth an analysis of our capital expenditures for the fiscal year ended March 31, 2004 and the twelve months and six months ended September 30, 2004.

                               
Fiscal Year Twelve Months Six Months
Ended Ended Ended
March 31, September 30, September 30,
2004 2004 2004



Additions to property and equipment
  $ 65.4     $ 56.6     $ 27.7  
Advance location payments
    21.3       18.2       9.3  
Acquisition of net assets related to acquisitions of businesses
    3.6       4.2       0.6  
Principal payments on capitalized lease obligations
    4.0       4.1       2.2  
     
     
     
 
 
Total capital expenditures
    94.3       83.1       39.8  
   
Less:
                       
   
AWA expenditures
    8.0       5.8       2.9  
   
Technology upgrades
    2.6       2.7       1.4  
   
Super Laundry expenditures
    0.6       0.4       0.2  
   
Acquisition of net assets related to acquisitions of businesses
    3.6       4.2       0.6  
     
     
     
 
     
Residual route capital expenditures
  $ 79.5     $ 70.0     $ 34.7  
     
     
     
 

  The amount of residual route capital expenditures set forth in the table above represents the minimum capital expenditures required to maintain our existing machine base. Given that our customer contracts typically mature each year at a consistent rate, our capital expenditures for maintaining our existing machine base have generally been predictable and recurring in nature without significant fluctuation.

  Our focus on AWA has historically been to generate growth with related capital expenditures. In future periods after consummation of the offerings, capital expenditures will primarily be incurred to maintain our route business.
 
  Additionally, we are currently completing several technology upgrade programs related to the collection and tracking of our route business which are not expected to be repeated in the future. We have also chosen to end our investment in the California operations of Super Laundry, which, together with expenditures related to technology upgrades, we consider to be non-recurring growth capital expenditures.
 
  To the extent, however, we generate cash flow from operations in excess of that required to maintain our route business and to pay dividends on our common stock in accordance with our dividend policy as described above or certain opportunistic investments arise, we may selectively choose to invest in growth opportunities.
 
  Through a heightened focus on capital spending, we have been able to generate steady cash flow returns on our core route collection business. We have been operating under this model for the past several quarters.
 
  Therefore, on an annual basis, we do not expect capital expenditures relating to maintaining our machine base to vary significantly from the amount estimated for the twelve months ending December 31, 2005.

51


Table of Contents

  Moreover, while expansion through acquisition was an important component of our historical business strategy, we believe it has allowed us to achieve significant economies of scale. Although we continue to evaluate acquisition opportunities on a selective basis as they arise from time to time, and future acquisition activity may produce accretive marginal cash flow, the execution of this strategy is no longer critical to our long term financial condition.

(3)  Assumes an interest rate of 11.0% per annum on an aggregate principal amount of approximately $162.3 million of notes outstanding immediately following the offerings. Also includes interest on an aggregate principal amount of approximately $320.3 million of Coinmach Corp. 9% notes to be outstanding immediately following the offerings and includes interest on the average balance of approximately $240.5 million for the periods reflected on the Coinmach Corp. credit facility at an assumed interest rate of 4.62% per annum.
 
(4)  We estimate that our cash taxes for each of the periods shown will be approximately zero. In estimating our cash taxes, we have assumed the following incremental deductions resulting from the Transactions totaling approximately $12.4 million, including one-time deductions directly resulting from the transactions associated with the offerings:

             
(In thousands)
Redemption premium on $129.8 million of Coinmach Corp. 9% notes
  $ 11,678  
 
Swap breakage costs
    945  
 
Annual amortization of additional deferred financing fees
    647  
 
Annual amortization of deferred financing fees related to the redeemed Coinmach Corp. 9% notes
    (448 )
 
Annual amortization of deferred financing fees related to the prepaid term loans under Coinmach Corp. credit facility
    (391 )
     
 
   
Total
  $ 12,431  
     
 

  Although we estimate that our cash taxes for the twelve months ending December 31, 2005 will be approximately zero, we may be subject to cash income tax expenses in future periods.
 
  If our treatment of the notes as debt is called into question in the future as a result of a future ruling by the IRS or by a court of law, including an adverse ruling in respect of other similar securities of other companies or as a result of a proposed adjustment by the IRS in an examination of us or for any other reason, we will need to consider the effect of such developments on the determination of our future tax provisions and obligations. In the event the notes are required to be treated as equity for income tax purposes, then the cumulative interest expense associated with the notes for prior tax periods that are open to assessment and for future tax periods would not be deductible from taxable income, and we would be liable for additional tax expense and be required to establish a related income tax liability for prior period treatment. The additional tax due to the federal and state authorities would be based on our taxable income or loss for each of the years that we claimed the interest expense deduction (but without giving effect to interest accrued on the notes as a deduction for such years) and would adversely affect our financial position, cash flow, and liquidity, and could affect our ongoing ability to make interest payments on the notes and dividend payments on the shares of Class A common stock underlying the IDSs and our ability to continue as a going concern. However, we do not currently intend to record a liability for a potential disallowance of this interest expense.
 
  A factor in the ongoing determination that no liability should be recorded in our consolidated financial statements with respect to the deductibility for income tax purposes of the interest on the notes is the veracity, at the time of the offerings, of the representations that will be delivered by the purchasers of third party notes, as described under the heading “Description of Certain Indebtedness — The Third Party Notes.” In addition, factors indicating the existence, at the time of

52


Table of Contents

the offerings, of any plan or intention described under the heading “Description of Certain Indebtedness — The Third Party Notes” may also be relevant to this ongoing determination.
 
  Consequently, even if the IRS does not challenge the U.S. federal income tax treatment of the notes, it is possible that we will at some point in the future, as a result of IRS interpretations or other changes in circumstances, conclude that we should establish a reserve for tax liabilities associated with a disallowance of all or part of the interest deductions on the notes, although our present view is that no such reserve is necessary or appropriate. If we decide to maintain such a reserve, our income tax provision, and related income tax payable, would be materially and adversely impacted. As a result, our ability to pay dividends on the shares of our common stock could be materially impaired and the market price and/or liquidity for the IDSs or our other securities could be adversely affected.
 
  For more discussion of our (and our tax counsel’s) opinion that the notes will be treated as indebtedness for U.S. federal income tax purposes, see “Material United States Federal Income Tax Consequences — Consequences to U.S. Holders — Notes — Characterization of Notes.”

  (5)  Estimated cash dividend payments on the Class A common stock are intended to be as follows:
                                 
Intended
Quarterly Dividends
Base
Number of Dividend Quarterly Annual
Shares Per Share Aggregate Aggregate




(In thousands)
Class A common stock
    21,083,332     $ 0.1894     $ 3,993     $ 15,972  

  (6)  The indenture governing the notes will treat cash dividends paid on our common stock as restricted payments and will generally limit the making of those payments to an amount equal to the sum of a percentage of cumulative consolidated net income and certain other specified items and require us to satisfy a fixed charge coverage test. We expect to be unable to pay cash dividends on the Class A common stock in an amount equal to the intended quarterly dividend under the general terms of that covenant due to an insufficient amount of cumulative consolidated net income. We intend to rely on an exception to that covenant that permits cash dividends on our common stock to be paid on a quarterly basis for the life of the notes in an amount based on our distributable cash flow so long as we are able to satisfy an interest coverage test and no default under the indenture is continuing. See footnote (7) below and “— Limitations on Our Ability to Pay Dividends — Indenture Governing the Notes.”

53


Table of Contents

       The table below sets forth our calculations illustrating, for the twelve months ending December 31, 2005, our estimated distributable cash flow calculated in accordance with the indenture governing the notes based on our estimated minimum EBITDA for such twelve month period as calculated in the table set forth on page 49 above.

Estimated Distributable Cash Flow to pay Cash Dividends

on Class A Common Stock Based on Estimated Minimum EBITDA
           
Twelve
Months
Ending
December 31,
2005

Estimated minimum EBITDA(a)
  $ 153,600  
Less:
       
 
Estimated cash taxes(b)
     
 
Estimated capital expenditures(c)
    70,000  
 
Estimated cash principal payments on indebtedness(d)
    2,480  
 
Estimated net changes in working capital
     
 
Estimated extraordinary cash charges
     
Plus:
       
 
Estimated cash tax refunds
     
 
Estimated extraordinary cash gains
     
     
 
Estimated distributable cash flow
  $ 81,120  
     
 


  (a)  See footnote (1) above.
 
  (b)  See footnote (4) above.
 
  (c)  See footnote (2) above.
 
  (d)  Excludes, in accordance with the indenture governing the notes, (i) payments on intercompany obligations, (ii) payments made from amounts borrowed pursuant to indebtedness or amounts received from the issuance or sale of qualified capital stock, in each case that has refinanced, renewed or replaced such repaid indebtedness in such period, (iii) payments made on indebtedness under working capital facilities to the extent such amounts remain available to be reborrowed, and (iv) payments made to redeem 9% Coinmach Corp. notes or repay outstanding borrowings under the Coinmach Corp. credit facility, in each case, pursuant to the Transactions.

  (7)  The indenture governing the notes permits us to pay dividends on our common stock so long as our consolidated interest expense is less than 90% of our distributable cash flow for the most recent fiscal quarter. We and our restricted subsidiaries must also have cash or borrowings available in excess of reasonably anticipated consolidated interest expense on outstanding indebtedness and on indebtedness that we or they intend to incur for the two subsequent fiscal quarters. In addition, we must have amounts available or owed to us from our restricted subsidiaries sufficient to make cash interest payments on our indebtedness, including the notes, during such period and indebtedness that we intend to incur during such period. Although we are presenting the amount of each item set forth under the heading “interest coverage test under the indenture governing the notes” that is set forth in the table as the estimated aggregate amount for such item for the twelve months ending December 31, 2005, rather than the estimated amount for any of the fiscal quarters during that period, we believe that we will be able to satisfy the interest coverage test for each of the four fiscal quarters during that period and pay dividends on our Class A common stock at the intended quarterly base dividend level with respect to each such fiscal quarter. See “Description of the Notes — Certain Covenants — Limitation on Restricted Payments.”

54


Table of Contents

  Because CSC is a holding company, we will rely on the ability of Coinmach Corp. to pay dividends and distribute cash to CSC. Coinmach Corp.’s ability to pay such dividends will be subject to the restrictive covenants contained in the indenture governing the Coinmach Corp. 9% notes and the Coinmach Corp. credit facility. We have conducted a review and application, pro forma for the Transactions, of the terms of the indenture governing the Coinmach Corp. 9% notes and the Coinmach Corp. credit facility. For each of the four consecutive fiscal quarters ended September 30, 2004, we have concluded, and for the four consecutive fiscal quarters ending December 31, 2005, we have estimated, that Coinmach Corp. would be permitted to provide CSC with sufficient cash to pay cash dividends on the Class A common stock at the initial dividend rate. However, financial circumstances may arise in the future whereby CSC is permitted to pay dividends on the CSC common stock under the indenture governing the notes, but Coinmach Corp. would be prohibited under the terms of its indebtedness from providing CSC with the cash to pay such dividends. See “— Limitations on Our Ability to Pay Dividends — Indenture Governing the Coinmach Corp. 9% Notes” and “— The Coinmach Corp. Credit Facility.”

  (8)  The indenture governing the notes permits the payment of dividends on our common stock in an amount equal to our distributable cash flow less interest expense, in each case for the most recent fiscal quarter. Although we are presenting the permitted amount of dividends set forth in the table as the estimated aggregate amount for the twelve months ending December 31, 2005 rather than the estimated amount for any fiscal quarter during that period, we believe that the permitted amount of dividends for each of the four fiscal quarters during that period will be sufficient to pay dividends on our Class A common stock at the intended quarterly base dividend level with respect to each such fiscal quarter. See “Description of the Notes — Certain Covenants — Limitation on Restricted Payments.”

(9)  In addition, assuming that the payment of cash dividends on the Class B common stock was not subordinated to the payment of cash dividends on the Class A common stock or subject to the $10.0 million annual dividend payment limitation, we estimate that the amount of EBITDA necessary to pay cash dividends on the Class A common stock at the intended quarterly base dividend level and on the Class B common stock at the intended annual base dividend level for the twelve months ending with the fiscal quarter ending December 31, 2005 would be approximately $162.4 million. If these assumptions were satisfied and that level of EBITDA were achieved, the aggregate amount of cash dividends that would be paid for such on the Class A common stock and the Class B common stock would be approximately $16.0 million and $16.3 million, respectively. However, we have not recently been able to achieve this level of annual EBITDA and no assurance can be given that we will be able to do so in the future or at all.

(10)  Although we are presenting amounts as having been borrowed and interest as having accrued thereon for the purpose of primarily making discretionary capital expenditures during the fiscal year ended March 31, 2004 and only making discretionary capital expendituring during the twelve months ended September 30, 2004, no such borrowings were in fact made. We believe that if our capital expenditures during each such period were in an aggregate amount consistent with our projected capital expenditures for the twelve months ending December 31, 2005, as more fully described in footnote (2) above, then we would not have needed to incur any such borrowing to cover such capital expenditures included in the historical amounts (or to pay the resulting interest expense related thereto) during either such period in order to have had the excess cash necessary to pay dividends on our Class A common stock at the intended quarterly base dividend level with respect to each fiscal quarter during each such period. The amount of assumed borrowings to fund such capital expenditures would have been available to Coinmach Corp. under the Coinmach Corp. credit facility during each such period and includes the capitalization of interest expense related thereto computed at the per annum rate of 3.88% and 4.62% for the fiscal year ended March 31, 2004 and the twelve months ended September 30, 2004, respectively. Our historical capital expenditures in the periods presented are not reflective of the capital expenditures we have incurred more recently in anticipation of the offerings contemplated by this prospectus and more fully discussed footnote (2) above.

55


Table of Contents

Based upon a review and analysis conducted by our management, we believe that our EBITDA will be approximately $161.5 million for the fiscal year ending March 31, 2005 and will be at least equal to such amount for the twelve months ending December 31, 2005. EBITDA for the twelve months ended September 30, 2004 was approximately $157.0 million. We estimate that the combination of the elimination of certain unprofitable operations in Super Laundry, the impact of continued growth in AWA, and cost savings from our recent investment in technology will result in sufficient incremental EBITDA to achieve this result. We believe that the assumptions as to capital expenditures, interest expense and cash taxes set forth in the preceding tables are reasonable. We considered numerous factors in establishing our belief concerning the minimum EBITDA and available cash required to support our dividend policy and our belief as to our estimated minimum EBITDA for the twelve months ending December 31, 2005, including the following:

  •  our EBITDA for the fiscal years ended March 31, 2004, 2003 and 2002 was approximately $155.7 million, $159.5 million and $154.6 million, respectively, and our EBITDA for the twelve months ended September 30, 2004 was approximately $157.0 million;
 
  •  while our capital expenditures for the fiscal years ended March 31, 2004, 2003 and 2002 were approximately $94.3 million, $92.6 million and $86.9 million, respectively, and for the twelve months ended September 30, 2004 were $83.1 million, we expect to make annual capital expenditures of approximately $70.0 million, subject to increases related to discretionary capital expenditures;
 
  •  term B loans under the Coinmach Corp. credit facility are not scheduled to begin to mature until July 25, 2009 and the Coinmach Corp. 9% notes are not scheduled to mature until February 1, 2010;
 
  while our working capital balances may vary, our business generally is not seasonal, there has not been a recent trend toward material working capital growth and we do not expect to have cash needs to fund changes in working capital in the aggregate for the 12-month period ending December 31, 2005; and
 
  •  based upon a pro forma analysis of the impact of our new capital structure (including, but not limited to, the payment of dividends at the level described above and interest expense in respect of the notes) on our operations and performance in prior years, the amended Coinmach Corp. credit facility would have provided sufficient borrowing capacity to finance the fluctuations we experienced historically in working capital and other cash needs.

          We have also assumed:

  that our general business climate, including such factors as customer attraction and retention, regulatory compliance and lease renewal costs and fluctuations in occupancy levels, will remain consistent with previous financial periods; and
 
  the absence of extraordinary business events such as unforeseen regulatory requirements, unanticipated adverse tax treatment of our debt or other events that might adversely affect our financial results.

Limitations on Our Ability to Pay Dividends

 
General

          As noted above, we intend to pay dividends for the period from the closing of the offerings through December 31, 2005, which includes the first four full quarterly dividend payment periods. There can be no assurance that during or following the first four full quarterly dividend payment periods following the closing of the offerings we will pay dividends at the level estimated above, or at all.

          Our ability to pay dividends on shares of our capital stock will depend on, among other things, our results of operations, cash requirements, financial condition and contractual restrictions, including but not

56


Table of Contents

limited to the terms of the indenture governing the notes. Our ability to generate cash from our operations, which in turn is dependent on our ability to attract and retain customers and our ability to service our debt obligations and capital expenditures requirements, is a significant factor affecting the amount of cash available for dividends. Other factors, including the pursuit of new business strategies or opportunities, increased regulatory compliance costs or lease renewal costs, changes in our competitive environment and changes in tax treatment of our debt, may also reduce cash available for dividends. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Future Capital Needs and Resources.”

          Capital expenditures related to the maintenance of our operations are intended to sustain the current service capacity and efficiency of our operations and primarily consist of machine expenditures (including machine replacements), advance location payments and laundry room improvements. Our customer contracts typically mature each year at a consistent rate. Therefore, our capital expenditures for maintenance of our machine base have generally been predictable and recurring in nature and without significant fluctuation. On an annual basis, we do not expect capital expenditures to vary significantly from the $70.0 million estimated for the twelve months ending December 31, 2005. Although expansion through acquisition was an important component of our historical business strategy, we believe we have achieved through such strategy significant economies of scale. While we continue to evaluate acquisition opportunities on a selective basis as they arise from time to time, the execution of such a strategy is no longer critical to our long-term financial condition.

          Nevertheless, our anticipated capital expenditures, as well as other currently contemplated uses of available cash, could change based on competitive or other developments (which could, for example, increase our need for capital expenditures or working capital), new growth opportunities or other factors. Our board of directors is free to depart from or change our dividend policy at any time and could reduce dividends, for example, if it were to determine that we had insufficient cash (including borrowing capacity under the Coinmach Corp. credit facility) to both pay dividends at the initial dividend rate and take advantage of growth opportunities. In such a situation, our board could alternatively choose to continue to pay dividends at the initial dividend rate and forego such opportunities. See “Risk Factors — Risks Relating to the Third Party Notes, the IDSs and the Shares of Class A Common Stock and Notes Underlying the IDSs — Our dividend policy may negatively impact our ability to finance our working capital requirements, capital expenditures or operations.”

          If the IRS were successfully to challenge our position that the notes are debt for U.S. federal income tax purposes, the cumulative interest expense associated with the notes would no longer be deductible from taxable income, and we would be required to recognize additional tax expense and establish a related income tax liability. Any disallowance of our ability to deduct interest expense could reduce our after-tax cash flow and materially adversely affect our ability to make cash dividend payments on our common stock. Based on our anticipated level of cash requirements, including capital expenditures, scheduled interest payments and existing contractual obligations, we estimate that for the twelve months ending December 31, 2005 cash flow from operations, along with available cash and cash equivalents and borrowing capacity under the Coinmach Corp. credit facility, will be sufficient to fund our operating needs and also to make our intended dividend payments even if the interest expense deduction is disallowed. However, if in the future we cannot generate sufficient cash flow to meet our needs, we may be required to reduce or eliminate dividends on our common stock. See “Risk Factors — Risks Relating to the Third Party Notes, the IDSs and the Shares of Class A Common Stock and Notes Underlying the IDSs — We will not be able to deduct interest on the notes if the notes are not respected as debt for U.S. federal income tax purposes” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies.” As of September 30, 2004, we have approximately $86.0 million in net operating loss carryforwards. Such net operating loss carryforwards expire between the fiscal years ending March 31, 2005 and March 31, 2024, with the majority beginning to expire after the fiscal year ending March 31, 2009. Application of such net operating losses in determining our taxable net income is subject to annual limitations regarding changes in ownership that are contained in the Internal Revenue Code.

57


Table of Contents

          We cannot assure you that our EBITDA will in fact meet the level described above or that it will equal or exceed our historical EBITDA levels. If our EBITDA for the twelve months ending December 31, 2005 were to be below $153.6 million or if our assumptions as to capital expenditures or interest expense were too low or our assumptions as to the sufficiency of the Coinmach Corp. credit facility to finance our working capital needs were incorrect, we may be required to do one or more of the following: (i) reduce our capital expenditures, (ii) fund capital expenditures or other costs and expenses with borrowings under the Coinmach Corp. credit facility, (iii) evaluate other funding alternatives, such as capital markets transactions, refinancing or restructuring our consolidated indebtedness, asset sales, or financing from third parties, or (iv) seek an amendment, waiver or other modification from requisite lenders under the Coinmach Corp. credit facility and/or holders of Coinmach Corp.’s 9% notes, in each case to the extent our failure to meet such level of EBITDA or the inaccuracy of our assumptions resulted in Coinmach Corp. failing to satisfy the applicable restrictions contained in the Coinmach Corp. credit facility or the indenture governing the Coinmach Corp. 9% notes and Coinmach Corp. was limited from making dividends or distribution to us. Additional sources of funds may not be available on commercially reasonable terms or at all or may not be permitted pursuant to the terms of our existing indebtedness. If we were to use working capital or permanent borrowings to fund dividends, we would have less cash and/or borrowing capacity available for future dividends and other purposes, which could negatively impact our future liquidity, our ability to adapt to changes in our industry and our ability to expand our business. Notwithstanding any of the foregoing options that may be available to us, our board of directors may at any time and in its absolute discretion reduce the level of dividends provided for in our dividend policy or eliminate such dividends entirely.

          Over time, our EBITDA and capital expenditure, working capital and other cash needs will become subject to increasing uncertainties, which could impact the level of any dividends we pay in the future. We do not intend for our estimate of our minimum level of EBITDA set forth above to be a projection or forecast of our actual results of operations or our liquidity, and we have calculated this estimate for the sole purpose of presenting and supporting our estimated initial annual dividend rate. No assurance can be given that our EBITDA will in fact equal or exceed the minimum level set forth above, and our belief that it will be at least $161.6 million for the four consecutive fiscal quarters ending December 31, 2005 is subject to all of the risks, considerations and factors identified in this prospectus, including those identified in this “Dividend Policy and Restrictions” section as well as in the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Future Capital Needs and Resources.”

          Our payment of dividends will also depend on provisions of applicable law and other factors that our board of directors may deem relevant. Under Delaware law, our board of directors may declare dividends only to the extent of our “surplus” (which is total assets at current value minus total liabilities at current value (as each may be determined in good faith by our board of directors), minus statutory capital), or if there is no surplus, out of our net profits, if any, for the then current and/or immediately preceding fiscal years. Dividend payments are not required or guaranteed, and holders of our capital stock do not have any legal right to receive or require the payment of dividends.

          Subject to certain limitations, at any time after the date that is six months after the closing of the offerings, we may redeem all or part of the then outstanding Class B common stock and Class C common stock on a pro rata basis. Any exercise by us of such redemption rights will reduce cash available for Class A common stock dividends. See “Description of Capital Stock — Common Stock — Redemption of Class B Common Stock and Class C Common Stock — Redemption of Class B Common Stock and Class C Common Stock by CSC” and “Description of the Notes — Certain Covenants — Exercise of Redemption Rights and Sales Rights.” Due to our currently contemplated cash uses, including dividend payments, we do not expect to retain enough cash from operations to be able to pay the notes, the Coinmach Corp. 9% notes, or the Coinmach Corp. credit facility when such indebtedness matures or when principal payments (other than regularly scheduled amortization payments under the Coinmach Corp. credit facility) on such indebtedness otherwise becomes due. Therefore, cash available for dividends will be reduced when such payments are required, unless such indebtedness is refinanced prior to such time. There

58


Table of Contents

can be no assurance, however, that we will be able to refinance such indebtedness on commercially reasonable terms, on terms as favorable as the refinanced indebtedness or at all. A failure to refinance such indebtedness or pay it when it becomes due would cause a default under the Coinmach Corp. credit facility, the indenture governing the Coinmach Corp. 9% notes and the indenture governing the notes. See “Risk Factors — Risks Relating to the Third Party Notes, the IDSs and the Shares of Class A Common Stock and Notes Underlying IDSs — You may not receive the level of dividends provided for in the dividend policy that our board of directors is expected to adopt upon the closing of the offerings or any dividends at all.”
 
Indenture Governing the Notes

          The indenture governing the notes will restrict our ability to declare and pay dividends on our capital stock as described under “Description of the Notes — Certain Covenants — Limitation on Restricted Payments.” After payment of the first four dividend payments at the initial dividend rate contemplated to be made on February 15, 2005, May 15, 2005, August 15, 2005 and November 15, 2005, we will have to comply with certain tests and restrictions under the indenture in order to pay future dividends. Under the indenture, we generally may pay dividends if:

            (i) there is no existing or resulting default or an event of default under such indenture;
 
            (ii) prior to and following such dividend payments we are in compliance with the consolidated fixed charge coverage ratio then in effect, as described under “Description of the Notes — Certain Covenants — Limitation on Incurrence of Additional Indebtedness;” and
 
            (iii) the aggregate amount of any dividend payment (combined with any other restricted payments we have made under such indenture) does not exceed the sum of:

            (y) 50% of our cumulative consolidated net income (or, if consolidated net income is a loss, minus 100% of such loss) earned during the period beginning on January 1, 2005 and ending on the last day of the fiscal quarter immediately preceding such dividend payment, plus
 
            (z) the aggregate net cash proceeds received at any time subsequent to December 31, 2004 from purchases of certain of our securities and from certain types of equity contributions by our stockholders.

          Since we anticipate that we will be unable to satisfy the foregoing test for the four consecutive fiscal quarters ending with the fiscal quarter ending December 31, 2005, we intend, subject to certain limitations described below, to pay quarterly dividends in reliance on an exception to the foregoing test that is available through the maturity date of the notes and permits dividends in an amount up to 100% of our “Distributable Cash Flow” for such quarter, minus our “Consolidated Interest Expense” for the most recent quarter for which financial statements are then available (as each such term is defined in “Description of the Notes”). Furthermore, to the extent that in any quarter we pay an amount of dividends less than the amount available under such formula, the difference between the amount paid and the amount available will be added to the determination of amounts available for the next quarterly dividend payment.

          However, our ability to pay dividends in any quarter under the foregoing formula will be subject to certain conditions:

            (i) there may not be a default or event of default under the indenture;
 
            (ii) Consolidated Interest Expense must be less than 90% of Distributable Cash Flow; and
 
            (iii) we must determine in good faith that, notwithstanding such dividend payments, we will be able to satisfy our future liquidity needs as specified in the indenture.

See “Description of the Notes — Certain Covenants — Limitation on Restricted Payments.”

59


Table of Contents

          While we may be permitted to make dividends under the indenture pursuant to one of the provisions described above, as well as certain other limited provisions which may, but are not specifically allocated to, be used to pay dividends, our actual ability to do so will depend on our receipt of cash from Coinmach Corp. As described below, the ability of Coinmach Corp. to distribute cash to us will be subject to the restrictive covenants contained in the indenture governing the Coinmach Corp. 9% notes and the Coinmach Corp. credit facility. As a result, circumstances may arise in the future whereby CSC is permitted to pay cash dividends on the CSC common stock under the indenture governing the notes, but Coinmach Corp. would be prohibited under the terms of its indebtedness to provide us with the cash to actually pay such dividends.

 
Indenture Governing the Coinmach Corp. 9% Notes

          The cash used to make dividend payments is expected to be funded by dividends and other distributions to us from our subsidiaries and payments of interest and principal to us by Coinmach Corp on the intercompany note. However, dividends and distributions from our subsidiaries will be subject to the discretion of their respective boards of directors and limited by the terms of each of their existing indebtedness. Under the indenture governing the Coinmach Corp. 9% notes, Coinmach Corp. may pay dividends if:

            (i) there is no existing or resulting default or an event of default under such indenture;
 
            (ii) prior to and following such dividend payments Coinmach Corp. is in compliance with the consolidated fixed charge coverage ratio then in effect under the limitation on incurrence of additional debt covenant contained in such indenture; and
 
            (iii) the aggregate amount of any dividend payment (combined with any other restricted payments Coinmach Corp. has made under such indenture) does not exceed the sum of:

            (y) 50% of Coinmach Corp.’s cumulative consolidated net income (or, if consolidated net income is a loss, minus 100% of such loss) earned during the period from January 1, 2002 to the end of the fiscal quarter immediately preceding such dividend payment, plus
 
            (z) the aggregate net cash proceeds received since January 1, 2002 from purchases of certain of Coinmach Corp.’s securities and from certain types of equity contributions by Coinmach Corp.’s stockholders.

          For more information regarding the restrictions imposed by the indenture governing the Coinmach Corp. 9% notes, see “Description of Certain Indebtedness — The Coinmach Corp. 9% Notes.”

 
The Coinmach Corp. Credit Facility

          The Coinmach Corp. credit facility restricts the ability of Coinmach Corp. and its subsidiaries (including AWA) to declare and pay dividends on its capital stock (other than dividends to Coinmach Corp. and its wholly-owned subsidiaries). We intend to obtain an amendment to the Coinmach Corp. credit facility in connection with the offerings that will permit Coinmach Corp. to make distributions to us to pay dividends on the Class A common stock and Class B common stock to the extent permitted under the indenture governing the notes as in effect on the date of the indenture. Coinmach Corp. will not be permitted to make any such distributions if a default or event of default is continuing under the Coinmach Corp. credit facility. The effectiveness of the amendment is a condition to consummation of the offerings.

          Events of defaults may arise under the Coinmach Corp. credit facility if, among other things, any of the following financial covenants are not satisfied:

  maintenance of a minimum EBITDA;
 
  maintenance of a minimum fixed charge coverage ratio; and
 
  maintenance of a maximum pro forma leverage ratio.

60


Table of Contents

          As previously stated, the payment of dividends is not mandatory or guaranteed by us. Additionally, none of our subsidiaries will guarantee payment of any dividends. See “Risk Factors — Risks Relating to the Third Party Notes, the IDSs and the Shares of Class A Common Stock and Notes Underlying the IDSs — Our subsidiaries will not guarantee the dividend payments on our Class A common stock at any time and the notes will be effectively subordinated to all indebtedness of our subsidiaries that are not guarantors of the notes.” For more information regarding the restrictions imposed by the Coinmach Corp. credit facility, see “Description of Certain Indebtedness — The Coinmach Corp. Credit Facility.”

      Intercompany Note

          The intercompany note of Coinmach Corp. and the intercompany note guaranty by its subsidiaries are senior unsecured obligations of Coinmach Corp. and its subsidiaries, respectively. Accordingly, our rights to payment thereon will be effectively subordinated to all secured indebtedness of Coinmach Corp. to the extent of the collateral securing such indebtedness. See “Risk Factors — Risks Relating to the Third Party Notes, the IDSs and the Shares of Class A Common Stock and Notes Underlying the IDSs — The rights of holder of the notes to receive payments on the notes will also be effectively subordinated to certain indebtedness permitted under the indenture governing the notes to be incurred by us on a secured basis.”

          For the reasons stated above, we cannot assure you that any of our subsidiaries will be able to make dividends or distributions or that Coinmach Corp. or its subsidiaries will be able to make payments under the intercompany note and the intercompany note guaranty in amounts sufficient to allow us to declare or pay dividends to you as the holders of our Class A common stock.

61


Table of Contents

CAPITALIZATION

          The following table sets forth the cash and cash equivalents and capitalization as of September 30, 2004 of (i) Laundry Corp., on a historical basis and (ii) CSC, as adjusted to give effect to the Transactions, including (a) the IDS offering of $275.0 million and the application of the net proceeds therefrom and (b) the offering of $20.0 million aggregate principal amount of the third party notes and the application of the net proceeds therefrom. This table should be read in conjunction with the unaudited pro forma financial data of CSC and the combined and consolidated financial statements of Laundry Corp. and the notes thereto included elsewhere in this prospectus.

                     
September 30, 2004

Actual As Adjusted


(in thousands)
Cash and cash equivalents
  $ 37,605     $ 35,690  
     
     
 
Debt:
               
 
Coinmach Corp. 9% Senior Notes due 2010
  $ 450,000     $ 320,250  
 
Coinmach Corp. credit facility(1)
    257,271       241,747  
 
Notes offered hereby(2)
          143,750  
 
Other long-term debt
    8,504       8,504  
     
     
 
Total debt
    715,775       714,251  
Redeemable preferred stock
    279,282        
Stockholders’ (deficit) equity:
               
 
Common Stock — $2.50 par value, 76,000 shares authorized; 66,805.83 shares issued and outstanding
    167        
 
Class A common stock — $0.01 par value, 100,000,000 shares authorized; 18,333,333 shares issued and outstanding
          183  
 
Class B common stock — $0.01 par value, 100,000,000 shares authorized; 26,504,522 shares issued and outstanding
          265  
Capital in excess of par value
    5,017       312,256  
Carryover basis adjustment
    (7,988 )     (7,988 )
Accumulated other comprehensive loss, net of tax
    (438 )      
Accumulated deficit
    (181,381 )     (197,844 )
Deferred compensation
    (49 )     (49 )
     
     
 
   
Total stockholders’ (deficit) equity
    (184,672 )     106,823  
     
     
 
Total capitalization
  $ 810,385     $ 821,074  
     
     
 

(1)  Does not include undrawn amounts available to be borrowed under the Coinmach Corp. credit facility.
 
(2)  Includes notes underlying IDSs and third party notes.

62


Table of Contents

DILUTION

          Dilution is the amount by which the portion of the price paid by purchasers of IDSs in the offering that is allocated to our shares of common stock exceeds the net tangible book value or deficiency per share of our common stock after the offering. Net tangible book value or deficiency per share of our common stock is determined at any date by subtracting our total liabilities from the total book value of our tangible assets and dividing the difference by the number of shares of common stock deemed to be outstanding at that date.

          For purposes of calculating dilution below, we have assumed that as of September 30, 2004 18,333,333 shares of our Class A common stock and 26,504,522 shares of our Class B common stock are outstanding following the closing of the offerings.

          After giving pro forma effect to the Transactions and the application of the net proceeds therefrom as described under “Use of Proceeds,” our pro forma as adjusted net tangible book deficiency as of September 30, 2004 would have been approximately $414.5 million, or $9.24 per share. This represents an immediate increase in net tangible book value of $6.51 per share of Class B common stock to Holdings and an immediate dilution of $17.49 per share of Class A common stock to new investors purchasing IDSs in the offerings.

          The following table illustrates this substantial and immediate dilution to new investors:

                   
Per Share of Class A
Common Stock

Without With
Over-Allotment Over-Allotment


Assumed initial allocation of Class A common stock underlying the IDSs
  $ 8.25     $ 8.25  
 
Net tangible book value per share as of September 30, 2004 (44,837,855 shares (or 42,587,854 shares if the underwriters’ over-allotment option is exercised in full))
    (15.75 )     (16.58 )
 
Increase per share attributable to cash payments made by investors in this offering
    6.51       6.85  
     
     
 
Pro forma as adjusted net tangible book value per share after this offering
    (9.24 )     (9.73 )
     
     
 
Dilution in net tangible book value per share to new investors
  $ 17.49     $ 17.98  
     
     
 

The following table summarizes on a pro forma basis as of September 30, 2004 (assuming consummation of the Transactions as of such date):

  the total shares of our Class A common stock held by IDS holders and Class B common stock held by Holdings;
 
  the total consideration paid to us (in cash or other property) by Holdings and new investors, before deducting the estimated underwriting discounts and commissions and offering expenses payable by us in connection with the offering; and
 
  the average price per share of Class A common stock paid (in cash or other property) by new investors and the average price per share of Class B common stock paid by Holdings:

                                   
Shares of
Common Stock
Purchased

Purchased Total Average Price
Number Percent Consideration Per Share




(dollars in thousands)
Holdings
    26,504,522       59.11 %   $ 187,562 (1)   $ 7.08  
New investors
    18,333,333       40.89 %     151,250       8.25  
     
     
     
     
 
 
Total
    44,837,855       100.0 %   $ 338,812     $ 7.56  
     
     
     
     
 

(1)  Represents the fair market value of the shares of Laundry Corp. capital stock and AWA non-voting common stock exchanged by Holdings in return for the shares of CSC Class B common stock.

63


Table of Contents

SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA

          The following tables display the selected consolidated historical financial data of Laundry Corp. which is expected to be similar in all material respects to our consolidated historical financial data after the offering contemplated hereby for the periods ended and as of the dates indicated. We derived certain of the historical data for the fiscal year ended March 31, 2000, for the three month period from April 1, 2000 to June 30, 2000 and the nine month period from July 1, 2000 to March 31, 2001 and for the fiscal years ended March 31, 2002, 2003 and 2004 from our audited consolidated financial statements and for the six months ended September 30, 2003 and September 30, 2004 from our unaudited condensed consolidated financial statements. The unaudited financial statements have been prepared on a basis consistent with the audited financial statements appearing elsewhere in this prospectus and, in the opinion of management, include all adjustments necessary for a fair presentation of such data. However, the historical data for the results of operations for the six months ended September 30, 2003 and September 30, 2004 are not necessarily indicative of the results that may be expected for any other interim period or for the fiscal year ending March 31, 2005. The following selected financial data should be read in conjunction with, and is qualified in its entirety by reference to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the notes thereto appearing elsewhere in this prospectus.

                                                                     
Three Months Nine Months
Fiscal April 1, 2000 July 1, 2000 to
Year to June 30, March 31,
Ended 2000 2001 Fiscal Year Ended Six Months Ended

Pre-Going Post-Going

March 31, Private Private March 31, March 31, March 31, September 30, September 30,
2000 Transaction(9) Transaction(10) 2002 2003 2004 2003 2004








(Dollars in thousands except per share amounts)
Operations Data:
                                                               
 
Revenues
  $ 527,079     $ 134,042     $ 393,608     $ 538,895     $ 535,179     $ 531,088     $ 262,468     $ 266,449  
 
Other items, net(1)
                                (454 )     230             500  
 
Operating income
    44,928       10,597       17,528       36,270       55,348       47,112       23,399       23,420  
 
Net loss(2)
    (16,589 )     (4,759 )     (29,063 )     (42,335 )     (3,200 )     (31,331 )     (15,916 )     (16,652 )
 
Net loss per common share
                (683.19 )     (945.90 )     (359.41 )     (468.71 )     (238.08 )     (249.25 )
Balance Sheet Data (at end of period):
                                                               
 
Cash and cash equivalents
  $ 23,174             $ 25,859     $ 27,820     $ 27,428     $ 31,620     $ 27,024     $ 37,605  
 
Property and equipment, net
    237,160               276,004       284,413       286,686       283,688       289,887       276,315  
 
Contract rights, net
    380,964               373,352       348,462       335,327       323,152       328,317       316,561  
 
Advance location payments
    77,212               74,233       69,257       70,911       73,253       74,534       72,937  
 
Total assets
    876,173               1,017,012       992,075       976,163       959,508       973,820       951,386  
 
Total long-term debt(3)
    685,069               698,719       737,555       718,112       717,631       723,735       715,775  
 
Preferred stock
                  200,065       220,362       241,200       265,914       253,232       279,282  
 
Stockholders’ equity (deficit)
    32,321               (51,543 )     (113,743 )     (138,460 )     (169,619 )     (149,474 )     (184,672 )
Financial Information and Other Data:
                                                               
 
Cash flow provided by operating activities
  $ 90,258     $ 17,314     $ 68,014     $ 77,799     $ 103,900     $ 97,052     $ 45,549     $ 48,344  
 
Cash flow used in investing activities
    (88,404 )     (24,273 )     (66,202 )     (82,255 )     (81,330 )     (88,449 )     (48,672 )     (37,282 )
 
Cash flow (used in) provided by financing activities
    (5,195 )     8,362       (530 )     6,417       (22,962 )     (4,411 )     2,719       (5,077 )
 
EBITDA(4)
  $ 167,930     $ 42,154     $ 117,920     $ 154,565     $ 159,526     $ 155,689     $ 77,310     $ 78,590  
 
EBITDA margin(5)
    31.86 %     31.45 %     29.96 %     28.68 %     29.81 %     29.32 %     29.46 %     29.50 %
 
Capital expenditures:(6)
                                                               
 
Capital expenditures
  $ 88,404     $ 24,273     $ 60,620     $ 79,464     $ 86,685     $ 86,732     $ 48,876     $ 36,955  
   
Acquisition capital expenditures
                5,582       3,723       1,976       3,615             618  
 
Ratio of earnings to fixed charges(7)
                                               
 
Coverage deficiency(8)
  $ 22,398     $ 6,088     $ 37,683     $ 48,168     $ 2,819     $ 34,979     $ 17,341     $ 18,573  

64


Table of Contents


(1)  Other items, net, for the fiscal year ended March 31, 2003 consists of a gain from the sale of an investment offset by various expenses relating to (i) the AWA Transactions, (ii) the formation of ALFC, a wholly owned subsidiary of Super Laundry and (iii) the consolidation of certain Super Laundry offices. Other items, net, for the fiscal year ended March 31, 2004, consists of a gain from the sale of an investment offset by various expenses relating to the consolidation of certain Super Laundry offices. Other items, net for the six months ended September 30, 2004 consists of various expenses relating to the closing of Super Laundry offices in California. For more information regarding the AWA Transactions, see “Management’s Discussion and Analysis of Financial Conditions and Results of Operations — Operating and Investing Activities — The AWA Transactions.”
 
(2)  For the year ended March 31, 2004, net loss includes approximately $24.7 million of preferred stock dividends recorded as interest expense. For the six months ended September 30, 2003 and September 30, 2004, net loss includes approximately $12.0 million and $13.4 million, respectively, of preferred stock dividends recorded as interest expense. As required by SFAS No. 150, accrued and unpaid dividends prior to adoption of SFAS No. 150 have not been reclassified to interest expense. Preferred stock dividends for the years ended March 31, 2003 and 2002 and for the nine-month period from July 1, 2000 to March 31, 2001 were approximately $20.8 million, $20.4 million and $12.7 million, respectively.
 
(3)  Total long-term debt at March 31, 2000 and March 31, 2001 does not include the unamortized premium of $6,789 and $5,555, respectively, recorded as a result of the issuance by Coinmach Corp. of $100 million aggregate principal amount of 11 3/4% Senior Notes due 2005 in October 1997. The 11 3/4% Senior Notes were redeemed in their entirety by Coinmach Corp. on February 25, 2002 and the unamortized premium on such date was included in the determination of the loss on extinguishment of debt.
 
(4)  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 our 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 our 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 we have historically provided EBITDA to investors, we believe that presenting this non-GAAP financial measure provides consistency in our 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 accounting principles generally accepted in the United States) as an indicator of operating performance or (b) cash flows from operating, investing and financing activities (as determined by accounting principles generally accepted in the United States) as a measure of liquidity. Given that EBITDA is not a measurement determined in accordance with accounting principles generally accepted in the United States and is thus susceptible to varying calculations, EBITDA may not be comparable to other similarly titled measures of other companies. The following

65


Table of Contents

tables reconcile our net loss and to cash flow provided by operating activities to EBITDA for each period presented (in thousands).
                                                                 
Three Months Nine Months
Fiscal April 1, 2000 July 1, 2000
Year to June 30, to March 31,
Ended 2000 2001 Fiscal Year Ended Six Months Ended

Pre-Going Post-Going

March 31, Private Private March 31, March 31, March 31, September 30, September 30,
2000 Transaction Transaction 2002 2003 2004 2003 2004








Net loss
  $ (16,589 )   $ (4,759 )   $ (29,063 )   $ (42,335 )   $ (3,200 )   $ (31,331 )   $ (15,916 )   $ (16,652 )
Depreciation and amortization
    123,002       31,557       103,142       129,697       104,178       108,577       53,911       55,170  
Interest expense
    67,326       16,685       52,461       73,036       58,167       57,377       28,708       28,625  
Interest expense — preferred stock
                                  24,714       12,032       13,368  
(Benefit) provision for income taxes
    (5,809 )     (1,329 )     (8,620 )     (5,833 )     381       (3,648 )     (1,425 )     (1,921 )
     
     
     
     
     
     
     
     
 
EBITDA
  $ 167,930     $ 42,154     $ 117,920     $ 154,565     $ 159,526     $ 155,689     $ 77,310     $ 78,590  
     
     
     
     
     
     
     
     
 
                                                                 
Three Months Nine Months
Fiscal April 1, 2000 July 1, 2000
Year to June 30, to March 31,
Ended 2000 2001 Fiscal Year Ended Six Months Ended

Pre-Going Post-Going

March 31, Private Private March 31, March 31, March 31, September 30, September 30,
2000 Transaction Transaction 2002 2003 2004 2003 2004








Cash flow provided by operating activities
  $ 90,258     $ 17,314     $ 68,014     $ 77,799     $ 103,900     $ 97,052     $ 45,549     $ 48,344  
Loss on extinguishment of debt(i)
                      (11,402 )                        
Interest expense
    67,326       16,685       52,461       73,036       58,167       57,377       28,708       28,625  
Gain on sale of investment and equipment
                      147       3,532       1,232       46       54  
Stock based compensation
    (783 )     (118 )     (1,125 )     (530 )     (338 )     (176 )     (102 )     (37 )
Change in operating assets and liabilities
    9,927       7,874       (1,161 )     18,100       (3,693 )     2,513       4,166       2,776  
Deferred taxes
    7,552       1,873       8,478       4,247       16       3,753       1,575       1,956  
Amortization of debt discount and deferred issue costs
    (1,775 )     (454 )     (1,052 )     (2,008 )     (2,439 )     (2,414 )     (1,207 )     (1,207 )
Amortization of premium on 11 3/4% Senior Notes
    1,234       309       925       1,009                          
(Benefit) provision for income taxes
    (5,809 )     (1,329 )     (8,620 )     (5,833 )     381       (3,648 )     (1,425 )     (1,921 )
     
     
     
     
     
     
     
     
 
EBITDA
  $ 167,930     $ 42,154     $ 117,920     $ 154,565     $ 159,526     $ 155,689     $ 77,310     $ 78,590  
     
     
     
     
     
     
     
     
 
 

           (i)  Loss on extinguishment of debt for the fiscal year ended March 31, 2002 consists of costs incurred in connection with Coinmach Corp.’s refinancing on January 25, 2002.

  (5)  EBITDA margin represents EBITDA as a percentage of revenues. Management believes that EBITDA margin is a useful measure to evaluate CSC’s performance over various sales levels. EBITDA margin should not be considered as an alternative for measurements determined in accordance with accounting principles generally accepted in the United States.
 
  (6)  Capital expenditures represent amounts expended for property and equipment as well as for advance location payments to location owners. Acquisition capital expenditures represent the amounts expended to acquire local, regional and multi-regional route operators.
 
  (7)  For purposes of determining the ratio of earnings to fixed charges, earnings are defined as earnings (losses) from continuing operations before income taxes and fixed charges. Fixed charges include interest expense on indebtedness, capitalized interest and rental expense on operating leases representing that portion of rental expense deemed to be attributable to interest.

66


Table of Contents

  (8)  Coverage deficiency represents the dollar amount by which our earnings were deficient to cover our fixed charges for such period.
 
  (9)  As a result of the Going Private Transaction that was accounted for using the purchase method of accounting and, due to a practice known as “push down” accounting, as of July 1, 2000 (the beginning of the accounting period closest to the date of which control was effective), Laundry Corp. adjusted its consolidated assets and liabilities to their estimated fair values, based on valuations, estimations and other studies. Therefore, the financial statements presented for the “Post-Going Private Transaction” period are not comparable to the financial statements presented for the “Pre-Going Private Transaction” period. Had the Going Private Transaction taken place at April 1, 2000, on an unaudited pro-forma basis, depreciation and amortization and net loss would have been $3.5 million higher than reported for the “Pre-Going Private Transaction” period ended June 30, 2000. This includes the results of operations for the three month period from April 1, 2000 to June 30, 2000, representing the results prior to the Going Private Transaction. For more information regarding the Going Private Transaction, please see “Business — General Development of Business.”

(10)  Includes the results of operations for the nine month period from July 1, 2000 to March 31, 2001, representing the results subsequent to the Going Private Transaction.

67


Table of Contents

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA

          The following unaudited pro forma condensed consolidated financial statements have been derived by the application of pro forma adjustments to the historical condensed consolidated financial statements included elsewhere in this prospectus. The unaudited pro forma condensed consolidated statement of operations data for the year ended March 31, 2004 and the six months ended September 30, 2004 gives effect to the Transactions as if the Transactions occurred on April 1, 2003. The unaudited pro forma condensed consolidated balance sheet data as of September 30, 2004 gives effect to the Transactions as if the Transactions occurred on September 30, 2004. These estimates are preliminary and the final valuation could differ from these estimates. We do not expect the estimates to be materially different from the final valuation. The estimate of the aggregate proceeds from our offering of IDSs assumes an initial public offering price of $15.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, with 18,333,333 shares of Class A common stock issued underlying the IDSs and the split between the equity and debt based on their respective relative fair values. In addition to the offerings of IDSs and third party notes described in this prospectus, the Transactions include (i) the acquisition of Laundry Corp. and its subsidiaries by CSC, (ii) the redemption and repayment of a portion of the outstanding indebtedness of Coinmach Corp. and (iii) the inclusion of AWA as a wholly-owned subsidiary of CSC. See “The Transactions” for a detailed description of the Transactions and the entities involved in the Transactions.

          Assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with these unaudited pro forma condensed consolidated financial statements. We believe that the assumptions used provide a reasonable basis for presenting the significant effects directly attributable to the Transactions; however, the unaudited pro forma condensed consolidated financial statements should not be considered indicative of actual results that would have been achieved had the Transactions been consummated on the dates or for the periods indicated and do not purport to indicate consolidated balance sheet data or results of operations data as of any future date or for any future period.

          The unaudited pro forma condensed consolidated statement of operations for the year ended March 31, 2004 do not include one time costs or charges related to the Transactions, including (i) the payment of the redemption premium relating to the redemption of Coinmach Corp. 9% notes of approximately $11.7 million, (ii) the transaction fees and expenses, anticipated to be approximately $26.7 million, related to the redemption of the Laundry Corp. preferred stock, the Coinmach Corp. 9% notes, and the repayment of a portion of the Coinmach Corp. credit facility, (iii) the write-off of the proportionate unamortized balance of deferred borrowing costs of approximately $4.1 million for the year ended March 31, 2004 relating to the Coinmach Corp. 9% notes that will be redeemed and the portion of the Coinmach Corp. credit facility that will be repaid and (iv) estimated incremental ongoing expenses with being a public IDS issuer of approximately $1.0 million annually. The unaudited pro forma condensed consolidated statement of operations for the six months ended September 30, 2004 do not include one time costs or charges related to the Transactions, including (i) the payment of the redemption premium relating to the redemption of Coinmach Corp. 9% notes of approximately $11.7 million, (ii) the transaction fees and expenses, anticipated to be approximately $26.7 million, related to the redemption of the Laundry Corp. preferred stock, the Coinmach Corp. 9% notes, and the repayment of a portion of the Coinmach Corp. credit facility, (iii) the write-off of the proportionate unamortized balance of deferred borrowing costs of approximately $3.7 million for the six months ended September 30, 2004 relating to the Coinmach Corp. 9% notes that will be redeemed and the portion of the Coinmach Corp. credit facility that will be repaid and (iv) estimated incremental ongoing expenses with being a public IDS issuer of approximately $1.0 million annually. These costs are excluded from the unaudited pro forma condensed consolidated statement of operations since we do not expect these costs to have any effect on future periods. The Transactions were not accounted for under purchase accounting since there was no change of control.

          The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the information contained in “Selected Consolidated Historical Financial Data,” “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” and our historical consolidated financial statements and related notes included elsewhere in this prospectus.

68


Table of Contents

COINMACH SERVICE CORP.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

September 30, 2004
(in thousands of dollars)
                           
Laundry Transactions and
Corp. Pro Forma Pro Forma
Historical(1) Adjustments As Adjusted



ASSETS:
                       
 
Current assets
                       
Cash and cash equivalents
  $ 37,605     $ (1,915 )(2)   $ 35,690  
Receivables, net
    8,831             8,831  
Inventories and prepaid expenses
    16,438             16,438  
Assets held for sale
    2,993             2,993  
Other current assets
    2,007             2,007  
     
     
     
 
 
Total current assets
    67,874       (1,915 )     65,959  
Advance location payments
    72,937             72,937  
Property, equipment and leasehold improvements, net
    276,315             276,315  
Contract rights, net
    316,561             316,561  
Goodwill
    204,780             204,780  
Other assets
    12,919       9,247  (3)     22,166  
     
     
     
 
Total assets
  $ 951,386     $ 7,332     $ 958,718  
     
     
     
 
LIABILITY AND STOCKHOLDERS’ EQUITY (DEFICIT):
                       
 
Current liabilities
                       
Accounts payable and accrued expenses
  $ 30,000     $     $ 30,000  
Accrued rental payments
    29,402             29,402  
Accrued interest
    7,751       (2,919 )(4)     4,832  
Interest rate swap liability
    945       (945 )(5)      
Current portion of credit facility indebtedness
    6,132       (3,653 )(6)     2,479  
Current portion of other long-term debt
    3,163             3,163  
     
     
     
 
 
Total current liabilities
    77,393       (7,517 )     69,876  
Deferred income taxes
    72,903       507  (7)     73,410  
9% senior notes due 2010
    450,000       (129,750 )(8)     320,250  
Credit facility indebtedness
    251,139       (11,871 )(6)     239,268  
Other long-term debt
    5,341             5,341  
IDS notes
          123,750  (9)     123,750  
Third party notes
          20,000  (10)     20,000  
Redeemable preferred stock
    279,282       (279,282 )(11)      
     
     
     
 
 
Total liabilities
    1,136,058       (284,163 )     851,895  
Stockholders’ (deficit) equity:
                       
 
Common stock
    167       (167 )(12)      
 
Class A common stock
          183  (13)     183  
 
Class B common stock
          265  (13)     265  
 
Capital in excess of par value
    5,017       307,239  (14)     312,256  
 
Carryover basis adjustment
    (7,988 )           (7,988 )
 
Accumulated other comprehensive loss, net of tax
    (438 )     438  (15)      
 
Deferred compensation
    (49 )           (49 )
 
Accumulated deficit
    (181,381 )     (16,463 )(16)     (197,844 )
     
     
     
 
Total stockholders’ (deficit) equity
    (184,672 )     291,495       106,823  
     
     
     
 
Total liabilities and stockholders’ (deficit) equity
  $ 951,386     $ 7,332     $ 958,718  
     
     
     
 

See “Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet”

69


Table of Contents

COINMACH SERVICE CORP.

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

September 30, 2004

(1)  Represents our unaudited historical condensed consolidated balance sheet as of September 30, 2004, which is included elsewhere in this prospectus.
 
(2)  Net change in cash and cash equivalents is as follows (dollars in thousands):

           
IDSs:
  $ 275,000  
Third party notes
    20,000  
     
 
 
Total additions
    295,000  
Redemption of a portion of the Coinmach Corp. 9% notes
    (129,750 )
Redemption premium on the Coinmach Corp. 9% notes
    (11,678 )
Repurchase of Laundry Corp. preferred stock and dividends thereon
    (109,399 )
Repayment of a portion of Coinmach Corp. credit facility
    (15,524 )
Payment of accrued interest on the Coinmach Corp. 9% notes
    (2,919 )
Transaction fees and expenses and interest rate swap termination costs
    (27,645 )
     
 
 
Total reductions
    (296,915 )
     
 
Net cash used to fund transactions
  $ (1,915 )
     
 

(3)  The increase in other assets includes the following (dollars in thousands):

         
Write-off of existing deferred financing costs(a)
  $ (3,690 )
New deferred financing costs(b)
    12,937  
     
 
Net increase in other assets
  $ 9,247  
     
 

  (a)  Reflects the write-off of the proportionate unamortized balance of deferred financing costs relating to the portion of the loans under the Coinmach Corp. Credit Facility ($1,303) that will be repaid and the portion of the Coinmach Corp. 9% notes ($2,387) that will be redeemed.
 
  (b)  Reflects the estimated transaction fees and expenses applicable to the notes underlying the IDSs and the third party notes separate and apart from the IDSs, to be amortized over twenty years.

(4)  Reflects payment of three months of accrued interest through October 31, 2004 associated with the redemption of a portion of the Coinmach Corp. 9% notes.
 
(5)  Reflects the amount of the termination cost of the interest rate swap agreement.
 
(6)  Reflects the current portion (approximately $3,653) and the long-term portion (approximately $11,871) of the Coinmach Corp. credit facility that will be repaid (aggregating approximately $15,524).
 
(7)  Reflects the amount of deferred income taxes to be written-off related to the termination of the interest rate swap agreements.
 
(8)  Reflects the principal amount relating to the Coinmach Corp. 9% notes that will be redeemed.
 
(9)  Reflects the amount of notes underlying the IDSs.

(10)  Reflects the amount of third party notes offered separate and apart from the IDSs.

70


Table of Contents

(11)  Represents the amount of redeemable preferred stock that will be repurchased from the proceeds received or that will be exchanged for Class B common stock. The following reflects such amounts (dollars in thousands):

         
Repurchase of Laundry Corp. preferred stock and dividends thereon
  $ (109,399 )
Exchange of Laundry Corp. preferred stock for Class B shares
    (169,883 )
     
 
Total decrease in redeemable preferred stock
  $ (279,282 )
     
 

(12)  Represents the exchange of Laundry Corp. common stock for Class B common stock.
 
(13)  Increase in Class A and Class B common stock includes the following (dollars in thousands):

         
Issuance of 18,333,333 shares of Class A common stock at $0.01 par value represented by IDSs
  $ 183  
Issuance of 26,504,522 shares of Class B common stock at $0.01 par value in exchange for Laundry Corp. preferred stock
  $ 265  

(14)  The increase in capital in excess of par value on the issuance of the Class A and Class B common stock includes the following (dollars in thousands):
         
Issuance of Class A common stock
  $ 149,560  
Exchange of Laundry Corp. preferred and common stock for Class B common stock
    171,292  
Fees related to the issuance of Class A common stock
    (13,613 )
     
 
    $ 307,239  
     
 

(15)  Reflects the amount of accumulated other comprehensive loss to be written-off related to the termination of the interest rate swap agreements.
 
(16)  Changes to accumulated deficit are as follows (dollars in thousands):

         
Redemption premium on the Coinmach Corp. 9% notes
  $ (11,678 )
Write-off of existing deferred financing costs
    (3,690 )
Interest rate swap termination costs
    (945 )
Estimated transaction fees and expenses(a)
    (150 )
     
 
Total change to accumulated deficit
  $ (16,463 )
     
 
            

  (a)  Represents estimated transaction fees and expenses related to the redemption of a portion of Laundry Corp. preferred stock ($64), redemption of a portion of the Coinmach Corp. 9% notes ($76), and the repayment of a portion of the outstanding indebtedness under the Coinmach Corp. credit facility ($10).

71


Table of Contents

COINMACH SERVICE CORP.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

Six Months Ended September 30, 2004
(in thousands of dollars, except share and per share data)
                             
Transactions
Laundry and
Corp. Pro Forma Pro Forma
Historical Adjustments As Adjusted



REVENUES:
  $ 266,449     $     $ 266,449  
COSTS AND EXPENSES:
                       
 
Operating, general and administrative expense
    187,359             187,359  
 
Depreciation and amortization
    38,058             38,058  
 
Amortization of advance location payments
    9,852             9,852  
 
Amortization of intangibles
    7,260             7,260  
 
Other items, net
    500             500  
     
     
     
 
      243,029             243,029  
     
     
     
 
Operating income
    23,420             23,420  
 
Interest expense
    28,625       408   (1)     29,033  
 
Interest expense — preferred stock
    13,368       (13,368 )(2)      
     
     
     
 
Total interest expense
    41,993       (12,960 )     29,033  
     
     
     
 
Loss before income taxes
    (18,573 )     12,960       (5,613 )
Benefit for income taxes
    (1,921 )     167   (3)     (1,754 )
     
     
     
 
Net loss
  $ (16,652 )   $ 12,793     $ (3,859 )
     
     
     
 
   
Net loss per common share
  $ (249.25 )                
     
                 
   
Weighted average common shares
    66,807.47                  
     
                 
                 
Class A Class B


Pro forma loss per share(4)
  $ (0.09 )   $ (0.09 )
     
     
 

See “Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations”

72


Table of Contents

COINMACH SERVICE CORP.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

Year Ended March 31, 2004
(in thousands of dollars, except share and per share data)
                             
Transactions
Laundry and
Corp. Pro Forma Pro Forma
Historical Adjustments As Adjusted



REVENUES:
  $ 531,088     $     $ 531,088  
COSTS AND EXPENSES:
                       
 
Operating, general and administrative expense
    375,169             375,169  
 
Depreciation and amortization
    72,529             72,529  
 
Amortization of advance location payments
    20,576             20,576  
 
Amortization of intangibles
    15,472             15,472  
 
Other items, net
    230             230  
     
     
     
 
        483,976             483,976  
     
     
     
 
Operating income
    47,112             47,112  
 
Interest expense
    57,377       604 (1 )     57,981  
 
Interest expense — preferred stock
    24,714       (24,714 )(2)      
     
     
     
 
Total interest expense
    82,091       (24,110 )     57,981  
     
     
     
 
Loss before income taxes
    (34,979 )     24,110       (10,869 )
Benefit for income taxes
    (3,648 )     248 (3 )     (3,400 )
     
     
     
 
Net loss
  $ (31,331 )   $ 23,862     $ (7,469 )
     
     
     
 
   
Net loss per common share
  $ (468.71 )                
     
                 
   
Weighted average common shares
    66,845.62                  
     
                 
                 
Class A Class B


Pro forma loss per share(4)
  $ (0.17 )   $ (0.17 )
     
     
 

See “Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations”

73


Table of Contents

COINMACH SERVICE CORP.

NOTES TO UNAUDITED PRO FORMA CONDENSED

CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except share and per share data)

          (1) The following tables represent a reconciliation of pro forma interest expense (in thousands of dollars):

                           
Year Ended Six Months Ended
March 31, 2004 September 30, 2004


Historical interest expense   $ 57,377     $ 28,625  
Add:
                       
Interest on senior notes underlying IDSs     13,613       6,806  
 
Principal amount
  $ 123,750                  
 
Interest rate
    11.00 %                
     
                 
Interest on third party notes     2,200       1,100  
 
Principal amount
  $ 20,000                  
 
Interest rate
    11.00 %                
     
                 
Amortization of deferred financing costs ($12,937 over 20 years)     647       323  
Deduct:
                       
Interest on Coinmach Corp. 9% notes redeemed     (11,678 )     (5,839 )
 
Principal amount
  $ 129,750                  
 
Interest rate
    9.00 %                
     
                 
Interest on existing credit facility repaid     (734 )     (365 )
Interest on swap terminated     (2,605 )     (1,198 )
Amortization of deferred financing costs relating to Coinmach Corp. 9% notes redeemed     (448 )     (224 )
Amortization of deferred financing costs on existing credit facility repaid     (391 )     (195 )
     
     
 
 
Pro forma adjustment
            604       408  
             
     
 
 
Pro forma interest expense
          $ 57,981     $ 29,033  
             
     
 

          (2) Changes to interest expense-preferred stock is as follows (dollars in thousands):

                 
Year Ended Six Months Ended
March 31, 2004 September 30, 2004


Interest related to the portion of Laundry Corp. preferred stock that is exchanged for Class B common stock
  $ (12,409 )   $ (6,614 )
Interest related to the portion of Laundry Corp. preferred stock that is redeemed
    (12,305 )     (6,754 )
     
     
 
    $ (24,714 )   $ (13,368 )
     
     
 

          (3) Represents the income tax effect of the pro forma adjustments at the statutory tax rate.

          (4) Immediately following the consummation of the offerings, we will have two classes of common stock outstanding, designated as Class A common stock and Class B common stock, and as such we have presented pro forma basic and diluted earnings (loss) per share using the two-class method. The two-class method utilizes an earnings allocation formula that determines earnings (loss) per share for each class of common stock according to dividends declared and participation rights in undistributed earnings.

74


Table of Contents

COINMACH SERVICE CORP.

NOTES TO UNAUDITED PRO FORMA CONDENSED

CONSOLIDATED STATEMENT OF OPERATIONS — (Continued)
(Dollars in thousands, except share and per share data)

          Basic earnings (loss) per share for the two classes of common stock is calculated by dividing net earnings (loss) by the weighted average number of shares of Class A and Class B common stock outstanding. Diluted earnings (loss) per share is computed using the weighted average number of shares of Class A and Class B common stock plus the potentially dilutive effect of common stock equivalents. Diluted earnings (loss) per share for our two classes of common stock will be the same as basic earnings (loss) per share because we do not have any potentially dilutive securities outstanding.

          The following assumes dividends declared (in cash and/or in shares of Class C common stock) based on a quarterly dividend rate of approximately $0.1894 per share and an annual dividend rate of approximately $0.7575 per share.

                 
Year Ended Six Months Ended
March 31, 2004 September 30, 2004


Class A common stock
  $ 13,887.5     $ 6,944.7  
Class B common stock
  $ 20,077.2     $ 10,039.9  

          Pro forma net loss available to common stockholders is allocated to our two classes of common stock based on the weighted average number of shares outstanding since all two classes have the same participation rights. Under the two class method, loss per share for each class of common stock is presented:

                   
Year Ended Six Months Ended
March 31, 2004 September 30, 2004


Net loss
  $ (7,469 )   $ (3,859 )
Add: Dividends paid on common stock
    (33,965 )     (16,985 )
     
     
 
Undistributed loss available to Class A and Class B common stock
  $ (41,434 )   $ (20,844 )
     
     
 
Basic and diluted allocation of undistributed loss:
               
 
Class A common stock
  $ (16,942 )   $ (8,523 )
 
Class B common stock
    (24,492 )     (12,321 )
     
     
 
Total
  $ (41,434 )   $ (20,844 )
     
     
 
Weighted average common stock outstanding:
               
 
Class A common stock
    18,333,333       18,333,333  
 
Class B common stock
    26,504,522       26,504,522  
Distributed earnings:
               
 
Class A per share
  $ 0.76     $ 0.38  
 
Class B per share
  $ 0.76     $ 0.38  
Undistributed loss:
               
 
Class A per share
  $ (0.93 )   $ (0.47 )
 
Class B per share
  $ (0.93 )   $ (0.47 )
Loss per share:
               
 
Class A per share
  $ (0.17 )   $ (0.09 )
 
Class B per share
  $ (0.17 )   $ (0.09 )

75


Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

          The following discussion and analysis pertains to the results of operations and financial position of Laundry Corp., which are expected to be similar in all material respects to our consolidated historical financial data after the offerings contemplated hereby for the years and the periods indicated and should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this prospectus. 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, and the other risks set forth in “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.

Overview

          We are principally engaged in the business of supplying laundry equipment services to multi-family housing properties. Our most significant revenue source is our route business, which over the last three fiscal years has accounted for approximately 88% of our revenue. Through our route operations, we provide laundry equipment services to locations by leasing laundry rooms from building owners and property management companies, typically on a long-term, renewable basis. In return for the exclusive right to provide these services, most of our contracts provide for commission payments to the location owners. Commission expense (also referred to as rent expense), our single largest expense item, is included in laundry operating expenses and represents payments to location owners. Commissions may be fixed amounts or percentages of revenues and are generally paid monthly. In addition to commission payments, many of our leases require us to make advance location payments to location owners, which are capitalized and amortized over the life of the applicable leases. Advance location payments to location owners are paid, as required by the applicable lease, at the inception or renewal of a lease for the right to operate applicable laundry rooms during the contract period, which generally ranges from 5 to 10 years. The amount of advance location payments vary depending on the size of the location and the term of the lease. We also provide collection services for other route based companies, including payphone operators. As of September 30, 2004, we owned and operated approximately 675,000 washers and dryers in approximately 70,000 locations throughout North America, including 162 retail laundromats located in Texas and Arizona.

          The operation of retail laundromats involves leasing store locations in desirable geographic areas, maintaining an appropriate mix of washers and dryers at each store location and servicing the washers and dryers at such locations.

          We also operate an equipment rental business through AWA. AWA leases laundry equipment and other household appliances and electronic items to property owners, managers of multi-family housing properties, and, to a lesser extent, individuals and corporate entities. As of September 30, 2004, approximately 204,000 washers and dryers were installed with our rental customers through AWA.

          We also operate an equipment distribution business through Super Laundry. Super Laundry’s business consists of constructing and designing complete turnkey retail laundromats, retrofitting existing retail laundromats, distributing exclusive lines of commercial coin and non-coin operated machines and parts, and selling service contracts. In addition, Super Laundry, through its wholly owned subsidiary, American Laundry Franchising Corp., or ALFC, builds and develops laundromat facilities for sale as franchise locations. For each franchise laundromat facility, ALFC enters into a purchase agreement and a license agreement with the buyer whereby the buyer may use certain systems created by ALFC to operate such facility. ALFC receives revenue primarily from the sale price of the laundromat facility and, to a lesser extent, from an initial franchise fee and certain other fees based on the sales from such facility.

          Laundry operating expenses include, in addition to commission payments, (i) the cost of machine maintenance and revenue collection in the route and retail laundromat business, including payroll, parts,

76


Table of Contents

insurance and other related expenses, (ii) costs and expenses incurred in maintaining our retail laundromats, including utilities and related expenses, (iii) the cost of sales associated with the equipment distribution business and (iv) certain expenses related to the operation of our rental business.

          Our primary financial objective is to increase our cash flow from operations. Cash flow from operations represents a source of funds available to service indebtedness, pay dividends and for investment in both organic growth and growth through acquisitions. We have experienced net losses during the past three fiscal years. Such net losses are attributable in part to significant non-cash charges associated with our acquisitions and the related amortization of contract rights (for all three fiscal years) and goodwill (for our 2002 fiscal year) accounted for under the purchase method of accounting. We incur significant depreciation and amortization expense relating to annual capital expenditures, which also reduces our net income. The continued incurrence of significant depreciation and amortization expenses may cause us to incur a net loss.

Critical Accounting Policies

          Our financial statements are based on the selection and application of significant accounting policies, which require management to make significant estimates and assumptions. We believe that the following are some of the more critical judgment areas in the application of our accounting policies that currently affect our financial condition and results of operations.

          Revenue and cash and cash equivalents include an estimate of cash and coin not yet collected at the end of a reporting period which remain at laundry room locations. We calculate the estimated amount of cash and coin not yet collected at the end of a reporting period which remain at laundry room locations by multiplying the average daily collection amount applicable to the location with the number of days since coin and cash were last collected at that location. We analytically review the estimated amount of cash and coin not yet collected at the end of a reporting period by comparing such amount with collections subsequent to the reporting period.

          We are required to estimate the collectibility of our receivables. A considerable amount of judgment is required in assessing the ultimate realization of these receivables, including the current credit-worthiness of each customer. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Allowance for doubtful accounts at September 30, 2004 was approximately $3.5 million.

          We currently have significant deferred tax assets, which are subject to periodic recoverability assessments. Realization of our deferred tax assets is principally dependent upon our achievement of projected future taxable income. Management’s judgments regarding future profitability may change due to future market conditions and other factors. These changes, if any, may require possible material adjustments to these deferred tax asset balances.

          We have significant costs in excess of net assets acquired (goodwill), contract rights and long-lived assets. Goodwill is tested for impairment on an annual basis. Additionally, goodwill is 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. We have determined that our reporting units with goodwill consist of our route business, AWA and Super Laundry. Goodwill attributed to the route business, AWA and Super Laundry at September 30, 2004 and March 31, 2004 was approximately $195.0 million, $6.8 million and $2.9 million, respectively, on each such date. In performing the annual goodwill assessment, we compare the fair value of the reporting unit to its net asset-carrying amount, including goodwill. If the fair value exceeds the carrying amount, then it is determined that goodwill is not impaired. Should the carrying amount exceed the fair value, we would then need to perform the second step in the impairment test to determine the amount of goodwill write-off. The fair value for these tests is based upon a discounted cash flow model. 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 prevailing general economic and market conditions. We performed our annual assessment of goodwill as of January 1, 2004 and determined that no impairment exists.

77


Table of Contents

          Contract rights represent amounts expended for location contracts arising from the acquisition of laundry machines on location. These amounts arose solely from purchase price allocations pursuant to acquisitions made by us over a number of years based on an analysis of future cash flows. We do not record contract rights relating to new locations signed in the ordinary course of business. We estimate that approximately 90% of our contracts are long-term with an average term of 8.0 years with staggered maturities. Of the remaining locations not subject to long-term agreements, we believe that we have retained a majority of such customers through long-standing relationships and continue to service such customers. Although the contracts have a legal life, there are other factors such as renewals, customer relationships and extensions that contribute to a value greater than the initial contract term. Over 90% of our contracts renew automatically and we have a right of first refusal upon termination in over 60% of our contracts. The automatic renewal clause typically provides that, if the property owner fails to take any action prior to the end of the lease term or any renewal term, the lease will automatically renew on substantially similar terms. In addition, over 80% of our contracts allow for unilateral price increases. Historically, we have demonstrated an ability to renew contracts, retain our customers and build upon those relationships. Since April 1997, we have posted net machine gains, exclusive of acquisitions, and our losses have averaged approximately 3% annually. Therefore, we believe that the cash flows from these contracts continue to be generated beyond the initial legal contract term and subsequent renewal periods. As a result, we believe that the useful lives of contract rights are related to the expected cash flows that are associated with those rights and the amortization periods for contract rights should generally reflect those useful lives and, by extension, the cash flow streams associated with them. As a result, upon adoption of SFAS 142, we reassessed the useful lives being used to amortize contract rights and determined that the contract rights have an estimated useful life of approximately 30 to 35 years.

          We have twenty-eight geographic regions to which contract rights have been allocated, as the regions represent the lowest level of identifiable cash flows in grouping contract rights. Each region consists of approximately 1,000 to 7,000 contracts for the various locations/properties that comprise that region. We do not analyze impairment of contract rights on a contract-by-contract basis. We have contracts at every location/property and we analyze revenue and certain direct costs on a contract-by-contract basis. However, we do not allocate common region costs and servicing costs to contracts, therefore regions represent the lowest level of identifiable cash flows.

          We assess the recoverability of location contract rights and long-lived assets on a region-by-region basis. We evaluate the financial performance/cash flows for each region. This evaluation includes analytically comparing the financial results/cash flows and certain statistical performance measures for each region to prior period/year actuals and budgeted amounts. Factors that generally impact cash flows include commission rates paid to property owners, occupancy rates at properties, sensitivity to price increases and the regions general economic conditions. In addition, each year we lose a certain amount of our existing machine base, which essentially equates to loss of contract rights. Such loss has historically averaged approximately 3% annually. The accelerated amortization of contract rights is designed to capture and expense this shrinking machine base. An increase in the historical loss rate would also be a strong indicator of possible impairment of location contract rights and long-lived assets. If based on our initial 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, we reevaluate the carrying value of contract rights and long-lived assets based on future undiscounted cash flows attributed to that region and record 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, we believe that there have not been any indicators of impairment of location contract rights or long-lived assets.

          A portion of the aggregate IDSs outstanding will represent notes recorded as long-term debt. We have concluded that it is appropriate and we intend to annually deduct interest expense on the notes from taxable income for U.S. federal and state and local income tax purposes. There can be no assurances that the IRS will not seek to challenge the treatment of these notes as debt or the amount of interest expense deducted, although to date we have not been notified that the notes should be treated as equity rather than debt for U.S. federal and state and local income tax purposes. If the notes were required to be treated as

78


Table of Contents

equity for income tax purposes, the cumulative interest expense associated with the notes would not be deductible from taxable income, and we would be required to recognize additional tax expense and establish a related income tax liability. To the extent that any portion of the interest expense is determined not to be deductible, we would be required to recognize additional tax expense and establish a related income tax liability. The additional tax due to federal, state and local authorities would be based on our taxable income or loss for each of the respective years that we take the interest expense deduction. We do not currently intend to record a liability for a potential disallowance of this interest expense deduction.

          Generally accepted accounting principles require that the proceeds of the offerings be allocated to the shares of Class A common stock and the notes based on their respective relative fair values, and then to the fair values of any embedded derivatives which warrant separate accounting under Financial Accounting Standard No. 133 “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133), thereby reducing the amount allocated to the notes. We expect that the price paid for the IDSs will be equivalent to the fair value of the Class A common stock and the notes, and that the fair value of the separate notes will be equivalent to their face value. We intend to determine the fair value of the equity and the notes based on a number of factors, including the sale of the third party notes sold separately from the IDSs that have the same terms as the notes underlying the IDSs.

          In addition, we have concluded that there are no embedded derivative features in the IDSs or within the Class B common stock which require separate accounting. As currently contemplated, the make-whole redemption provision allows us to redeem all or a portion of the notes prior to the date that is 60 months after the closing of the offerings at a redemption price that could result in a premium, therefore resulting in an embedded derivative requiring bifurcation. However, the terms of the embedded derivative permit us to redeem the notes at an amount that will always exceed the fair value of the notes. As a result, this option will always be out of the money, and, therefore, the value ascribed to the embedded derivative is minimal. Accordingly, we will initially record it at a value of zero. The optional redemption provision at scheduled prices allows us to redeem all or part of the notes at scheduled premium prices. Although the notes are redeemable at a premium, further analysis under SFAS 133 has led us to conclude that the option is clearly and closely related to the economic characteristics of the notes and should not be bifurcated. The tax redemption provision allows us to redeem all of the notes at par if the interest on the notes is not tax deductible. As a result of the redemption price being at par and the notes initially recorded without a substantial premium or discount, we have concluded that this option is clearly and closely related to the economic characteristics of the notes and should not be bifurcated. The change of control put option allows the note holders to put the notes to us at a price equal to 101% of par. Although the notes are callable at a premium, further analysis under SFAS 133 has led us to conclude that the option is clearly and closely related to the economic characteristics of the notes and should not be bifurcated, principally because such premium does not cause the investor to double the initial contractual rate of return.

          We expect that we will allocate the entire proceeds of the offerings to the Class A common stock and the notes and that the allocation of the IDS proceeds to the Class A common stock and the notes will not result in a substantial premium or discount. Upon subsequent issuances of notes or IDSs, we will evaluate whether there is a substantial discount or premium. We expect that if there is a substantial discount or premium upon a subsequent issuance of notes, certain redemption features of the notes may be considered not clearly and closely related, and we would separately account for these features as embedded derivates. If the embedded derivates are required to be bifurcated, we will (a) value the derivative, (b) record such value as a reduction of the notes (discount) with a corresponding derivative liability, (c) accrete the discount on the notes up to their par value using the effective interest method with a corresponding charge to interest expense, and (d) revalue the derivative liability quarterly with the difference (increase or decrease) recorded to interest expense.

          The Class A common stock portion of each IDS and the Class B common stock will be included in stockholders’ equity, net of related transaction costs, and dividends paid on the Class A common stock and the Class B common stock will be recorded as a decrease to stockholders’ equity when declared. The notes portion of each IDS will be presented as long-term obligations, and the related transaction costs will

79


Table of Contents

be capitalized as deferred financing fees and amortized to interest expense over the term of the notes. Interest on the notes will be charged to interest expense as it is accrued.

Results of Operations

          The following table sets forth for the periods indicated, selected statement of operations data and EBITDA, as percentages of revenue:

                         
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
March 31, 2002 March 31, 2003 March 31, 2004



Revenues
    100.0 %     100.0 %     100.0 %
Laundry operating expenses
    67.4       68.5       68.9  
General and administrative expenses
    1.8       1.8       1.8  
Depreciation and amortization
    11.4       12.5       13.6  
Amortization of advance location payments
    4.3       4.0       3.9  
Amortization of intangibles
    8.4       3.0       2.9  
Other items, net
          (0.1 )      
Operating income
    6.7       10.3       8.9  
Loss on extinguishment of debt
    2.1              
Interest expense
    13.6       10.9       10.8  
Interest expense — preferred stock
                4.7  
Net loss(1)
    (7.9 )     (0.6 )     (5.9 )
EBITDA margin
    28.7       29.8       29.3  

(1)  For the year ended March 31, 2004, net loss includes approximately $24.7 million of preferred stock dividends recorded as interest expense. As required by SFAS 150, accrued and unpaid dividends prior to adoption of SFAS 150 have not been reclassified to interest expense. Preferred stock dividends for the years ended March 31, 2003 and 2002 and for the nine-month period from July 1, 2000 to March 31, 2001 were approximately $20.8 million, $20.4 million and $12.7 million, respectively.

          We have experienced net losses in each fiscal year since March 31, 2000. Such net losses are attributable in part to significant non-cash charges associated with our acquisitions and the related amortization of contract rights (for all fiscal years) and goodwill (only through the 2002 fiscal year) accounted for under the purchase method of accounting. We incur significant depreciation and amortization expense relating to annual capital expenditures, which also reduces our net income. The continued incurrence of significant depreciation and amortization expense may cause us to continue to incur a net loss.

          EBITDA represents earnings from continuing operations before interest, income taxes and depreciation and amortization. Management believes that EBITDA is useful as a means to evaluate our 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 our 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 we have historically provided EBITDA to investors, we believe that presenting this non-GAAP financial measure provides consistency in our 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 accounting principles generally accepted in the United States) as an indicator of operating performance or (b) cash flows from operating, investing and financing activities (as determined by accounting principles generally accepted in the United States) as a measure of liquidity. Given that EBITDA is not a measurement determined in accordance with accounting principles generally accepted in the United States and is thus susceptible to varying

80


Table of Contents

calculations, EBITDA may not be comparable to other similarly titled measures of other companies. See footnote (4) of the table contained under “Selected Consolidated Historical Financial Data” for a reconciliation of net loss and cash flow provided by operating activities to EBITDA for the periods indicated in the table immediately above.

          EBITDA margin represents EBITDA as a percentage of revenues. Management believes that EBITDA margin is a useful measure to evaluate CSC’s performance over various sales levels. EBITDA margin should not be considered as an alternative to measurements determined in accordance with accounting principles generally accepted in the United States.

 
Six Months Ended September 30, 2004 Compared to the Six Months Ended September 30, 2003

          The following table sets forth our revenues for the periods indicated (in millions of dollars):

                         
Six Months Ended
September 30,

2004 2003 Change



Route
  $ 234.2     $ 232.4     $ 1.8  
Distribution
    15.3       14.2       1.1  
Rental
    16.9       15.9       1.0  
     
     
     
 
    $ 266.4     $ 262.5     $ 3.9  
     
     
     
 

          Revenue increased by approximately $3.9 million or 2% for the six months ended September 30, 2004, as compared to the prior year’s corresponding period.

          Route revenue for the six months ended September 30, 2004 increased by approximately $1.8 million or 1% over the prior year’s corresponding period. We believe that the increase was primarily the result of timing of price changes and internal growth in machine count during the prior and current year as well as revenue associated with collection services.

          Distribution revenue for the six months ended September 30, 2004 increased by approximately $1.1 million or 8% from the prior year’s corresponding period. Sales from the distribution business unit are sensitive to general market conditions and economic conditions. The increase was primarily due to increased sales from the Northeast operations slightly offset by decreased revenue due to the closing of operations in California. Distribution revenue from our California operations was approximately $1.0 million and $1.9 million for the six months ended September 30, 2004 and September 30, 2003, respectively.

          Rental revenue for the six months ended September 30, 2004 increased by approximately $1.0 million or 6% over the prior year’s corresponding period. This increase was primarily the result of internal growth of the machine base in existing areas of operations.

          Laundry operating expenses, exclusive of depreciation and amortization, increased by approximately $2.1 million or 1% for the six months ended September 30, 2004, as compared to the prior year’s corresponding period. The increase in laundry operating expenses was due primarily to (i) increased cost of sales of approximately $1.6 million due to increased sales in the distribution business, (ii) an increase in salary expense of approximately $0.8 million in the route business associated with collection services, (iii) an increase in insurance costs related to both medical and general business insurance coverage of approximately $0.6 million, (iv) costs associated with internal growth of the rental business of approximately $0.3 million and (v) an increase in fuel cost of approximately $0.4 million due primarily to increased fuel prices. These increases in laundry operating expenses were offset in part by a reduction in operating expenses as a result of the closing of California operations in the distribution business of approximately $1.8 million. As a percentage of revenues, laundry operating expenses were 69% for the six months ended September 30, 2004, as well as for the six months ended September 30, 2003.

81


Table of Contents

          General and administrative expenses increased by approximately $0.1 million or 3% for the six months ended September 30, 2004, as compared to the prior year’s corresponding period. As a percentage of revenues, general and administrative expenses were approximately 1.8% for the six months September 30, 2004 as compared to approximately 1.7% for the six months ended September 30, 2003.

          Depreciation and amortization expense increased by approximately $2.0 million or 6% for the six months ended September 30, 2004, as compared to the prior year’s corresponding period. The increase in depreciation and amortization expense was primarily due to depreciation expense relating to capital expenditures required by historical increases in our installed base of machines.

          Amortization of advance location payments decreased by approximately $0.5 million or 5% for the six months ended September 30, 2004, as compared to the prior year’s corresponding period. The decrease was primarily due to advance location payments incurred in the prior years becoming fully amortized.

          Amortization of intangibles decreased by approximately $0.3 million or 3% for the six months ended September 30, 2004, as compared to the prior year’s corresponding period. The decrease was primarily the result of intangibles related to acquisitions becoming fully amortized.

          Other items for the six months ended September 30, 2004 is comprised primarily of certain expenses associated with the closing of California operations in the distribution business.

          Operating income margins were 8.8% for the six month period ended September 30, 2004, as compared to 8.9% for the prior year’s corresponding period. The decrease in operating income margin was primarily due to increased cost of sales in the distribution business and increased operating expenses in the route business unit offset by increased revenue in the route and distribution businesses, as well as a reduction in operating expenses as a result of the closing of California operations in the distribution business, as discussed above.

          Interest expense increased by approximately $1.3 million or 3% for the six month period ended September 30, 2004, as compared to the prior year’s corresponding period. The increase in interest expense was the result of the cumulative effect of dividends on the redeemable preferred stock resulting in additional interest expense of approximately $1.3 million.

          The benefit for income taxes for the six month period ended September 30, 2004 was approximately $1.9 million as compared to a benefit for income taxes of approximately $1.4 million for the prior year’s corresponding period. The change was primarily due to a valuation allowance in the prior year of approximately $1.2 million with a tax effect of approximately $0.4 million. The effective tax rate for the six month period ended September 30, 2004 was 10% as compared to 8% for the prior year’s corresponding period. The effective tax rate for the six month period ended September 30, 2004 reflects changes in the amount of net operating loss carryforwards that we will be able to utilize.

          Net loss was approximately $16.7 million for the six month period ended September 30, 2004, as compared to net loss of approximately $15.9 million for the prior year’s corresponding period. The increase in net loss was primarily the result of an increase in redeemable preferred stock dividends reflected as interest expense.

82


Table of Contents

          The following table sets forth an analysis of EBITDA for each of the route, distribution and rental divisions for the periods indicated:

                         
Six Months Ended
September 30,

2004 2003 Change



(dollars in millions)
Route
  $ 76.7     $ 76.6     $ 0.1  
Distribution
    0.5       (1.0 )     1.5  
Rental
    6.6       6.3       0.3  
Other items, net
    (0.5 )           (0.5 )
Corporate expenses
    (4.7 )     (4.6 )     (0.1 )
     
     
     
 
    $ 78.6     $ 77.3     $ 1.3  
     
     
     
 

          EBITDA was approximately $78.6 million for the six months ended September 30, 2004, as compared to approximately $77.3 million for the prior year’s corresponding period. EBITDA margin of approximately 29.5% for the six months ended September 30, 2004 is comparable with the prior year’s corresponding period. See footnote (4) to the table contained under “Selected Consolidated Historical Financial Data” for a reconciliation of net loss to EBITDA for the periods indicated in the table immediately above.

 
Fiscal Year Ended March 31, 2004 Compared to the Fiscal Year Ended March 31, 2003

The following table sets forth our revenues for the years ended March 31, 2004 (the 2004 Fiscal Year) and the year ended March 31, 2003 (the 2003 Fiscal Year):

                         
Fiscal Year Ended March 31,

2004 2003 Change



(dollars in millions)
Route
  $ 469.6     $ 471.5     $ (1.9 )
Distribution
    28.9       35.0       (6.1 )
Rental
    32.6       28.7       3.9  
     
     
     
 
Total
  $ 531.1     $ 535.2     $ (4.1 )
     
     
     
 

          Revenue decreased by approximately $4.1 million or less than 1% for the 2004 Fiscal Year, as compared to the 2003 Fiscal Year.

          Route revenue for the 2004 Fiscal Year decreased by approximately $1.9 million or less than 1% as compared to 2003 Fiscal Year. We believe that the decrease was primarily the result of increased vacancies, which management believes became apparent during the quarter ended September 30, 2002, related to locations in certain regions, principally in the Southeast and Texas, as well as, to a lesser extent, the full year impact for the transfer of approximately 9,000 rental machines to AWA in the 2003 Fiscal Year. This decrease was slightly offset by an improvement in revenue due to the timing of price increases and internal growth in machine count during the prior and current year. Management believes that to the extent vacancy rates in these regions increase in the future, route revenue in such regions may continue to decrease. Any such decrease, however, may be mitigated by our geographic diversity.

          Distribution revenue for the 2004 Fiscal Year decreased by approximately $6.1 million or 17% from the 2003 Fiscal Year. Sales from the distribution business unit are sensitive to general market economic conditions and as a result have experienced downward pressure. In addition, distribution revenue decreased due to the closing of the distribution operations in California. Distribution revenues from our California operations was approximately $3.0 million and $6.6 million for the 2004 Fiscal Year and 2003 Fiscal Year, respectively

          Rental revenue for the 2004 Fiscal Year increased by approximately $3.9 million or 14% over the prior year’s corresponding period. This increase was primarily the result of internal growth of the machine

83


Table of Contents

base in existing areas of operations during the prior and current years, as well as, to a lesser extent, the full year impact for the transfer of approximately 9,000 rental machines from the route business to AWA during the 2003 Fiscal Year.

          Laundry operating expenses, exclusive of depreciation and amortization, decreased by approximately $0.8 million or less than 1% for the 2004 Fiscal Year, as compared to the 2003 Fiscal Year. This decrease in laundry operating expenses was due primarily to a reduction in cost of sales of approximately $5.7 million related to the decreased revenue experienced in the distribution business, as discussed above, offset by increased insurance costs related to both medical and general business insurance coverage of approximately $1.6 million, costs associated with expansion into four new markets in the rental business of approximately $2.6 million and increased utility costs in our retail laundromats of approximately $0.7 million. As a percentage of revenues, laundry operating expenses, exclusive of depreciation and amortization, were approximately 68.9% for the 2004 Fiscal Year, as compared to 68.5% for the 2003 Fiscal Year.

          General and administrative expenses decreased by approximately 1% for the 2004 Fiscal Year, as compared to the 2003 Fiscal Year. As a percentage of revenues, general and administrative expenses were approximately 1.8% for both the 2004 Fiscal Year and the 2003 Fiscal Year.

          Other items, net, for the 2004 Fiscal Year is comprised of a gain of approximately $1.7 million. In October 2002, Laundry Corp. contributed its ownership interest in Resident Data, Inc. (which we refer to as “RDI”), valued at approximately $2.7 million, to Coinmach Corp. Subsequently, Coinmach Corp. sold the interest in RDI pursuant to an agreement and plan of merger between RDI and unrelated third parties for cash proceeds of approximately $6.6 million before estimated expenses directly related to such sale, resulting in a gain of approximately $3.3 million which was recorded in the 2003 Fiscal Year (which sale we refer to as the “RDI sale”). In connection with the RDI sale, and in addition to the cash proceeds received therefrom, we and the other sellers are entitled to their pro rata share (as determined by each seller’s previous ownership percentage of RDI) of (i) $5.0 million placed in escrow by the purchaser, subject to, among other things, the satisfaction of certain working capital adjustments and customary indemnification obligations (which is referred to as the escrow fund), and (ii) approximately $1.8 million, subject to the continued employment by RDI of certain members of its management (which is referred to as the contingent fund). The portion of such amounts to be paid to us is based on its previous ownership percentage of RDI, which was approximately 32%, and is scheduled to be paid in two equal installments in October 2003 and October 2004.

          Amounts to be received from the escrow fund and the contingent fund are recorded as income upon the determination by us that we are likely to receive such amounts and such amounts can be reasonably estimated. Despite our best determinations, however, there can be no assurance that we will receive such amounts. In October 2003, we received approximately $0.7 million related to our share of the escrow fund and approximately $0.3 million related to our share of the contingent fund. Based on the receipt of this first installment and certain other positive indicators, we have determined that the uncertainty surrounding the collectibility of our portion of the escrow fund due in October 2004 of approximately $0.7 million no longer existed. Accordingly, we recorded income of approximately $1.7 million for the 2004 Fiscal Year. We remain uncertain as to whether we will receive our portion of the contingent fund due in October 2004 of approximately $0.3 million.

          Offsetting the additional income related to the RDI sale for the 2004 Fiscal Year was approximately $1.9 million of various expenses related to certain costs associated with the consolidation of certain offices of Super Laundry. This consolidation was the result of several actions taken by Coinmach Corp. to reduce operating costs at Super Laundry including, among other things, the closing of distribution operations in Southern California, the reassignment of various responsibilities among Super Laundry’s remaining management team and the write-off of inventory due to obsolescence.

          Other items, net, for the 2003 Fiscal Year is comprised of a gain of approximately $3.3 million as described above. Offsetting this gain was approximately $2.8 million of various expenses related to (i) professional fees incurred in connection with the AWA Transactions, including the transfer of the Appliance Warehouse division of Coinmach Corp. to AWA and the formation of Holdings,

84


Table of Contents

(ii) organizational costs related to the formation of ALFC and (iii) certain expenses associated with the consolidation of certain offices of Super Laundry which was the result of several actions taken by Coinmach Corp. to reduce operating costs in Super Laundry. These actions included, among other things, the closing of operations in California, New Jersey and Maryland, the reassignment of various responsibilities among Super Laundry’s remaining management team, the write-off of inventory due to obsolescence and the write-off of various receivable balances, none of which were material individually, which Coinmach Corp. chose not to pursue.

          Depreciation and amortization expense increased by approximately $5.4 million or 8% for the 2004 Fiscal Year, as compared to the 2003 Fiscal Year. The increase in depreciation and amortization expense was primarily due to depreciation expense relating to capital expenditures required by historical increases in our installed base of machines.

          Amortization of advance location payments decreased by approximately $0.6 million or 3% for the 2004 Fiscal Year, as compared to the 2003 Fiscal Year. The decrease was due primarily to the reduction in the amount of advance location payments made in prior years.

          Amortization of intangibles decreased by approximately $0.3 million or 2% for the 2004 Fiscal Year, as compared to the 2003 Fiscal Year. The decrease was primarily the result of the reduction of intangibles relative to prior year acquisitions.

          Operating income margins were approximately 8.9% for the 2004 Fiscal Year, as compared to approximately 10.3% for the 2003 Fiscal Year. The decrease in operating income margin was primarily due to the decreased revenue, net of cost of sales, in the distribution business as well as due to the increase in depreciation and amortization expense, as discussed above.

          Interest expense increased by approximately $23.9 million or 41% for the 2004 Fiscal Year, as compared to the 2003 Fiscal Year. The increase in interest expense was a result of the change in the accounting treatment of redeemable preferred stock dividends resulting in additional interest expense of approximately $24.7 million, as well as, to a lesser extent, an increase in interest expense resulting from the interest rate swap agreements entered into by Coinmach Corp. in September 2002 that are at a slightly higher fixed rate compared to variable rates. This was offset by a decrease in interest expense primarily due to decreased borrowing levels under the Coinmach Corp. credit facility, a decrease in variable interest rates payable under such facility resulting from a market decline in interest rates.

          The benefit for income taxes for the 2004 Fiscal Year was approximately $3.6 million as compared to a provision for income taxes of approximately $0.4 million for the 2003 Fiscal Year. The change for the fiscal year period is due to the pretax loss of approximately $35.0 million for the 2004 Fiscal Year as compared to a pretax loss of approximately $2.8 million for the 2003 Fiscal Year. The effective tax rate for the 2004 Fiscal Year was 10% as compared to 14% for the prior year’s corresponding period. The effective tax rate for the 2004 Fiscal Year reflects the treatment of approximately $24.7 million of redeemable preferred stock dividends as interest expense.

          Net loss was approximately $31.3 million for 2004 Fiscal Year, as compared to net loss of approximately $3.2 million for the 2003 Fiscal Year. The increase in net loss was primarily the result of the treatment of approximately $24.7 million of redeemable preferred stock dividends as interest expense as well as decreased revenues and increase in depreciation expense, as described above. We have experienced net losses in each fiscal year since March 31, 2000. Such net losses are attributable in part to significant non-cash charges associated with our acquisitions and the related amortization of contract rights accounted for under the purchase method of accounting. We incur significant depreciation and amortization expense relating to annual capital expenditures, which also reduces our net income.

85


Table of Contents

          The following table sets forth an analysis of EBITDA for each of the route, distribution and rental divisions for the years indicated:

                         
Fiscal Year Ended
March 31,

2004 2003 Change



(dollars in millions)
Route
  $ 154.4     $ 158.9     $ (4.5 )
Distribution
    (1.2 )     (1.7 )     0.4  
Rental
    12.2       11.4       0.8  
Other items, net
    (0.2 )     0.5       (0.6 )
Corporate expenses
    (9.5 )     (9.6 )     0.1  
     
     
     
 
EBITDA
  $ 155.7     $ 159.5     $ (3.8 )
     
     
     
 

          EBITDA was approximately $155.7 million for the 2004 Fiscal Year, as compared to approximately $159.5 million for the 2003 Fiscal Year. EBITDA margins declined to approximately 29.3% for the 2004 Fiscal Year, as compared to approximately 29.8% for the 2003 Fiscal Year. This decrease was primarily the result of decreased revenues in the route business, increased insurance costs related to both medical and general business insurance coverage, costs associated with expansion into new markets in the rental business and increased utility costs, as previously discussed. See footnote (4) to the table contained under “Selected Consolidated Historical Financial Data” for a reconciliation of net loss to EBITDA for the periods indicated in the table immediately above.

 
Fiscal Year Ended March 31, 2003 Compared to the Fiscal Year Ended March 31, 2002

          The following table sets forth our revenues for the 2003 Fiscal Year and the year ended March 31, 2002 (the 2002 Fiscal Year):

                         
Fiscal Year Ended March 31,

2003 2002 Change



(dollars in millions)
Route
  $ 471.5     $ 478.1     $ (6.6 )
Distribution
    35.0       38.4       (3.4 )
Rental
    28.7       22.4       6.3  
     
     
     
 
Total
  $ 535.2     $ 538.9     $ (3.7 )
     
     
     
 

          Revenue decreased by approximately $3.7 million or less than 1% for the 2003 Fiscal Year as compared to the 2002 Fiscal Year.

          Route revenue for the 2003 Fiscal Year decreased by approximately $6.6 million, or 1%, as compared to the 2002 Fiscal Year. We believe that the decline in route revenue for the 2003 Fiscal Year, as compared to the 2002 Fiscal Year, was primarily the result of increased vacancies related to locations in certain regions as well as, to a lesser extent, a transfer of approximately 9,000 rental machines to AWA during the 2003 Fiscal Year. This decrease was slightly offset by an improvement in revenue from the timing of price changes and internal growth in machine count during the prior and current year. We believe that to the extent vacancy rates in certain of our operating regions, principally in the Southeast and Texas, increase in the future, route revenue in these regions may continue to decrease. Any such decrease, however, may be mitigated by our geographic diversity.

          Distribution revenue for the 2003 Fiscal Year decreased by approximately $3.4 million, or 9%, as compared to the 2002 Fiscal Year. Sales from the distribution business unit are sensitive to general market and economic conditions and as a result have experienced fluctuations during such periods.

          Rental revenue for the 2003 Fiscal Year increased by approximately $6.3 million, or 28%, over the 2002 Fiscal Year. The increase was primarily the result of the internal growth of the machine base in

86


Table of Contents

existing areas of operations and expansion into new territories, as well as, to a lesser extent, the transfer of approximately 9,000 rental machines from the route business to AWA during the 2003 Fiscal Year.

          Laundry operating expenses, exclusive of depreciation and amortization, increased by approximately $3.4 million, or less than 1%, for the 2003 Fiscal Year, as compared to the 2002 Fiscal Year. This increase in laundry operating expenses was due primarily to costs associated with expansion into new markets in the rental business of approximately $3.5 million and increased insurance costs related to both medical and general business insurance coverage of approximately $2.0 million, offset by a reduction in cost of sales of approximately $0.7 million related to decreased revenue experienced in the distribution business, as discussed above and a reduction in utility costs in our retail laundromats of approximately $0.4 million. As a percentage of revenues, laundry operating expenses, exclusive of depreciation and amortization, were approximately 68.5% and 67.4% for the 2003 Fiscal Year and the 2002 Fiscal Year, respectively.

          General and administrative expenses decreased by approximately 2% for the 2003 Fiscal Year, as compared to the 2002 Fiscal Year. The decrease in general and administrative expenses was primarily due to a slight reduction in various costs and expenses related to administrative functions. As a percentage of revenues, general and administrative expenses were approximately 1.8% for both the 2003 Fiscal Year and the 2002 Fiscal Year.

          Depreciation and amortization expense increased by approximately $5.9 million or 10% for the 2003 Fiscal Year as compared to the 2002 Fiscal Year. This increase was primarily due to depreciation expense relating to capital expenditures required by historical increases in our installed base of machines.

          Amortization of advance location payments decreased by approximately $2.2 million or 9% for the 2003 Fiscal Year, as compared to the 2002 Fiscal Year. The decrease was due primarily to the reduction in the amount of advance location payments made in prior years.

          Amortization of intangibles decreased by approximately $29.2 million or 65% for the 2003 Fiscal Year as compared to the 2002 Fiscal Year. This decrease was primarily due to the elimination of amortization expense on goodwill of approximately $15.5 million and the reduction of amortization expense on contract rights of approximately $12.3 million as a result of the application of Statements of Financial Accounting Standards (SFAS No. 142), “Goodwill and Other Intangible Assets” and a change in the estimated useful lives of contract rights.

          Other items, net, for the 2003 Fiscal Year is comprised of a gain of approximately $3.3 million. In October 2002, Laundry Corp. contributed its ownership interest valued at approximately $2.7 million in RDI to Coinmach Corp. Subsequently, Coinmach Corp. sold its interest in RDI pursuant to an agreement and plan of merger between RDI and unrelated third parties, for cash proceeds of approximately $6.6 million before estimated expenses directly related to such sale resulting in a gain of approximately $3.3 million. Offsetting this gain was approximately $2.8 million of various expenses related to (i) professional fees incurred in connection with the AWA Transactions, including the transfer of the Appliance Warehouse division of Coinmach Corp. to AWA and the formation of Holdings, (ii) organizational costs related to the formation of ALFC and (iii) certain expenses associated with the consolidation of certain offices of Super Laundry, which was the result of several actions taken by Coinmach Corp. to reduce operating costs in Super Laundry. These actions included, among other things, the closing of operations in California, New Jersey and Maryland, the reassignment of various responsibilities among Super Laundry’s remaining management team, the write-off of inventory due to obsolescence and the write-off of various receivable balances, none of which are material individually, which Coinmach Corp. chose not to pursue. For more information regarding the AWA Transactions, please see “— Operating and Investing Activities — The AWA Transactions.”

          Operating income margins were approximately 10.3% for the 2003 Fiscal Year, as compared to approximately 6.7% for the 2002 Fiscal Year. The increase in operating income margin for the 2003 Fiscal Year was primarily due to the decrease in amortization of intangibles.

          Interest expense decreased by approximately $14.9 million or 20% for the 2003 Fiscal Year, as compared to the 2002 Fiscal Year. On January 25, 2002, Coinmach Corp. issued $450 million of its

87


Table of Contents

9% notes and entered into the Coinmach Corp. credit facility. The decrease in interest expense was primarily due to decreased borrowing levels under the Coinmach Corp. credit facility, a decrease in variable interest rates payable under such facility, as well as a decrease in the fixed rate on interest rate swap agreements, resulting from a market decline in interest rates. In addition, in the 2002 Fiscal Year, interest expense included approximately $4.2 million relating to cost of terminating the interest rate swap agreements that were entered into in connection with the prior senior credit facility that was replaced by the Coinmach Corp. credit facility, which was partially offset by a reduction in interest expense relating to the amortization of the premium on Coinmach Corp.’s 11 3/4% senior notes due 2005. This decrease was partially offset by an increase in interest expense as the result of increased indebtedness outstanding under the Coinmach Corp. 9% notes of $450 million as compared to approximately $296.7 million principal amount of Coinmach Corp.’s 11 3/4% notes. Coinmach Corp.’s 11 3/4% notes were redeemed in their entirety on February 25, 2002.

          Net loss was approximately $3.2 million for the 2003 Fiscal Year, as compared to approximately $42.3 million for the 2002 Fiscal Year. The decrease in net loss was primarily the result of decreased amortization of intangibles as well as decreased interest expense, as discussed above. In addition, in the 2002 Fiscal Year, we recognized a loss on the early extinguishments of debt of approximately $11.4 million.

          The following table sets forth an analysis of EBITDA for each of the route, distribution and rental divisions for the years indicated:

                         
Fiscal Year Ended March 31,

2003 2002 Change



(dollars in millions)
Route
  $ 158.9     $ 166.0     $ (7.1 )
Distribution
    (1.7 )     1.1       (2.8 )
Rental
    11.4       8.7       2.7  
Other Items, net
    0.5             0.5  
Loss on extinguishment of debt
          (11.4 )     11.4  
Corporate expenses
    (9.6 )     (9.8 )     0.2  
     
     
     
 
EBITDA
  $ 159.5     $ 154.6     $ 4.9  
     
     
     
 

          EBITDA was approximately $159.5 million for the 2003 Fiscal Year, as compared to approximately $154.6 million for the 2002 Fiscal Year. EBITDA margins increased to approximately 29.8% for the 2003 Fiscal Year, as compared to approximately 28.7% for the 2002 Fiscal Year. The increase in EBITDA was primarily the result of the loss on extinguishment of debt in the 2002 Fiscal Year offset by decreased revenues in the route and distribution businesses, as discussed above, as well as increased insurance costs related to both medical and general business insurance coverage. See footnote (4) of the table contained under “Selected Consolidated Historical Financial Data” for a reconciliation of net loss to EBITDA for the periods indicated in the table immediately above.

Liquidity and Capital Resources

          We are a holding company with no material assets other than the capital stock of our subsidiaries and the intercompany note and the intercompany note guaranty. Our operating income is generated by our subsidiaries. Our liquidity requirements will primarily consist of interest payments on the notes offered hereby and dividend payments, if any, on our common stock. Our ability to make such payments will depend on the earnings and cash flows of our subsidiaries and the ability of our subsidiaries to distribute amounts to us, including by way of payments on the intercompany note.

          We and our subsidiaries have substantial indebtedness and debt service requirements. At September 30, 2004, on a consolidated basis we had outstanding long-term debt of approximately $715.8