10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2011

OR

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

For the transition period from                to               

COMMISSION FILE NUMBER 1-13495

MAC-GRAY CORPORATION

(Exact name of registrant as specified in its charter)

DELAWARE	04-3361982
(State or other jurisdiction incorporation or organization)	(I.R.S. Employer Identification No.)

404 WYMAN STREET, SUITE 400
WALTHAM, MASSACHUSETTS	02451-1212
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (781) 487-7600

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

Large Accelerated Filer o	Accelerated Filer x
Non-Accelerated Filer o	Smaller reporting company o
(Do not check if a smaller reporting company)

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

As of August 1, 2011, 14,270,130 shares of common stock of the registrant, par value $.01 per share, were outstanding.

INDEX

PART I	FINANCIAL INFORMATION
	Item 1.	Financial Statements	3
		Condensed Consolidated Balance Sheets at December 31, 2010 and June 30, 2011	3
		Condensed Consolidated Income Statements for the Three and Six Months Ended June 30, 2010 and 2011	4
		Condensed Consolidated Statement of Stockholders’ Equity for the Six Months Ended June 30, 2011	5
		Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2011	6
		Notes to Condensed Consolidated Financial Statements	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	29
	Item 4.	Controls and Procedures	31
PART II	OTHER INFORMATION
	Item 1A.	Risk Factors	31
	Item 6.	Exhibits	31
	Signature		32

2

Item 1.Financial Statements

MAC-GRAY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands, except share data)

	December 31,			June 30,
	2010			2011
Assets
Current assets:
Cash and cash equivalents	$	13,013		$	12,748
Trade receivables, net of allowance for doubtful accounts	6,105			3,995
Inventory of finished goods, net	1,580			2,112
Deferred income taxes	963			963
Prepaid facilities management rent and other current assets	9,916			10,070
Total current assets	31,577			29,888
Property, plant and equipment, net	128,068			129,336
Goodwill	58,608			58,390
Intangible assets, net	195,144			188,569
Prepaid facilities management rent and other assets	10,686			11,256
Total assets	$	424,083		$	417,439
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt and capital lease obligations	$	4,511		$	4,330
Trade accounts payable	8,673			9,323
Accrued facilities management rent	21,084			20,642
Accrued expenses and other current liabilities	15,998			14,492
Total current liabilities	50,266			48,787
Long-term debt and capital lease obligations	221,425			212,736
Deferred income taxes	41,823			42,220
Other liabilities	2,518			1,583
Total liabilities	316,032			305,326
Commitments and contingencies (Note 5)
Stockholders’ equity:
Preferred stock ($.01 par value, 5 million shares authorized, no shares issued or outstanding)	—			—
Common stock ($.01 par value, 30 million shares authorized, 14,026,919 issued and 14,026,743 outstanding at December 31, 2010, and 14,265,330 issued and outstanding at June 30, 2011)	140			143
Additional paid in capital	81,296			84,045
Accumulated other comprehensive loss	(1,563		)	(1,225		)
Retained earnings	28,180			29,150
	108,053			112,113
Less common stock in treasury, at cost (176 shares at December 31, 2010)	(2		)	—
Total stockholders’ equity	108,051			112,113
Total liabilities and stockholders’ equity	$	424,083		$	417,439

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

MAC-GRAY CORPORATION

CONDENSED CONSOLIDATED INCOME STATEMENTS (Unaudited)

(In thousands, except per share data)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2011			2010			2011
Revenue:
Laundry facilities management revenue	$	74,086		$	74,959		$	152,535		$	154,148
Commercial laundry equipment sales	4,455			3,630			7,509			6,734
Total revenue from continuing operations	78,541			78,589			160,044			160,882
Cost of revenue:
Cost of laundry facilities management revenue	51,579			52,760			103,994			105,556
Depreciation and amortization	11,424			10,913			22,575			21,944
Cost of commercial laundry equipment sales	3,559			3,001			6,111			5,578
Total cost of revenue	66,562			66,674			132,680			133,078
Gross margin	11,979			11,915			27,364			27,804
Operating expenses:
General and administration	4,451			4,669			9,133			9,431
Sales and marketing	3,403			3,435			6,701			7,163
Depreciation and amortization	360			406			785			796
Gain on sale of assets, net	(78		)	(65		)	(113		)	(157		)
Incremental costs of proxy contests	138			244			235			269
Total operating expenses	8,274			8,689			16,741			17,502
Income from continuing operations	3,705			3,226			10,623			10,302
Interest expense, including the change in the fair value of non-hedged derivative instruments	1,835			2,445			5,962			6,043
Income before provision for income taxes from continuing operations	1,870			781			4,661			4,259
Provision for income taxes	641			277			1,960			1,689
Income from continuing operations, net	1,229			504			2,701			2,570
Income from discontinued operations, net	—			—			44			—
Loss from disposal of discontinued operations, net of taxes of $384	—			—			(294		)	—
Net income	$	1,229		$	504		$	2,451		$	2,570
Earnings per share – basic - continuing operations	$	0.09		$	0.04		$	0.20		$	0.18
Earnings per share – diluted - continuing operations	$	0.09		$	0.03		$	0.19		$	0.17
Loss per share – basic - discontinued operations	$	—		$	—		$	(0.02	)	$	—
Loss per share – diluted - discontinued operations	$	—		$	—		$	(0.02	)	$	—
Earnings per share – basic	$	0.09		$	0.04		$	0.18		$	0.18
Earnings per share – diluted	$	0.09		$	0.03		$	0.17		$	0.17
Weighted average common shares outstanding - basic	13,791			14,244			13,734			14,167
Weighted average common shares outstanding - diluted	14,405			15,033			14,247			14,923

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

MAC-GRAY CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)

(In thousands, except share data)

						Accumulated
	Common Stock			Additional		Other								Treasury Stock
	Number			Paid In		Comprehensive			Comprehensive		Retained			Number
	of shares	Value		Capital		Income (Loss)			Income		Earnings			of shares		Cost			Total
Balance, December 31, 2010	14,026,919	$	140	$	81,296	$	(1,563	)			$	28,180		176		$	(2	)	$	108,051
Net income	—	—		—		—			$	2,570	2,570			—		—			$	2,570
Other comprehensive income:
Unrealized gain on derivative instrument, net of tax of $212 (Note 3)	—	—		—		338			338		—			—		—			$	338
Comprehensive income									$	2,908
Options exercised	87,926	2		679		—					—			(176	)	2			$	683
Stock issuance - Employee Stock Purchase Plan	8,722	—		97		—					—			—		—			$	97
Stock compensation expense	—	—		1,526		—					—			—		—			$	1,526
Dividends paid, $.11 per share	—	—		32		—					(1,598		)	—		—			$	(1,566	)
Stock grants	141,763	1		415		—					(2		)	—		—			$	414
Balance, June 30, 2011	14,265,330	$	143	$	84,045	$	(1,225	)			$	29,150		—		$	—		$	112,113

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

MAC-GRAY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)

	Six months ended June 30,
	2010			2011
Cash flows from operating activities:
Net income	$	2,451		$	2,570
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation and amortization	23,360			22,740
Increase in allowance for doubtful accounts and lease reserves	43			4
(Gain) on disposition of assets	(113		)	(157		)
Loss from disposal of discontinued operations	294			—
Stock grants	112			414
Non-cash derivative interest income	(1,723		)	(442		)
Non-cash fuel commodity derivative income	—			(122		)
Deferred income taxes	391			481
Non-cash stock compensation	1,310			1,526
Decrease in accounts receivable	637			2,106
(Increase) in inventory	(310		)	(532		)
Decrease (increase) in prepaid facilities management rent and other assets	1,112			(2,268		)
(Decrease) in accounts payable, accrued facilities management rent, accrued expenses and other liabilities	(5,316		)	(1,259		)
Net cash flows used in operating activities from discontinued operations	(44		)	—
Net cash flows provided by operating activities	22,204			25,061
Cash flows from investing activities:
Capital expenditures	(8,648		)	(15,526		)
Proceeds from sale of assets	304			206
Proceeds from disposal of discontinued operations	8,274			—
Net cash flows used in investing activities	(70		)	(15,320		)
Cash flows from financing activities:
Payments on capital lease obligations	(929		)	(881		)
Payments on secured revolving credit facility	(62,829		)	(61,212		)
Borrowings on secured revolving credit facility	44,906			54,373
Payments on secured term credit facility	(1,750		)	(1,500		)
Proceeds from exercise of stock options	317			683
Proceeds from issuance of common stock	116			97
Cash dividend paid	(1,372		)	(1,566		)
Net cash flows used to pay down term facility from discontinued operations	(8,000		)	—
Net cash flows used in financing activities	(29,541		)	(10,006		)
(Decrease) in cash and cash equivalents	(7,407		)	(265		)
Cash and cash equivalents, beginning of period	21,599			13,013
Cash and cash equivalents, end of period	$	14,192		$	12,748

Supplemental disclosure of non-cash investing and financing activities: during the six months ended June 30, 2010 and 2011, the Company acquired various vehicles under capital lease agreements totaling $1,099 and $350, respectively.

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

MAC-GRAY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except per share data)

1.  Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The unaudited interim condensed consolidated financial statements do not include all information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America. In the opinion of the management of Mac-Gray Corporation (the “Company” or “Mac-Gray,”) the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal, recurring adjustments), which are necessary to present fairly the Company’s financial position, the results of its operations, and its cash flows. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s 2010 audited consolidated financial statements filed with the Securities and Exchange Commission in its Annual Report on Form 10-K for the year ended December 31, 2010. The results for interim periods are not necessarily indicative of the results to be expected for the full year.

The Company generates the majority of its revenue from card and coin-operated laundry equipment located in 43 states throughout the United States, as well as the District of Columbia. The Company’s principal customer base is the multi-unit housing market, which consists of apartments, condominium units, colleges and universities. The Company also sells and services commercial laundry equipment to commercial laundromats, multi-housing properties and institutions. The majority of the Company’s purchases of laundry equipment are from one supplier.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. On February 5, 2010, the Company sold its MicroFridge® (Intirion Corporation) business to Danby Products. The operations and cash flows of this business have been eliminated from the ongoing operations of the Company as a result of this disposal transaction. Since the Company will not have any significant continuing involvement in the operations of this business, the Company has accounted for this business as a discontinued operation.  All prior period financial information has been restated to reflect Intirion Corporation as a discontinued operation.

2. Long-Term Debt

The Company has a senior secured credit agreement (the “Secured Credit Agreement”) pursuant to which the Company may borrow up to $150,250 in the aggregate, including $20,250 pursuant to a Term Loan and up to $130,000 pursuant to a Revolver.  The Term Loan requires quarterly principal payments of $750 at the end of each calendar quarter through December 31, 2012, with the remaining principal balance of $15,750 due on April 1, 2013. The Secured Credit Agreement also provides for Bank of America, N. A. to make swingline loans to us of up to $10,000 (the “Swingline Loans”) and any Swingline Loans will reduce the borrowings available under the Revolver.  Subject to certain terms and conditions contained therein, the Secured Credit Agreement gives the Company the option to establish additional term and/or revolving credit facilities thereunder, provided that the aggregate commitments under the Secured Credit Agreement cannot exceed $220,000.

Borrowings outstanding under the Secured Credit Agreement bear interest at a fluctuating rate equal to (i) in the case of Eurodollar rate loans, the LIBOR rate (adjusted for statutory reserves) plus an applicable percentage, ranging from 2.00% to 2.50% per annum (currently 2.00%), determined by reference to the Company’s senior secured leverage ratio, and (ii) in the case of base rate loans and Swingline Loans, the higher of (a) the federal funds rate plus 0.5% or (b) the annual rate of interest announced by Bank of America, N.A. as its “prime rate,” in each case, plus an applicable percentage, ranging from 1.00% to 1.50% per annum (currently 1.00%), determined by reference to the Company’s senior secured leverage ratio.

7

MAC-GRAY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except per share data)

2. Long-Term Debt (continued)

The obligations under the Secured Credit Agreement are guaranteed by the Company’s subsidiaries and collateralized by (i) a pledge of 100% of the ownership interests in the subsidiaries, and (ii) a first-priority security interest in substantially all of the Company’s tangible and intangible assets.

Under the Secured Credit Agreement, the Company is subject to customary lending covenants, including restrictions pertaining to, among other things: (i) the incurrence of additional indebtedness, (ii) limitations on liens, (iii) making distributions, dividends and other payments, (iv) the making of certain investments and loans, (v) mergers, consolidations and acquisitions, (vi) dispositions of assets, (vii) the maintenance of a maximum total leverage ratio of not greater than 4.25 to 1.00, a maximum senior secured leverage ratio of not greater than 2.50 to 1.00, and a minimum consolidated cash flow coverage ratio of not less than 1.20 to 1.00, (viii) transactions with affiliates, and (ix) changes to governing documents and subordinate debt documents, in each case subject to baskets, exceptions and thresholds.  The Company was in compliance with these and all other financial covenants at June 30, 2011.

The Secured Credit Agreement provides for customary events of default with, in some cases, corresponding grace periods, including (i) failure to pay any principal or interest when due, (ii) failure to comply with covenants, (iii) any representation or warranty made by us proving to be incorrect in any material respect, (iv) payment defaults relating to, or acceleration of, other material indebtedness, (v) certain bankruptcy, insolvency or receivership events affecting us, (vi) a change in our control, (vii) the Company or its subsidiaries becoming subject to certain material judgments, claims or liabilities, or (viii) a material defect in the lenders’ lien against the collateral securing the obligations under the Secured Credit Agreement.

In the event of an event of default, the Administrative Agent may, and at the request of the requisite number of lenders under the Secured Credit Agreement must, terminate the lenders’ commitments to make loans under the Secured Credit Agreement and declare all obligations under the Secured Credit Agreement immediately due and payable.  For certain events of default related to bankruptcy, insolvency and receivership, the commitments of the lenders will be automatically terminated and all outstanding obligations of the Company under the Secured Credit Agreement will become immediately due and payable.

The Company pays a commitment fee equal to a percentage of the actual daily unused portion of the Secured Revolver under the Secured Credit Agreement.  This percentage, currently 0.300% per annum, is determined quarterly by reference to the senior secured leverage ratio and will range between 0.300% per annum and 0.500% per annum.

As of June 30, 2011, there was $43,514 outstanding under the Revolver, $20,250 outstanding under the Term Loan and $1,380 in outstanding letters of credit. The available balance under the Revolver was $85,106 at June 30, 2011. The average interest rates on the borrowings outstanding under the Secured Credit Agreement at June 30, 2010 and 2011 were 7.10% and 5.58%, respectively, including the applicable spread paid to the banks and the effect of the interest rate swap agreements tied to the debt (see Note 3 for discussion on Fair Value Measurements).

On August 16, 2005, the Company issued senior unsecured notes in the amount of $150,000. These notes bear interest at 7.625% payable semi-annually each February and August. A portion of the senior notes are tied to an interest rate swap agreement (see Note 3 for discussion on Fair Value Measurements). After taking the swap agreement into effect, the average interest rates on the senior notes at June 30, 2010 and 2011 were 5.90% and 5.78%, respectively. The maturity date of the notes is August 15, 2015. The proceeds from the senior notes, less financing costs, were used to pay down senior bank debt.  Since the senior notes are not widely traded, the market value of these notes approximates book value at June 30, 2011.

The Company has the option to redeem all or a portion of the senior notes at the redemption prices (expressed in percentages of principal amount on the redemption date), plus accrued interest to the redemption date, if redeemed, during the 12-month period commencing on August 15 of the years set forth below:

8

MAC-GRAY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except per share data)

2. Long-Term Debt (continued)

	Redemption
Period	Price
2011	102.542	%
2012	101.271	%
2013 and thereafter	100.000	%

As of June 30, 2011, the Company had not redeemed any of its senior notes.

The terms of the senior notes include customary covenants, including, but not limited to, restrictions pertaining to: (i) incurrence of additional indebtedness and issuance of preferred stock, (ii) payment of dividends on or making of distributions in respect of capital stock or making certain other restricted payments or investments, (iii) entering into agreements that restrict distributions from restricted subsidiaries, (iv) sale or other disposition of assets, including capital stock of restricted subsidiaries, (v) transactions with affiliates, (vi) incurrence of liens, (vii) sale/leaseback transactions, and (viii) merger, consolidation or sale of substantially all of our assets, in each case subject to numerous baskets, exceptions and thresholds. The Company was in compliance with these and all other financial covenants at June 30, 2011.

The terms of the senior notes provide for customary events of default, including, but not limited to: (i) failure to pay any principal or interest when due, (ii) failure to comply with covenants and limitations, (iii) certain insolvency or receivership events affecting us or any of our subsidiaries, and (iv) unsatisfied material judgments, claims or liabilities against us. There were no events of default under the senior notes at June 30, 2011.

Capital lease obligations on the Company’s fleet of vehicles totaled $3,833 and $3,302 at December 31, 2010 and June 30, 2011, respectively.

Required payments under the Company’s debt and capital lease obligations are as follows:

	Amount
2011 (six months)	$	2,200
2012	4,176
2013	60,177
2014	487
2015	150,026
Thereafter	—
	$	217,066

The Company historically has not needed sources of financing other than its internally generated cash flow and revolving credit facilities to fund its working capital, capital expenditures, and smaller acquisitions. As a result, the Company anticipates that its cash flow from operations and revolving credit facilities will be sufficient to meet its anticipated cash requirements for at least the next twelve months.

9

MAC-GRAY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except per share data)

3.   Fair Value Measurements

The Company has adopted accounting guidance regarding fair value measurements, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

Level 1:  Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2:  Inputs, other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3:  Unobservable inputs that reflect the reporting entity’s own assumptions.

The following table summarizes the basis used to measure certain financial assets and financial liabilities at fair value on a recurring basis in the balance sheet:

			Basis of Fair Value Measurments
	Balance at June 30, 2011		Quoted Prices In Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Interest rate swap derivative financial instruments (included in accrued expenses and other current liabilities)	$	606	$	—	$	606	$	—
Interest rate swap derivative financial instruments (included in other assets)	$	181	$	—	$	181	$	—
Fuel comodity derivative (included in other current assets)	$	122	$	—	$	—	$	122

10

MAC-GRAY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except per share data)

3.   Fair Value Measurements (continued)

The Company has entered into standard International Swaps and Derivatives Association (“ISDA”) interest rate swap agreements (“Swap Agreements”) to manage the interest rate associated with its debt. The interest rate Swap Agreements effectively convert a portion of the Company’s variable rate debt to a long-term fixed rate. Under these agreements the Company receives a variable rate of LIBOR plus a markup and pays a fixed rate.

The Company has also entered into an interest rate swap agreement to manage the interest rate associated with its senior unsecured notes. This interest rate swap agreement effectively converts a portion ($100 million) of our fixed rate senior unsecured notes to a variable rate. Under this interest rate swap agreement the Company receives a fixed rate of 7.625% and pays a variable rate of LIBOR plus the applicable margin charged by the banks. This interest rate swap agreement has an associated call feature that allows the counterparty to terminate this agreement at their option.  This call feature was exercised by the counter-party in July of 2011.  See Footnote 12, Subsequent Events, for more detailed information.

In December 2010 the Company entered into a fuel commodity derivative to manage the fuel cost of its fleet of vehicles. The derivative is effective April 1, 2011 and expires December 31, 2011.  The derivative has a monthly notional amount of 80,000 gallons from April 1, 2011 through December 31, 2011 for a total notional amount of 720,000 gallons.  The Company has a put price of $3.015 per gallon and a strike price of $3.50 per gallon. The Company recognized a non-cash unrealized loss of $157 on this fuel commodity derivative as a result of the change in the fair value for the three months ended June 30, 2011 and a non-cash unrealized gain of $122 for the six months ended June 30, 2011.

The fair value of these interest rate swap agreements are based on quoted prices for similar instruments from a commercial bank and are considered a Level 2 item. The fuel commodity derivative is based on market assumptions and a quoted price from the counter party and is considered a Level 3 item.

The fuel commodity derivative activity for the six months ended June 30, 2011 is as follows:

Balance, December 31, 2010	$	—
Realized gains	70
Unrealized gains	122
Settlements	(70		)
Balance, June 30, 2011	$	122

One of the Company’s interest rate Swap Agreements qualifies as a cash flow hedge while the others do not. The change in the fair value of the interest rate Swap Agreements that do not qualify for hedge accounting treatment is recognized in the income statement in the period in which the change occurs. The effective portion of the interest rate Swap Agreement that qualifies for hedge accounting is included in Other Comprehensive Loss in the period in which the change occurs, while the ineffective portion, if any, is recognized in income in the period in which the change occurs.

During the first quarter of 2010 the Company no longer qualified for hedge accounting treatment for one of its interest rate swap agreements.  Accordingly, the amount included in Accumulated Other Comprehensive Loss at the time hedge accounting was lost must be reclassified as an earnings charge through the maturity date of the underlying debt agreement.  This charge amounted to $123 and $271 for the three and six months ended June 30, 2011, respectively, compared to $213 and $884 for the three and six months ended June 30, 2010, respectively. The remaining balance of $330 associated with this interest rate swap and included in Accumulated Other Comprehensive Loss will be charged against income through the maturity date of the underlying debt agreement on April 1, 2013.

11

MAC-GRAY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except per share data)

3.   Fair Value Measurements (continued)

The table below outlines the details of each remaining interest rate Swap Agreement:

			Notional	Notional
	Original		Amount	Amount
Date of	Notional		Fixed/	June 30,		Expiration	Fixed
Origin	Amount		Amortizing	2011		Date	Rate
May 8, 2008	$	45,000	Amortizing	$	30,000	Apr 1, 2013	3.78	%
May 8, 2008	$	40,000	Amortizing	$	27,000	Apr 1, 2013	3.78	%
January 4, 2010	$	100,000	Fixed	$	100,000	Aug 15, 2015	7.63	%

In accordance with the interest rate Swap Agreements and on a quarterly basis, interest expense is calculated based on the floating 90-day LIBOR and the fixed rate. With regard to the Company’s floating to fixed rate interest rate swap agreements, if interest expense, as calculated, is greater based on the 90-day LIBOR, the financial institution pays the difference to the Company.  If interest expense, as calculated, is greater based on the fixed rate, the Company pays the difference to the financial institution. With regard to the Company’s fixed to floating rate interest rate swap agreement, if interest expense, as calculated, is greater based on the 90-day LIBOR, the Company pays the difference to the financial institution.  If interest expense, as calculated, is greater based on the fixed rate, the financial institution pays the difference to the Company.

Depending on fluctuations in the LIBOR, the Company’s interest rate exposure and its related impact on interest expense and net cash flow may increase or decrease. The counterparty to the interest rate Swap Agreements exposes the Company to credit loss in the event of non-performance; however, nonperformance is not anticipated.

The tables below display the impact the Company’s derivative instruments had on the Condensed Consolidated Balance Sheets as of December 31, 2010 and June 30, 2011 and the Condensed Consolidated Income Statements for the three months ended June 30, 2010 and 2011.

12

MAC-GRAY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(In thousands, except per share data)

3.   Fair Value Measurements (continued)

Fair Values of Derivative Instruments

	December 31, 2010				June 30, 2011
	Balance Sheet Location	Fair Value			Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments:
Interest rate contracts	Accrued expenses	$	(1,015	)	Accrued expenses	$	(1,033	)
Interest rate contracts	Other liabilites	(931		)	Other assets	(633		)
Derivatives not designated as hedging instruments:
Interest rate contracts	Accrued expenses	532			Accrued expenses	427
Interest rate contracts	Other liabilites	(4		)	Other assets	814
Fuel commodity derivative	Prepaid facilities management rent and other current assets	—			Prepaid facilities management rent and other current assets	122
Total derivatives		$	(1,418	)		$	(303	)

13

MAC-GRAY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(In thousands, except per share data)

3.   Fair Value Measurements (continued)

The Effect of Derivative Instruments on the Condensed Consolidated Income Statements

for the three months ended June 30, 2010 and 2011

Derivatives in Net Investment	Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)						Location of Gain or (Loss)Reclassified from Accumulated	Amount of (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)						Derivatives Not Designated as	Location of Gain or (Loss) Recognized	Amount of Gain (Loss) Recognized in Income on Derivative
Hedging	June 30,			June 30,			OCI into Income	June 30,			June 30,			Hedging	in Income on	June 30,		June 30,
Relationships	2010			2011			(Effective Portion)	2010			2011			Instruments	Derivative	2010		2011
Interest rate contracts	$	(541	)	$	(249	)	Interest expense, including the change in the fair value of non-hedged derivative instruments	$	(566	)	$	(386	)	Interest rate contracts	Interest expense, including the change in the fair value of non-hedged derivative instruments	$	2,273	$	1,355
Fuel commodity derivative	$	—		$	—		Cost of revenue	$	—		$	—		Fuel commodity derivative	Cost of revenue	$	—	$	(87	)

The Effect of Derivative Instruments on the Condensed Consolidated Income Statements

for the six months ended June 30, 2010 and 2011

Derivatives in Net Investment	Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)						Location of Gain or (Loss)Reclassified from Accumulated	Amount of (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)						Derivatives Not Designated as	Location of Gain or (Loss) Recognized	Amount of Gain (Loss) Recognized in Income on Derivative
Hedging	June 30,			June 30,			OCI into Income	June 30,			June 30,			Hedging	in Income on	June 30,		June 30,
Relationship	2010			2011			(Effective Portion)	2010			2011			Instruments	Derivative	2010		2011
Interest rate contracts	$	(1,650	)	$	(244	)	Interest expense, including the change in the fair value of non-hedged derivative instruments	$	(1,751	)	$	(795	)	Interest rate contracts	Interest expense, including the change in the fair value of non-hedged derivative instruments	$	2,892	$	1,568
Fuel commodity derivative	$	—		$	—		Cost of revenue	$	—		$	—		Fuel commodity derivative	Cost of revenue	$	—	$	192

The tables above include realized and unrealized gains and losses related to derivative instruments.

14

MAC-GRAY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(In thousands, except per share data)

4.  Goodwill and Intangible Assets

Goodwill and intangible assets consist of the following:

	As of December 31, 2010
	Cost		Accumulated Amortization		Net Book Value
Goodwill	$	58,608			$	58,608
	$	58,608			$	58,608
Intangible assets:
Trade name	$	14,050	$	—	$	14,050
Non-compete agreements	4,041		3,995		46
Contract rights	237,888		60,966		176,922
Distribution rights	1,623		621		1,002
Deferred financing costs	6,798		3,674		3,124
	$	264,400	$	69,256	$	195,144

	As of June 30, 2011
	Cost		Accumulated Amortization		Net Book Value
Goodwill	$	58,390			$	58,390
	$	58,390			$	58,390
Intangible assets:
Trade name	$	14,050	$	—	$	14,050
Non-compete agreements	3,187		3,156		31
Contract rights	237,828		66,947		170,881
Distribution rights	1,623		703		920
Deferred financing costs	6,798		4,111		2,687
	$	263,486	$	74,917	$	188,569

15

MAC-GRAY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(In thousands, except per share data)

4.  Goodwill and Intangible Assets (continued)

Estimated future amortization expense of intangible assets consists of the following:

2011 (six months)	$	6,258
2012	12,440
2013	12,119
2014	12,014
2015	11,846
Thereafter	118,859
	$	173,536

Amortization expense of intangible assets for the six months ended June 30, 2010 and 2011 was $6,624 and $6,515, respectively.

Intangible assets primarily consist of various non-compete agreements, contract rights, and trade names recorded in connection with acquisitions. The deferred financing costs were incurred in connection with our senior secured credit facility and our senior notes and are amortized from five to ten years. The non-compete agreements are amortized using the straight-line method over the life of the agreements, which range from five to fifteen years. Contract rights are amortized using the straight-line method over fifteen to twenty years. The life assigned to acquired contracts is based on several factors, including:  (i) the historical renewal rate of the contract portfolio for the most recent years prior to the acquisition, (ii) the number of years the average contract has been in the contract portfolio, (iii) the overall level of customer satisfaction within the contract portfolio, and (iv) our ability to maintain comparable renewal rates in the future. The contract rights acquired are aggregated for purposes of calculating their fair value upon acquisition due to the fact that there are thousands of individual contracts in each market. No single contract accounts for more than 2% of the revenue of any acquired portfolio and the contracts are homogeneous. The fair values of acquired portfolios are established based upon discounted cash flows generated by the acquired contracts.  The fair values of the contracts are allocated to asset groups, comprised of the Company’s geographic markets, based on an estimate of relative fair value.  Trade names are not amortized as they have an indefinite life and the Company continues to utilize these assets in the normal course of business.

5.  Commitments and Contingencies

The Company is involved in various litigation proceedings arising in the normal course of business.  In the opinion of management, the Company’s ultimate liability, if any, under pending litigation would not materially affect its financial condition or the results of its operations or cash flows.

16

MAC-GRAY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(In thousands, except per share data)

6.  Earnings Per Share

A reconciliation of the weighted average number of common shares outstanding is as follows:

	Three months ended				Six months ended
	June 30,				June 30,
	2010		2011		2010			2011
Income from continuing operations, net	$	1,229	$	504	$	2,701		$	2,570
Loss from discontinued operations, net	—		—		(250		)	—
Net income	$	1,229	$	504	$	2,451		$	2,570
Weighted average number of common shares outstanding - basic	13,791		14,244		13,734			14,167
Effect of dilutive securities:
Stock options and restricted stock units	614		789		513			756
Weighted average number of common shares outstanding - diluted	14,405		15,033		14,247			14,923
Earnings per share - basic - continuing operations	$	0.09	$	0.04	$	0.20		$	0.18
Earnings per share - diluted - continuing operations	$	0.09	$	0.03	$	0.19		$	0.17
Loss per share - basic - discontinued operations	$	—	$	—	$	(0.02	)	$	—
Loss per share - diluted - discontinued operations	$	—	$	—	$	(0.02	)	$	—
Net income per share - basic	$	0.09	$	0.04	$	0.18		$	0.18
Net income per share - diluted	$	0.09	$	0.03	$	0.17		$	0.17

There were 411 and 256 shares under option plans that were excluded from the computation of diluted earnings per share for the three months ended June 30, 2010 and 2011, respectively, and 682 and 288 shares under option plans that were excluded from the computation of diluted earnings per share for the six months ended June 30, 2010 and 2011, respectively due to their anti-dilutive effects.

7.  Discontinued Operations

On February 5, 2010, the Company sold its MicroFridge® (Intirion Corporation) business to Danby Products. The transaction has been valued at approximately $11,500.  Danby Products paid Mac-Gray $8,500 in cash and assumed existing liabilities and financial obligations of MicroFridge totaling approximately $3,000.  Since the Company will not have any significant continuing involvement in the operations of this business, the Company has accounted for this business as a discontinued operation.  Prior period financial information has been restated to reflect Intirion Corporation as a discontinued operation.  The Company recorded a loss, net of taxes, as a result of this transaction, in the amount of $294.  Concurrent with this transaction, the Company paid $8,000 on its Term Loan.

17

MAC-GRAY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(In thousands, except per share data)

7.  Discontinued Operations (continued)

Included in the table below are the key financial items related to the discontinued operation:

	Three months		Six months
	ended		ended
	June 30, 2010		June 30, 2010
Revenue	$	—	$	2,200
Interest expense, net (1)	$	—	$	20
Income before provision for income taxes	$	—	$	83
Income taxes on income from discontinued operations	—		39
Loss from disposal of discontinued operations, net of tax of $384	—		294
Loss from discontinued operations, including loss on disposal of discontinued operations, net	$	—	$	(250	)

(1)   Includes interest expense allocated to the discontinued operation as a result of a requirement to pay $8,000 on the Company’s Term Loan.  The average interest rate used to calculate this allocation was 2.5% for the six months ended June 30, 2010.

8.  Stock Compensation

During the three months ended June 30, 2011, the Company granted restricted stock units covering 32 shares of stock with a fair market value on date of grant of $14.97 per share.  The restricted stock units vest over three years.

For the three and six months ended June 30, 2011, the Company incurred stock compensation expense of $913 and $1,863, respectively. The allocation of stock compensation expense is consistent with the allocation of the participants’ salaries and other compensation expenses.

At June 30, 2011, options for 611 shares and 313 restricted shares have been granted but have not yet vested.

Compensation expense related to unvested options and restricted shares will be recognized in the following years:

2011 (six months)	$	1,910
2012	2,379
2013	1,233
2014	97
	$	5,619

18

MAC-GRAY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(In thousands, except per share data)

9.  Income Taxes

The following table presents the provision for income taxes and the effective income tax rates for the three and six months ended June 30, 2010 and 2011:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2011			2010			2011
Provision for incomes taxes	$	641		$	277		$	1,960		$	1,689
Effective tax rate	34		%	35		%	42		%	40		%

The effective income tax rate on continuing operations is based upon the estimated income for the year and adjustments, if any, resulting from tax audits or other tax contingencies.

The changes in the effective tax rates for the three and six months ended June 30, 2010 and 2011 are the result of the relative impact of permanent differences due to changes in pretax profits.

10.  New Accounting Pronouncements

In October 2009, the Financial Accounting Standards Board (FASB) issued amended guidance for identifying separate deliverables in a revenue-generating transaction where multiple deliverables exist, and provides guidance for allocating and recognizing revenues based on those separate deliverables. This update also requires additional disclosure related to the significant assumptions used to determine the revenue recognition of the separate deliverables. This guidance is required to be applied prospectively to new or significantly modified revenue arrangements. The Company adopted this guidance effective January 1, 2011. The adoption of this accounting guidance did not have an impact on the Company’s consolidated income statement, balance sheet or cash flow statement.

In December 2010, the FASB issued an update to accounting guidance for business combinations related to the disclosure of supplementary pro forma information. Accounting guidance for business combinations requires a public entity to disclose pro forma revenue and earnings for the combined entity as though the combination occurred at the beginning of the reporting period. This update clarifies that if a public entity presents comparative financial statements, the pro forma information for all business combinations occurring during the current year should be reported as though the combination occurred at the beginning of the prior annual reporting period. This update also expands the disclosure requirement to include the nature and amount of pro forma adjustments made to arrive at the disclosed pro forma revenue and earnings. This update is effective for business combinations for which the acquisition date is on or after annual reporting periods beginning after December 15, 2010, which is fiscal 2011 for the Company. The effect of adoption will depend primarily on the Company’s acquisitions occurring after such date, if any.

In January 2010, the FASB issued accounting guidance modifying the disclosure requirements related to fair value measurements. Under these requirements, purchases and settlements for Level 3 fair value measurements are presented on a gross basis, rather than on a net basis. The Company adopted this guidance effective January 1, 2011.  All disclosures in the Company’s financials have been updated to reflect this guidance.

In May 2011, the FASB issued accounting guidance which provides common requirements for measuring fair value and disclosing information about fair value measurements in accordance with U.S. GAAP and International Financial Reporting Standards (“IFRS”). This guidance is effective for fiscal years beginning on or after December 15, 2011. The Company is currently evaluating the impact of adopting the guidance.

In June 2011, the FASB issued accounting guidance which improves the comparability, consistency and transparency of financial reporting and increases the prominence of items reported in other comprehensive income. This guidance is effective for fiscal years beginning on or after December 15, 2011 and early adoption is permitted. The Company is currently evaluating the impact of adopting the guidance.

19

MAC-GRAY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(In thousands, except per share data)

11.  Payment of dividends

The Company’s Board of Directors declared dividends of $0.055 per share payable on April 1, 2011 and July 1, 2011.  Dividends were paid prior to March 31, 2011 and June 30, 2011 and have been reflected in the current financial statements.

12.  Subsequent Events

On July 22, 2011 the Company was notified by the counter-party to one of the interest rate Swap Agreements that the counter-party plans to exercise their option to terminate the agreement effective August 22, 2011 at the then fair value.  At June 30, 2011, this interest rate Swap Agreement had a fair value of $2,608.

20

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This report contains, in addition to historical information, forward-looking statements that involve risks and uncertainties.  Additional statements identified by words such as “will,” “likely,” “may,” “believe,” “expect,” “anticipate,” “intend,” “seek,” “designed,” “develop,” “would,” “future,” “can,” “could,” “outlook” and other expressions that are predictions of or indicate future events and trends and which do not relate to historical matters, also identify forward-looking statements.  These forward-looking statements reflect our current views about future events and financial performance.  Investors should not rely on forward-looking statements because they are subject to a variety of factors that could cause actual results to differ materially from our expectations.  Factors that could cause or contribute to such differences include, but are not limited to, the following:

·            debt service requirements under our existing and future indebtedness;

·            availability of cash flow to finance capital expenditures;

·            our ability to renew laundry leases with our customers;

·            competition in the laundry facilities management industry;

·our ability to maintain relationships with our suppliers;

·our ability to maintain adequate internal controls over financial reporting;

·our ability to consummate acquisitions and successfully integrate the businesses we acquire;

·            increases in multi-unit housing sector apartment vacancy rates and condominium conversions;

·            our susceptibility to product liability claims;

·            our ability to protect our intellectual property and proprietary rights and create new technology;

·            our ability to retain our key personnel and attract and retain other highly skilled employees;

·            decreases in the value of our intangible assets;

·            our ability to comply with current and future environmental regulations;

·            actions of our controlling stockholders;

·            provisions of our charter and bylaws that could discourage takeovers; and

·those factors discussed under Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2010 and our other filings with the Securities and Exchange Commission (“SEC”).

Our actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements, and accordingly, we can give no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on our results of operations or financial condition.  In view of these uncertainties, investors are cautioned not to place undue reliance on these forward-looking statements. We assume no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

In this Quarterly Report on Form 10-Q, unless the context suggest otherwise, references to the “Company,” “Mac-Gray,” “we,” “us,” “our” and similar terms refer to Mac-Gray Corporation and its subsidiaries. We have registered, applied to register or are using the following trademarks: Mac-Gray®, Web®, Hof™, Automatic Laundry Company™, LaundryView®, PrecisionWash™, Intelligent Laundry®, LaundryLinx™, TechLinx™, VentSnake™, LaundryAudit™, e-issues™  Life Just Got Easier® , Change Point®, Digital Laundry is here.®, The Campus Clothes Line® and The Laundry Room Experts®. The following are trademarks of parties other than us: Maytag®, Whirlpool®, Amana®, Magic Chef®, KitchenAid®, and Estate®.

21

Overview

Mac-Gray Corporation was founded in 1927 and re-incorporated in Delaware in 1997. Since its founding, Mac-Gray has grown to become the second largest laundry facilities management business in the United States.  Through our portfolio of card and coin-operated laundry equipment located in laundry facilities across the country, we provide laundry convenience to residents of multi-unit housing, such as apartment buildings, condominiums, colleges and universities, public housing complexes, and hotels and motels.  Based on our ongoing survey of colleges and universities, we believe we are the largest provider of such services to the college and university market in the United States.

Our business model is built on a stable demand for laundry services, combined with long-term leases, strong customer relationships, a broad customer base, and predictable capital needs.  For the three and six months ended June 30, 2011, our total revenue was $78,589 and $160,882, respectively. Approximately 95% and 96%, respectively, of our total revenue for the three and six month period was generated by our facilities management business.  We generate facilities management revenue primarily by entering into long-term leases with property owners or property management companies for the exclusive right to install and maintain laundry equipment in common area laundry rooms within their properties in exchange for a negotiated portion of the revenue we collect.  As of June 30, 2011, approximately 87% of our installed equipment base was located in laundry facilities subject to long-term leases, which have a weighted average remaining term of approximately four years.  Our capital costs are typically incurred in connection with new or renewed leases, and include investments in laundry equipment and card and coin-operated systems, incentive payments to property owners or property management companies, and expenses to refurbish laundry facilities.  Our capital costs consist of a large number of relatively small amounts, which are associated with our entry into or renewal of leases. Accordingly, our capital needs are predictable and largely within our control.  For the three and six months ended June 30, 2011, we incurred $8,339 and $15,526 of capital expenditures, respectively. In addition, we made incentive payments of approximately $917 and $1,854 in the three and six months ended June 30, 2011 to property owners and property management companies in connection with obtaining our lease arrangements.

Through our commercial equipment sales and services business, we generate revenue by selling commercial laundry equipment.  For the three and six months ended June 30, 2011, our commercial laundry equipment sales business generated approximately 5% and 4% of our total revenue, and 5% and 4% of our gross margin, respectively. We anticipate that tight credit markets for our customers will continue to challenge our ability to maintain and grow our revenue from laundry equipment sales.

Our current priorities include: (i) continuing to reduce funded debt, thereby improving debt leverage ratios and reducing interest expense, (ii) maintaining capital expenditures at the irreducible levels needed to sustain the business, (iii) increasing facilities management operating efficiencies in all markets, particularly the ones that have been influenced by acquisition activity in the past five years, and (iv) improving the profitability of individual laundry facilities management accounts that come up for contract renewal.  One of the key challenges we face is maintaining and expanding our customer base in a competitive industry. Approximately 10% to 15% of our laundry room leases are up for renewal each year.  Within any given geographic area, Mac-Gray may compete with local independent operators, regional operators and multi-region operators as well as property owners and property management companies who self-operate their laundry facilities. We devote substantial resources to our sales efforts and are focused on continued innovation in order to distinguish us from our competitors.

The Company’s Board of Directors declared a dividend of $0.55 per share payable on July 1, 2011 to stockholders of record at the close of business on June 15, 2011. All dividends were paid prior to June 30, 2011 and have been reflected in the current financial statements.

On February 5, 2010, the Company sold its MicroFridge® (Intirion Corporation) business to Danby Products. The following discussion excludes the financial results from our discontinued operations unless otherwise noted. Prior period results have been reclassified to conform to this presentation.

22

Results of Operations (Dollars in thousands)

Three and six months ended June 30, 2011 compared to three and six months ended June 30, 2010.

The information presented below for the three and six months ended June 30, 2011 and 2010 is derived from our unaudited condensed consolidated financial statements and related notes included elsewhere in this report:

	For the three months ended June 30,
					Increase			%
	2010		2011		(Decrease)			Change
Laundry facilities management revenue	$	74,086	$	74,959	$	873		1	%
Commercial laundry equipment sales revenue	4,455		3,630		(825		)	-19	%
Total revenue from continuing operations	$	78,541	$	78,589	$	48		0	%

	For the six months ended June 30,
					Increase			%
	2010		2011		(Decrease)			Change
Laundry facilities management revenue	$	152,535	$	154,148	$	1,613		1	%
Commercial laundry equipment sales revenue	7,509		6,734		(775		)	-10	%
Total revenue from continuing operations	$	160,044	$	160,882	$	838		1	%

Revenue

Total revenue increased by $48, or less than 1%, to $78,589 for the three months ended June 30, 2011 compared to $78,541 for the three months ended June 30, 2010. Total revenue increased by $838, or 1%, to $160,882 for the six months ended June 30, 2011 compared to $160,044 for the six months ended June 30, 2010.

Laundry facilities management revenue.  Laundry facilities management revenue increased by $873, or 1%, to $74,959 for the three months ended June 30, 2011 compared to $74,086 for the three months ended June 30, 2010. Laundry facilities management revenue increased by $1,613, or 1%, to $154,148 for the six months ended June 30, 2011 compared to $152,535 for the six months ended June 30, 2010. The Company has undertaken a comprehensive review of vend prices in certain markets and is instituting vend increases where appropriate.  The increase in revenue is attributable in part to this program. The increase in revenue is also the result of increased usage of the Company’s equipment in several of the markets in which the Company conducts business which the Company believes is due to occupancy rates improving in many of our markets.  The occupancy rates in the multi-family arena in which we operate have begun to improve but at a slower rate than the overall national average. We expect vacancy rates above historical norms to continue to have a negative impact on our facilities management business in the near term but to a lesser extent than it has in the recent past.  We continue to track the change in revenue month over month and quarter over quarter in our markets to better understand the revenue trend for our multi-family housing customers. This analysis is used to enable us to respond to changing trends in different geographic markets and to enable us to better allocate capital spending.

Commercial laundry equipment sales.  Revenue in the commercial laundry equipment sales business decreased by $825, or 19%, to $3,630 for the three months ended June 30, 2011 compared to $4,455 for the three months ended June 30, 2010. Revenue in the commercial laundry equipment sales business decreased by $775, or 10%, to $6,734 for the six months ended June 30, 2011 compared to $7,509 for the six months ended June 30, 2010.  Sales in the commercial laundry equipment sales business are sensitive to the strength of the local economy, the availability and cost of financing to small businesses, consumer confidence, and local permitting and therefore, tend to fluctuate significantly from period to period.  The continued weak economy and high unemployment rate continue to discourage our potential customers from committing to capital investments. These factors challenge our ability to maintain or grow our revenue from laundry equipment sales in the near term.

23

Cost of revenue

Cost of laundry facilities management revenue.  Cost of laundry facilities management revenue includes rent paid to customers as well as those costs associated with installing and servicing equipment and costs of collecting, counting, and depositing facilities management revenue. Cost of laundry facilities management revenue increased by $1,181, or 2%, to $52,760 for the three months ended June 30, 2011 as compared to $51,579 for the three months ended June 30, 2010. Cost of laundry facilities management revenue increased by $1,562, or 2%, to $105,556 for the six months ended June 30, 2011 as compared to $103,994 for the six months ended June 30, 2010.  As a percentage of laundry facilities management revenue, cost of laundry facilities management revenue was 70% for the three months ended June 30, 2011 and 2010 and 68% for the six months ended June 30, 2011 and 2010. Laundry facilities management rent increased 1.2% and 0.9% for the three and six months ended June 30, 2011 compared to the corresponding periods in 2010, directly attributable to the increase in facilities management revenue. Laundry facilities management rent as a percentage of laundry facilities management revenue was 49.8% for the three months ended June 30, 2011 and 2010, respectively. Laundry facilities management rent as a percentage of laundry facilities management revenue was 48.7% and 48.8% for the six months ended June 30, 2011 and 2010, respectively. Laundry facilities management rent can be affected by new and renewed laundry leases and by other factors such as the amount of incentive payments and laundry room betterments invested in new or renewed laundry leases. As we vary the amount invested in a facility, the laundry facilities management rent, as a function of laundry facilities management revenue, can vary. Other costs of laundry facilities management revenue increased by $743 to $15,412 for the three months ended June 30, 2011 compared to $14,669 for the three months ended June 30, 2010. Other costs of laundry facilities management revenue increased by $903 to $30,454 for the six months ended June 30, 2011 compared to $29,551 for the six months ended June 30, 2010. The increased operating expenses for both the three and six months ended June 30, 2011 compared to the same periods in 2010 are primarily attributable to cost increases associated with our fleet of vehicles, primarily fuel,  costs associated with the implementation of a new customer relationship management system and personnel costs.

Depreciation and amortization related to operations.  Depreciation and amortization related to operations decreased by $511, or 4%, to $10,913 for the three months ended June 30, 2011 as compared to $11,424 for the three months ended June 30, 2010. Depreciation and amortization related to operations decreased by $631, or 3%, to $21,944 for the six months ended June 30, 2011 as compared to $22,575 for the six months ended June 30, 2010.The decrease in depreciation and amortization for the three and six months ended June 30, 2011 as compared to the same period in 2010 is attributable to the Company’s decision, in the past two years, to closely manage capital investment in light of the recent uncertain economy. The fact that much of the equipment we acquired as part of acquisitions we made in recent years was assigned a shorter average life than that assigned to new capital investment and is now fully depreciated has also contributed to lower depreciation expense.

Cost of laundry equipment sales.  Cost of commercial laundry equipment sales consists primarily of the cost of laundry equipment, and parts and supplies sold, as well as salaries, warehousing and distribution expenses.  Cost of commercial laundry equipment sales decreased by $558, or 16%, to $3,001 for the three months ended June 30, 2011 as compared to $3,559 for the three months ended June 30, 2010. Cost of commercial laundry equipment sales decreased by $533, or 9%, to $5,578 for the six months ended June 30, 2011 as compared to $6,111 for the six months ended June 30, 2010. As a percentage of sales, cost of product sold was 83% and 80% for the three months ended June 30, 2011 and 2010, respectively, and 83% and 81% for the six months ended June 30, 2011 and 2010, respectively.  The gross margin in the commercial laundry equipment sales business unit was 17% and 20% for the three months ended June 30, 2011 and 2010, respectively, and 17% and 19% for the six months ended June 30, 2011 and 2010, respectively. The fluctuation in gross margins is primarily due to increased competitive pressure for the limited capital investment opportunities that are available in the current economic climate.

Operating expenses

General and administration, sales and marketing, related depreciation and amortization, and incremental proxy costs.  General and administration, sales and marketing, related depreciation and amortization, and incremental proxy costs increased by $402, or 5%, to $8,754 for the three months ended June 30, 2011 as compared to $8,352 for the three months ended June 30, 2010. General and administration, sales and marketing, related depreciation and amortization, and incremental proxy costs increased by $805, or 5%, to $17,659 for the six months ended June 30, 2011 as compared to $16,854 for the six months ended June 30, 2010. As a percentage of total revenue, these expenses were 11% for the three and six months ended June 30,

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2011 and 2010. The increase in expenses for the three and six months ended June 30, 2011 as compared to the three and six months ended June 30, 2010 is the net of changes in several expense categories including higher personnel related expenses and lower professional fees.

Gain on sale of assets

The gains of $157 and $113 in the six months ended June 30, 2011 and 2010, respectively, are from the sale of vehicles and other fixed assets in the normal course of business.

Income from continuing operations

Income from continuing operations decreased by $479, or 13%, to $3,226 for the three months ended June 30, 2011 compared to $3,705 for the three months ended June 30, 2010 and decreased by $321 , or 3%, to $10,302 for the six months ended June 30, 2011 compared to $10,623 for the six months ended June 30, 2010 due primarily to the cumulative effect of the reasons discussed above.

Interest expense, including the change in the fair value of non-hedged derivative instruments

Interest expense, including the change in the fair value of non-hedged derivative instruments, increased by $610, or 33%, to $2,445 for the three months ended June 30, 2011, as compared to $1,835 for the three months ended June 30, 2010. This increase was due to a $1,158 decrease in the unrealized gain on interest rate contracts that do not qualify for hedge accounting.  Interest expense, including the change in the fair value of non-hedged derivative instruments, increased by $81, or 1%, to $6,043 for the six months ended June 30, 2011, as compared to $5,962 for the six months ended June 30, 2010. Interest expense, excluding the change in fair value of non-hedged derivative instruments, was $3,252 and $3,800 for the three months ended June 30, 2011 and 2010, respectively, a decrease of $548 or 14%.  Interest expense, excluding the change in fair value of non-hedged derivative instruments, was $6,485 and $7,685 for the six months ended June 30, 2011 and 2010, respectively, a decrease of $1,200 or 16%. These decreases are attributable to favorable interest rates and the continued reduction in debt by the Company.

One of our interest rate Swap Agreements qualifies as a cash flow hedge while the others do not.  The changes in the fair value of the interest rate Swap Agreements that do not qualify for hedge accounting treatment are recognized in the income statement in the period in which the changes occur. The effective portion of the interest rate Swap Agreement that qualifies for hedge accounting is included in Other Comprehensive Loss in the period in which change occurs, while the ineffective portion, if any, is recognized in income in the period in which the change occurs.

During the first quarter of 2010 we no longer qualified for hedge accounting treatment for one of our interest rate swap agreements.  Accordingly, the amount included in Accumulated Other Comprehensive Loss at the time hedge accounting was lost must be reclassified as an earnings charge through the maturity date of the underlying debt agreement.  This charge amounted to $123 and $213 for the three months ended June 30, 2011 and 2010, respectively, and $271 and $884 for the six months ended June 30, 2011 and 2010, respectively. The remaining balance of $330 associated with this interest rate swap, and included in Accumulated Other Comprehensive Loss, will be charged against income through the maturity date of the underlying debt agreement on April 1, 2013.

In July of 2011, we were notified by the counter-party to one of our interest rate swap agreements that they were exercising their option to terminate our swap agreement effective August 22, 2011at the then fair value.  This interest rate Swap Agreement was a fixed to floating swap related to our 7.625% senior notes.  After termination of this economic hedge the effective interest rate for $100,000 of our senior notes will revert back to 7.625%.  We are considering alternatives, including entering into another interest rate swap agreement.  If a new swap agreement is entered into, the terms and resulting effective interest rate will vary based on the then market conditions and may be higher or lower than our current rates.

Provision for income taxes

The provision for income taxes decreased by $364 to $277 for the three months ended June 30, 2011 compared to the provision for income taxes of $641 for the three months ended June 30, 2010. The provision for income taxes decreased by $271 to $1,689 for the six months ended June 30, 2011 compared to the provision for income taxes of $1,960 for the six months ended June 30, 2010. The decrease is the result of the decrease in pre-tax income to $781 and $4,259 for the three and six months ended June 30, 2011, respectively, compared

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to the pre-tax income of $1,870 and $4,661 for the three and six months ended June 30, 2010, respectively. The effective tax rate increased to 35.5% from 34.3% for the three months ended June 30, 2011, compared to the same period in 2010.The effective tax rate decreased to 39.7% from 42.0% for the six months ended June 30, 2011, compared to the same period in 2010. The changes in the effective rates are the result of decreased pre-tax income while permanent tax differences remained substantially unchanged.

Income from continuing operations, net

As a result of the foregoing, income from continuing operations, net decreased by $725 to $504 for the three months ended June 30, 2011 compared to $1,229 for the same period ended June 30, 2010. Income from continuing operations, net decreased by $131 to $2,570 for the six months ended June 30, 2011 compared to $2,701 for the same period ended June 30, 2010.

Income from discontinued operations, net

Income from discontinued operations, net, excluding loss on disposal was $44 for the six months ended June 30, 2010.  The Company sold its MicroFridge® (Intirion Corporation) business on February 5, 2010.

Seasonality

We experience moderate seasonality as a result of our operations in the college and university market. Revenues derived from the college and university market represented approximately 13% of our total laundry facilities management revenue. Academic facilities management and rental revenues are derived substantially during the school year in the first, second and fourth calendar quarters. Conversely, our operating and capital expenditures have historically been higher during the third calendar quarter when we install a large amount of equipment while colleges and universities are generally on summer break.

Liquidity and Capital Resources (Dollars in thousands)

We believe that we can satisfy our working capital requirements and funding of capital needs with internally generated cash flow and, as necessary, borrowings from our revolving credit facility described below. Capital requirements for the year ending December 31, 2011, including contract incentive payments, are currently expected to be between $33,000 and $36,000.  In the six months ended June 30, 2011, spending on capital expenditures was $ 15,526 and contract incentives was $1,854. The capital expenditures for 2011 are primarily composed of laundry equipment installed in connection with new customer leases and the renewal of existing leases.

We historically have not needed sources of financing other than our internally generated cash flow and revolving credit facilities to fund our working capital, capital expenditures and smaller acquisitions. As a result, we anticipate that our cash flow from operations and revolving credit facilities will be sufficient to meet our anticipated cash requirements for at least the next twelve months.  However, we may require external sources of financing for any significant future acquisitions.  Further, our senior secured credit facilities mature in April 2013 and our senior notes mature in August 2015.  We anticipate that we will need to refinance some portion of our indebtedness or otherwise amend the terms when they reach maturity.

Our current long-term liquidity needs are principally the repayment of the outstanding principal amounts of our long-term indebtedness, including borrowings under our senior credit facility and our senior notes. We are unable to project with certainty whether our long-term cash flow from operation will be sufficient to repay our long-term debt when it comes due. In particular, our senior secured credit agreement matures in April, 2013 and our senior unsecured notes mature in August, 2015. We anticipate that we will need to refinance some portion of this indebtedness when it reaches maturity.  We cannot make any assurances that such financing would be available on reasonable terms, if at all.

For the six months ended June 30, 2011, our source of cash was from operating activities. Our primary uses of cash for the six months ended June 30, 2011 were the purchase of new laundry equipment, the reduction of debt, and the payments of dividends. We anticipate that we will continue to use cash flows provided by operating activities to finance working capital needs, debt service, and capital expenditures.

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Our senior secured credit agreement (the “Secured Credit Agreement”) provides that we may borrow up to $150,250 in the aggregate, including $20,250 pursuant to a Term Loan and up to $130,000 pursuant to a Revolver.  The Term Loan requires quarterly principal payments of $750 at the end of each calendar quarter through December 31, 2012, with the remaining principal balance of $15,750 due on April 1, 2013. The Secured Credit Agreement also provides for Bank of America, N. A. to make swingline loans to us of up to $10,000 (the “Swingline Loans”) and any Swingline Loans will reduce the borrowings available under the Revolver.  Subject to certain terms and conditions, the Secured Credit Agreement gives the Company the option to establish additional term and/or revolving credit facilities thereunder, provided that the aggregate commitments under the Secured Credit Agreement cannot exceed $220,000.

Borrowings outstanding under the Secured Credit Agreement bear interest at a fluctuating rate equal to (i) in the case of Eurodollar rate loans, the LIBOR rate (adjusted for statutory reserves) plus an applicable percentage, ranging from 2.00% to 2.50% per annum (currently 2.00%), determined by reference to our senior secured leverage ratio, and (ii) in the case of base rate loans and Swingline Loans, the higher of (a) the federal funds rate plus 0.5% or (b) the annual rate of interest announced by Bank of America, N.A. as its “prime rate,” in each case, plus an applicable percentage, ranging from 1.00% to 1.50% per annum (currently 1.00%), determined by reference to our senior secured leverage ratio.

The obligations under the Secured Credit Agreement are guaranteed by our subsidiaries and collateralized by (i) a pledge of 100% of the ownership interests in the subsidiaries, and (ii) a first-priority security interest in substantially all our tangible and intangible assets.

Under the Secured Credit Agreement, we are subject to customary lending covenants, including restrictions pertaining to, among other things: (i) the incurrence of additional indebtedness, (ii) limitations on liens, (iii) making distributions, dividends and other payments, (iv) the making of certain investments and loans, (v) mergers, consolidations and acquisitions, (vi) dispositions of assets, (vii) the maintenance of a maximum total leverage ratio of not greater than 4.25 to 1.00, a maximum senior secured leverage ratio of not greater than 2.50 to 1.00, and a minimum consolidated cash flow coverage ratio of not less than 1.20 to 1.00, (viii) transactions with affiliates, and (ix) changes to governing documents and subordinate debt documents, in each case subject to baskets, exceptions and thresholds.  We were in compliance with these and all other financial covenants at June 30, 2011.

The Secured Credit Agreement provides for customary events of default with, in some cases, corresponding grace periods, including (i) failure to pay any principal or interest when due, (ii) failure to comply with covenants, (iii) any representation or warranty made by us proving to be incorrect in any material respect, (iv) payment defaults relating to, or acceleration of, other material indebtedness, (v) certain bankruptcy, insolvency or receivership events affecting us, (vi) a change in our control, (vii) the Company or its subsidiaries becoming subject to certain material judgments, claims or liabilities, or (viii) a material defect in the lenders’ lien against the collateral securing the obligations under the Secured Credit Agreement.

In the event of an event of default, the Administrative Agent may, and at the request of the requisite number of lenders under the Secured Credit Agreement must, terminate the lenders’ commitments to make loans under the Secured Credit Agreement and declare all obligations under the Secured Credit Agreement immediately due and payable.  For certain events of default related to bankruptcy, insolvency and receivership, the commitments of the lenders will be automatically terminated and all of our outstanding obligations under the Secured Credit Agreement will become immediately due and payable.

We pay a commitment fee equal to a percentage of the actual daily unused portion of the Revolver under the Secured Credit Agreement.  This percentage, currently 0.300% per annum, will be determined quarterly by reference to the senior secured leverage ratio and will range between 0.300% per annum and 0.500% per annum.

As of June 30, 2011, there was $43,514 outstanding under the Revolver, $20,250 outstanding under the Term Loan and $1,380 in outstanding letters of credit.  The available balance under the Revolver was $85,106 at June 30, 2011. The average interest rates on the borrowings outstanding under the Secured Credit Agreement at June, 2010 and 2011 were 7.10% and 5.58%, respectively, including the applicable spread paid to the banks and the effect of the interest rate swap agreements tied to the debt.

On August 16, 2005, we issued senior unsecured notes in the amount of $150,000. These notes bear interest at 7.625% payable semi-annually each February and August. A portion of the senior notes are tied to an interest rate swap agreement.  After taking the swap agreement into effect, the average interest rates on the senior notes

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at June 30, 2010 and 2011 was 5.90% and 5.78%, respectively.  In July 2011, we were notified by the counter-party to the swap agreement that they were exercising their option to terminate the swap effective August 22, 2011 at the then fair value.  Upon termination, the effective interest rate on our senior notes will revert back to 7.625%.  We are considering alternatives, including entering into another interest rate swap agreement.  If a new swap agreement is entered into, the terms and resulting effective interest rate will vary based on the then market conditions and may be higher or lower than our current rates.  The maturity date of the notes is August 15, 2015. The proceeds from the senior notes, less financing costs, were used to pay down senior bank debt.  The market value of these notes approximates book value at June 30, 2011.

The Company has the option to redeem all or a portion of the senior notes at the redemption prices (expressed in percentages of principal amount on the redemption date), plus accrued interest to the redemption date, if redeemed, during the 12-month period commencing on August 15 of the years set forth below:

	Remdemption
Period	Price
2011	102.542	%
2012	101.271	%
2013 and thereafter	100.000	%

As of June 30, 2011, we had not redeemed any of our senior notes.

The terms of the senior notes include customary covenants, including, but not limited to, restrictions pertaining to: (i) incurrence of additional indebtedness and issuance of preferred stock, (ii) payment of dividends on or making of distributions in respect of capital stock or making certain other restricted payments or investments, (iii) entering into agreements that restrict distributions from restricted subsidiaries, (iv) sale or other disposition of assets, including capital stock of restricted subsidiaries, (v) transactions with affiliates, (vi) incurrence of liens, (vii) sale/leaseback transactions, and (viii) merger, consolidation or sale of substantially all of our assets, in each case subject to numerous baskets, exceptions and thresholds. We were in compliance with these and all other financial covenants at June 30, 2011.

The terms of the senior notes provide for customary events of default, including, but not limited to: (i) failure to pay any principal or interest when due, (ii) failure to comply with covenants and limitations, (iii) certain insolvency or receivership events affecting us or any of our subsidiaries, and (iv) unsatisfied material judgments, claims or liabilities against us. There were no events of default under the senior notes at June 30, 2011.

Operating Activities

For the six months ended June 30, 2011 and 2010, net cash flows provided by operating activities were $25,061 and $22,204, respectively. Cash flows from operations consists primarily of facilities management revenue and equipment sales, offset by the cost of facilities management revenues, cost of product sold, and general, administration, sales and marketing expenses. The most significant changes to cash flows for the six months ended June 30, 2011 as compared to the six months ended June 30, 2010 are an increase in prepaid facilities management rent and other assets and a decrease in the change in accounts payable, accrued facilities management rent, accrued expenses and other liabilities.

Investing Activities

For the six months ended June 30, 2011 and 2010, net cash flows used in investing activities were $15,320 and $70, respectively.  Capital expenditures for the six months ended June 30, 2011 and 2010 were $15,526 and $8,648, respectively, primarily for the acquisition of laundry equipment for new and renewed lease locations.  Cash flows of $8,274 in the six months ended June 30, 2010 provided by investing activities consist of the proceeds from the sale of Intirion Corporation.

Financing Activities

For the six months ended June 30, 2011 and 2010, net cash flows used in financing activities were $10,006 and $29,541, respectively. Cash flows used in financing activities consist of net reductions in bank borrowings and for the six months ended June 30, 2010 include the $8,000 reduction in the Term Loan from the proceeds of the sale of Intirion Corporation and the payments of cash dividends.  Cash flows provided by financing activities consist of proceeds from the exercise of options and the issuance of stock through the employee stock purchase program.

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The Company has entered into standard International Swaps and Derivatives Association, or ISDA, interest rate Swap Agreements to manage the interest rate associated with our senior credit facilities. For a description of our interest rate Swap Agreements see “Item 3. Quantitative and Qualitative Disclosures About Market Risk.”

Contractual Obligations

A summary of our contractual obligations and commitments related to our outstanding long-term debt and future minimum lease payments related to our vehicle fleet, warehouse rent and facilities management rent as of June 30, 2011 is as follows:

					Interest on
Fiscal	Long-term		Interest on		variable rate		Facilites rent		Capital lease		Operating lease
Year	debt		senior notes		debt (1)		commitments		commitments		commitments		Total
2011(six months)	$	1,500	$	5,719	$	1,779	$	8,398	$	700	$	1,762	$	19,858
2012	3,000		11,438		3,474		16,242		1,176		3,264		$	38,594
2013	59,264		11,438		827		12,887		913		2,651		$	87,980
2014	—		11,438		—		9,970		487		2,352		$	24,247
2015	150,000		11,438		—		7,039		26		2,031		$	170,534
Thereafter	—		—		—		16,586		—		527		$	17,113
Total	$	213,764	$	51,471	$	6,080	$	71,122	$	3,302	$	12,587	$	358,326

(1)Interest is calculated using the Company’s average interest rate at June 30, 2011.

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT

MARKET RISK

We are exposed to a variety of risks, including changes in interest rates on some of our borrowings and the change in fuel prices. In the normal course of our business, we manage our exposure to these risks as described below. We do not engage in trading market-risk sensitive instruments for speculative purposes.

Interest rates

The table below provides information about our debt obligations that are sensitive to changes in interest rates. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. The fair market value of long-term debt approximates book value at June 30, 2011.

(in thousands)	2011			2012			2013			2014		2015		Thereafter		Total
Variable rate	$	1,500		$	3,000		$	59,264		$	—	$	—	$	—	$	63,764
Average interest rate	5.58		%	5.58		%	5.58		%					—		5.58		%

We have entered into standard International Swaps and Derivatives Association interest rate swap agreements to manage the interest rate associated with our debt. The interest rate Swap Agreements effectively convert a portion of our variable rate debt to a long-term fixed rate. Under these agreements, we receive a variable rate of LIBOR plus a markup and pay a fixed rate.

We have also entered into an interest rate swap agreement to manage the interest rate associated with our senior unsecured notes.  This interest rate swap agreement effectively converts a portion ($100 million) of our fixed rate senior unsecured notes to a variable rate. Under this interest rate swap agreement, we receive a fixed rate of 7.625% and pay a variable rate of LIBOR plus the applicable margin charged by the banks.  This interest rate swap agreement has an associated call feature that allows the counterparty to terminate this agreement at their option.  In July of 2011, we were notified by the counter-party to one of our interest rate

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swap agreements that they were exercising their option to terminate our swap agreement effective August 22, 2011 at the then fair value.  After termination of this economic hedge the effective interest rate for $100,000 of our senior notes will revert back to 7.625%.  The Company is considering alternatives, including entering into another interest rate swap agreement.

In December 2010 we entered into a fuel commodity derivative to manage the fuel cost of our fleet of vehicles. The derivative is effective April 1, 2011 and expires December 31, 2011.  The derivative has a monthly notional amount of 80,000 gallons from April 1, 2011 through December 31, 2011 for a total notional amount of 720,000 gallons.  We have a put price of $3.015 per gallon and a strike price of $3.50 per gallon. The Company recognized a non-cash unrealized loss of $157 on this fuel commodity derivative as a result of the change in the fair value for the three months ended June 30, 2011 and a non-cash unrealized gain of $122 for the six months ended June 30, 2011.

The fair values of the interest rate derivatives are based on quoted prices for similar instruments from a commercial bank.  These derivatives are considered to be Level 2 items.  The fuel commodity derivative is based on market assumptions and a quoted price from the counter party and is considered a Level 3 item.

One of our interest rate Swap Agreements qualifies as a cash flow hedge while the others do not. The change in the fair value of the interest rate Swap Agreements that do not qualify for hedge accounting treatment is recognized in the income statement in the period in which the change occurs. The effective portion of the interest rate Swap Agreement that qualifies for hedge accounting is included in Other Comprehensive Income in the period in which the change occurs, while the ineffective portion, if any, is recognized in income in the period in which the change occurs.

During the first quarter of 2010 we no longer qualified for hedge accounting treatment for one of our interest rate swap agreements. Accordingly, the amount included in Accumulated Other Comprehensive Loss at the time the hedge accounting was lost must be reclassified as an earnings charge through the maturity date of the underlying debt agreement. This charge amounted to $123 and $271 for the three and six months ended June 30, 2011 compared to $213 and $884 for the three and six months ended June 30, 2010, respectively. The remaining balance of $330 associated with this interest rate swap and included in Accumulated Other Comprehensive Loss will be charged against income through the maturity date of the underlying debt agreement on April 1, 2013.

The table below outlines the details of each remaining interest rate Swap Agreement:

			Notional	Notional
	Original		Amount	Amount
Date of	Notional		Fixed/	June 30,		Expiration	Fixed
Origin	Amount		Amortizing	2011		Date	Rate
May 8, 2008	$	45,000	Amortizing	$	30,000	Apr 1, 2013	3.78	%
May 8, 2008	$	40,000	Amortizing	$	27,000	Apr 1, 2013	3.78	%
January 4, 2010	$	100,000	Fixed	$	100,000	Aug 15, 2015	7.63	%

In accordance with the interest rate Swap Agreements and on a quarterly basis, interest expense is calculated based on the floating 90-day LIBOR and the fixed rate. With regard to our floating to fixed rate interest rate swap agreements, if interest expense, as calculated, is greater based on the 90-day LIBOR, the financial institution pays the difference to us.  If interest expense, as calculated, is greater based on the fixed rate we pay the difference to the financial institution. With regard to our fixed to floating rate interest rate swap agreement, if interest expense, as calculated, is greater based on the 90-day LIBOR, we pay the difference to the financial institution.  If interest expense, as calculated, is greater based on the fixed rate, the financial institution pays the difference to us.

Depending on fluctuations in the LIBOR, our interest rate exposure and the related impact on interest expense and net cash flow may increase or decrease. The counter party to the interest rate Swap Agreements exposes us to credit loss in the event of non-performance; however, nonperformance is not anticipated.  The fair value of an interest rate Swap Agreement is the estimated amount that we would receive or pay to terminate the agreement at the reporting date, taking into account current interest rates and the credit worthiness of the

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counter party. At June 30, 2011, the fair value of the interest rate Swap Agreements was a liability of $425.  This amount has been included in other liabilities on the condensed consolidated balance sheets.

Item 4.

CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures.  As of the end of the period covered by this report, an evaluation was carried out by our management, with the participation of our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)).  Based upon that evaluation, our chief executive officer and chief financial officer concluded that these disclosure controls and procedures were effective as of June 30, 2011 in providing reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Changes in internal controls.  In addition, no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during the quarter ended June 30, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1A.Risk Factors

There have been no material changes in our risk factors from those disclosed in Part 1, Item 1A (“Risk Factors”) of our Annual Report on Form 10-K for the fiscal year ended December 31, 2010, except to the extent previously updated or to the extent additional factual information disclosed elsewhere in this Quarterly Report on Form 10-Q relates to such risk factors.  The risks described in our annual report on Form 10-K are not the only risks facing our Company.  Additional risks and uncertainties not currently known to us or that  we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 6.   Exhibits

31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (1)
31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (1)
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (2)
101	The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 formatted in eXtensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Income Statements, (iii) the Condensed Consolidated Statements of Stockholders’ Equity, (iv) the Condensed Consolidated Statements of Cash Flows and (v) related notes, tagged as blocks of text. (2)

(1) Filed herewith.

(2) Furnished herewith.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunder duly authorized.

	MAC-GRAY CORPORATION
August 5, 2011	/s/ Michael J. Shea
	Michael J. Shea
	Executive Vice President, Chief
	Financial Officer and Treasurer
	(On behalf of registrant and as principal financial officer)

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EX-31.1

Exhibit 31.1

MAC-GRAY CORPORATION

CERTIFICATION PURSUANT TO SECTION 302 OF

SARBANES-OXLEY ACT OF 2002

CERTIFICATIONS

I, Stewart G. MacDonald, Jr., Chief Executive Officer, certify that:

1.I have reviewed this report on Form 10-Q of Mac-Gray Corporation (the registrant);

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 5, 2011
	/s/ Stewart G. MacDonald, Jr.
	Stewart G. MacDonald, Jr.
	Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

MAC-GRAY CORPORATION

CERTIFICATION PURSUANT TO SECTION 302 OF

SARBANES-OXLEY ACT OF 2002

CERTIFICATIONS

I, Michael J. Shea, Chief Financial Officer and Treasurer, certify that:

1.I have reviewed this report on Form 10-Q of Mac-Gray Corporation (the registrant);

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 5, 2011
	/s/ Michael J. Shea
	Michael J. Shea
	Chief Financial Officer and Treasurer
	(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION. 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q for the fiscal period ended June 30, 2011 (the “Report”), of Mac-Gray Corporation (the “Company”) each of the undersigned, as the Chief Executive Officer and Chief Financial Officer of the Company, hereby certifies pursuant to 18 U.S.C. §1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

·the Report fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended (the “Exchange Act”); and

·the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

This certification is provided solely pursuant to 18 U.S.C. Section 1350 and Item 601(b)(32) of Regulation S-K (“Item 601(b)(32)”) promulgated under the Securities Act of 1933, as amended (the “Securities Act”), and the Exchange Act. In accordance with clause (ii) of Item 601(b)(32), this certification (A) shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and (B) shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

Dated:	August 5, 2011	/s/ Stewart G. MacDonald, Jr.
		Name: Stewart G. MacDonald, Jr.
		Title: Chief Executive Officer
Dated:	August 5, 2011	/s/ Michael J. Shea
		Name: Michael J. Shea
		Title: Chief Financial Officer

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CONDENSED CONSOLIDATED INCOME STATEMENTS (USD $) In Thousands, except Per Share data	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Revenue:
Laundry facilities management revenue	$ 74,959	$ 74,086	$ 154,148	$ 152,535
Commercial laundry equipment sales	3,630	4,455	6,734	7,509
Total revenue from continuing operations	78,589	78,541	160,882	160,044
Cost of revenue:
Cost of laundry facilities management revenue	52,760	51,579	105,556	103,994
Depreciation and amortization	10,913	11,424	21,944	22,575
Cost of commercial laundry equipment sales	3,001	3,559	5,578	6,111
Total cost of revenue	66,674	66,562	133,078	132,680
Gross margin	11,915	11,979	27,804	27,364
Operating expenses:
General and administration	4,669	4,451	9,431	9,133
Sales and marketing	3,435	3,403	7,163	6,701
Depreciation and amortization	406	360	796	785
Gain on sale of assets, net	(65)	(78)	(157)	(113)
Incremental costs of proxy contests	244	138	269	235
Total operating expenses	8,689	8,274	17,502	16,741
Income from continuing operations	3,226	3,705	10,302	10,623
Interest expense, including the change in the fair value of non-hedged derivative instruments	2,445	1,835	6,043	5,962
Income before provision for income taxes from continuing operations	781	1,870	4,259	4,661
Provision for income taxes	277	641	1,689	1,960
Income from continuing operations, net	504	1,229	2,570	2,701
Income from discontinued operations, net				44
Loss from disposal of discontinued operations, net of taxes of $384				(294)
Net income	$ 504	$ 1,229	$ 2,570	$ 2,451
Earnings per share - basic - continuing operations (in dollars per share)	$ 0.04	$ 0.09	$ 0.18	$ 0.20
Earnings per share - diluted - continuing operations (in dollars per share)	$ 0.03	$ 0.09	$ 0.17	$ 0.19
Loss per share - basic - discontinued operations (in dollars per share)				$ (0.02)
Loss per share - diluted - discontinued operations (in dollars per share)				$ (0.02)
Earnings per share - basic (in dollars per share)	$ 0.04	$ 0.09	$ 0.18	$ 0.18
Earnings per share - diluted (in dollars per share)	$ 0.03	$ 0.09	$ 0.17	$ 0.17
Weighted average common shares outstanding - basic (in shares)	14,244	13,791	14,167	13,734
Weighted average common shares outstanding - diluted (in shares)	15,033	14,405	14,923	14,247

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CONDENSED CONSOLIDATED INCOME STATEMENTS (Parenthetical) (USD $) In Thousands	6 Months Ended
	Jun. 30, 2010
CONDENSED CONSOLIDATED INCOME STATEMENTS
Loss from disposal of discontinued operations, taxes	$ 384

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands	Jun. 30, 2011	Dec. 31, 2010
Current assets:
Cash and cash equivalents	$ 12,748	$ 13,013
Trade receivables, net of allowance for doubtful accounts	3,995	6,105
Inventory of finished goods, net	2,112	1,580
Deferred income taxes	963	963
Prepaid facilities management rent and other current assets	10,070	9,916
Total current assets	29,888	31,577
Property, plant and equipment, net	129,336	128,068
Goodwill	58,390	58,608
Intangible assets, net	188,569	195,144
Prepaid facilities management rent and other assets	11,256	10,686
Total assets	417,439	424,083
Current liabilities:
Current portion of long-term debt and capital lease obligations	4,330	4,511
Trade accounts payable	9,323	8,673
Accrued facilities management rent	20,642	21,084
Accrued expenses and other current liabilities	14,492	15,998
Total current liabilities	48,787	50,266
Long-term debt and capital lease obligations	212,736	221,425
Deferred income taxes	42,220	41,823
Other liabilities	1,583	2,518
Total liabilities	305,326	316,032
Commitments and contingencies (Note 5)
Stockholders' equity:
Preferred stock ($.01 par value, 5 million shares authorized, no shares issued or outstanding)
Common stock ($.01 par value, 30 million shares authorized, 14,026,919 issued and 14,026,743 outstanding at December 31, 2010, and 14,265,330 issued and outstanding at June 30, 2011)	143	140
Additional paid in capital	84,045	81,296
Accumulated other comprehensive loss	(1,225)	(1,563)
Retained earnings	29,150	28,180
Total stockholders' equity before common stock in treasury	112,113	108,053
Less common stock in treasury, at cost (176 shares at December 31, 2010)		(2)
Total stockholders' equity	112,113	108,051
Total liabilities and stockholders' equity	$ 417,439	$ 424,083

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2011

Commitments and Contingencies.

Commitments and Contingencies

5.  Commitments and Contingencies

The Company is involved in various litigation proceedings arising in the normal course of business.  In the opinion of management, the Company’s ultimate liability, if any, under pending litigation would not materially affect its financial condition or the results of its operations or cash flows.

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New Accounting Pronouncements

6 Months Ended

Jun. 30, 2011

New Accounting Pronouncements

New Accounting Pronouncements

10.  New Accounting Pronouncements

In October 2009, the Financial Accounting Standards Board (FASB) issued amended guidance for identifying separate deliverables in a revenue-generating transaction where multiple deliverables exist, and provides guidance for allocating and recognizing revenues based on those separate deliverables. This update also requires additional disclosure related to the significant assumptions used to determine the revenue recognition of the separate deliverables. This guidance is required to be applied prospectively to new or significantly modified revenue arrangements. The Company adopted this guidance effective January 1, 2011. The adoption of this accounting guidance did not have an impact on the Company’s consolidated income statement, balance sheet or cash flow statement.

In December 2010, the FASB issued an update to accounting guidance for business combinations related to the disclosure of supplementary pro forma information. Accounting guidance for business combinations requires a public entity to disclose pro forma revenue and earnings for the combined entity as though the combination occurred at the beginning of the reporting period. This update clarifies that if a public entity presents comparative financial statements, the pro forma information for all business combinations occurring during the current year should be reported as though the combination occurred at the beginning of the prior annual reporting period. This update also expands the disclosure requirement to include the nature and amount of pro forma adjustments made to arrive at the disclosed pro forma revenue and earnings. This update is effective for business combinations for which the acquisition date is on or after annual reporting periods beginning after December 15, 2010, which is fiscal 2011 for the Company. The effect of adoption will depend primarily on the Company’s acquisitions occurring after such date, if any.

In January 2010, the FASB issued accounting guidance modifying the disclosure requirements related to fair value measurements. Under these requirements, purchases and settlements for Level 3 fair value measurements are presented on a gross basis, rather than on a net basis. The Company adopted this guidance effective January 1, 2011.  All disclosures in the Company’s financials have been updated to reflect this guidance.

In May 2011, the FASB issued accounting guidance which provides common requirements for measuring fair value and disclosing information about fair value measurements in accordance with U.S. GAAP and International Financial Reporting Standards (“IFRS”). This guidance is effective for fiscal years beginning on or after December 15, 2011. The Company is currently evaluating the impact of adopting the guidance.

In June 2011, the FASB issued accounting guidance which improves the comparability, consistency and transparency of financial reporting and increases the prominence of items reported in other comprehensive income. This guidance is effective for fiscal years beginning on or after December 15, 2011 and early adoption is permitted. The Company is currently evaluating the impact of adopting the guidance.

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Basis of Presentation

6 Months Ended

Jun. 30, 2011

Basis of Presentation

Basis of Presentation

1.  Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The unaudited interim condensed consolidated financial statements do not include all information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America. In the opinion of the management of Mac-Gray Corporation (the “Company” or “Mac-Gray,”) the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal, recurring adjustments), which are necessary to present fairly the Company’s financial position, the results of its operations, and its cash flows. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s 2010 audited consolidated financial statements filed with the Securities and Exchange Commission in its Annual Report on Form 10-K for the year ended December 31, 2010. The results for interim periods are not necessarily indicative of the results to be expected for the full year.

The Company generates the majority of its revenue from card and coin-operated laundry equipment located in 43 states throughout the United States, as well as the District of Columbia. The Company’s principal customer base is the multi-unit housing market, which consists of apartments, condominium units, colleges and universities. The Company also sells and services commercial laundry equipment to commercial laundromats, multi-housing properties and institutions. The majority of the Company’s purchases of laundry equipment are from one supplier.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. On February 5, 2010, the Company sold its MicroFridge® (Intirion Corporation) business to Danby Products. The operations and cash flows of this business have been eliminated from the ongoing operations of the Company as a result of this disposal transaction. Since the Company will not have any significant continuing involvement in the operations of this business, the Company has accounted for this business as a discontinued operation.  All prior period financial information has been restated to reflect Intirion Corporation as a discontinued operation.

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Discontinued Operations

6 Months Ended

Jun. 30, 2011

Discontinued Operations

Discontinued Operations

7.  Discontinued Operations

On February 5, 2010, the Company sold its MicroFridge® (Intirion Corporation) business to Danby Products. The transaction has been valued at approximately $11,500.  Danby Products paid Mac-Gray $8,500 in cash and assumed existing liabilities and financial obligations of MicroFridge totaling approximately $3,000.  Since the Company will not have any significant continuing involvement in the operations of this business, the Company has accounted for this business as a discontinued operation.  Prior period financial information has been restated to reflect Intirion Corporation as a discontinued operation.  The Company recorded a loss, net of taxes, as a result of this transaction, in the amount of $294.  Concurrent with this transaction, the Company paid $8,000 on its Term Loan.

Included in the table below are the key financial items related to the discontinued operation:

	Three months		Six months
	ended		ended
	June 30, 2010		June 30, 2010
Revenue	$	—	$	2,200
Interest expense, net (1)	$	—	$	20
Income before provision for income taxes	$	—	$	83
Income taxes on income from discontinued operations	—		39
Loss from disposal of discontinued operations, net of tax of $384	—		294
Loss from discontinued operations, including loss on disposal of discontinued operations, net	$	—	$	(250	)

(1)   Includes interest expense allocated to the discontinued operation as a result of a requirement to pay $8,000 on the Company’s Term Loan.  The average interest rate used to calculate this allocation was 2.5% for the six months ended June 30, 2010.

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Subsequent Events

6 Months Ended

Jun. 30, 2011

Subsequent Events

Subsequent Events

12.  Subsequent Events

On July 22, 2011 the Company was notified by the counter-party to one of the interest rate Swap Agreements that the counter-party plans to exercise their option to terminate the agreement effective August 22, 2011 at the then fair value.  At June 30, 2011, this interest rate Swap Agreement had a fair value of $2,608.

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Stock Compensation

6 Months Ended

Jun. 30, 2011

Stock Compensation

Stock Compensation

8.  Stock Compensation

During the three months ended June 30, 2011, the Company granted restricted stock units covering 32 shares of stock with a fair market value on date of grant of $14.97 per share.  The restricted stock units vest over three years.

For the three and six months ended June 30, 2011, the Company incurred stock compensation expense of $913 and $1,863, respectively. The allocation of stock compensation expense is consistent with the allocation of the participants’ salaries and other compensation expenses.

At June 30, 2011, options for 611 shares and 313 restricted shares have been granted but have not yet vested.

Compensation expense related to unvested options and restricted shares will be recognized in the following years:

2011 (six months)	$	1,910
2012	2,379
2013	1,233
2014	97
	$	5,619

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Earnings Per Share

6 Months Ended

Jun. 30, 2011

Earnings Per Share

Earnings Per Share

6.  Earnings Per Share

A reconciliation of the weighted average number of common shares outstanding is as follows:

	Three months ended				Six months ended
	June 30,				June 30,
	2010		2011		2010			2011
Income from continuing operations, net	$	1,229	$	504	$	2,701		$	2,570
Loss from discontinued operations, net	—		—		(250		)	—
Net income	$	1,229	$	504	$	2,451		$	2,570
Weighted average number of common shares outstanding - basic	13,791		14,244		13,734			14,167
Effect of dilutive securities:
Stock options and restricted stock units	614		789		513			756
Weighted average number of common shares outstanding - diluted	14,405		15,033		14,247			14,923
Earnings per share - basic - continuing operations	$	0.09	$	0.04	$	0.20		$	0.18
Earnings per share - diluted - continuing operations	$	0.09	$	0.03	$	0.19		$	0.17
Loss per share - basic - discontinued operations	$	—	$	—	$	(0.02	)	$	—
Loss per share - diluted - discontinued operations	$	—	$	—	$	(0.02	)	$	—
Net income per share - basic	$	0.09	$	0.04	$	0.18		$	0.18
Net income per share - diluted	$	0.09	$	0.03	$	0.17		$	0.17

There were 411 and 256 shares under option plans that were excluded from the computation of diluted earnings per share for the three months ended June 30, 2010 and 2011, respectively, and 682 and 288 shares under option plans that were excluded from the computation of diluted earnings per share for the six months ended June 30, 2010 and 2011, respectively due to their anti-dilutive effects.

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CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Parenthetical) (USD $) In Thousands, except Per Share data	6 Months Ended
	Jun. 30, 2011
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Unrealized gain on derivative instrument, tax (in dollars)	$ 212
Dividends paid, per share (in dollars per share)	$ 0.11

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Long-Term Debt

6 Months Ended

Jun. 30, 2011

Long-Term Debt

Long-Term Debt

2. Long-Term Debt

The Company has a senior secured credit agreement (the “Secured Credit Agreement”) pursuant to which the Company may borrow up to $150,250 in the aggregate, including $20,250 pursuant to a Term Loan and up to $130,000 pursuant to a Revolver.  The Term Loan requires quarterly principal payments of $750 at the end of each calendar quarter through December 31, 2012, with the remaining principal balance of $15,750 due on April 1, 2013. The Secured Credit Agreement also provides for Bank of America, N. A. to make swingline loans to us of up to $10,000 (the “Swingline Loans”) and any Swingline Loans will reduce the borrowings available under the Revolver.  Subject to certain terms and conditions contained therein, the Secured Credit Agreement gives the Company the option to establish additional term and/or revolving credit facilities thereunder, provided that the aggregate commitments under the Secured Credit Agreement cannot exceed $220,000.

Borrowings outstanding under the Secured Credit Agreement bear interest at a fluctuating rate equal to (i) in the case of Eurodollar rate loans, the LIBOR rate (adjusted for statutory reserves) plus an applicable percentage, ranging from 2.00% to 2.50% per annum (currently 2.00%), determined by reference to the Company’s senior secured leverage ratio, and (ii) in the case of base rate loans and Swingline Loans, the higher of (a) the federal funds rate plus 0.5% or (b) the annual rate of interest announced by Bank of America, N.A. as its “prime rate,” in each case, plus an applicable percentage, ranging from 1.00% to 1.50% per annum (currently 1.00%), determined by reference to the Company’s senior secured leverage ratio.

The obligations under the Secured Credit Agreement are guaranteed by the Company’s subsidiaries and collateralized by (i) a pledge of 100% of the ownership interests in the subsidiaries, and (ii) a first-priority security interest in substantially all of the Company’s tangible and intangible assets.

Under the Secured Credit Agreement, the Company is subject to customary lending covenants, including restrictions pertaining to, among other things: (i) the incurrence of additional indebtedness, (ii) limitations on liens, (iii) making distributions, dividends and other payments, (iv) the making of certain investments and loans, (v) mergers, consolidations and acquisitions, (vi) dispositions of assets, (vii) the maintenance of a maximum total leverage ratio of not greater than 4.25 to 1.00, a maximum senior secured leverage ratio of not greater than 2.50 to 1.00, and a minimum consolidated cash flow coverage ratio of not less than 1.20 to 1.00, (viii) transactions with affiliates, and (ix) changes to governing documents and subordinate debt documents, in each case subject to baskets, exceptions and thresholds.  The Company was in compliance with these and all other financial covenants at June 30, 2011.

The Secured Credit Agreement provides for customary events of default with, in some cases, corresponding grace periods, including (i) failure to pay any principal or interest when due, (ii) failure to comply with covenants, (iii) any representation or warranty made by us proving to be incorrect in any material respect, (iv) payment defaults relating to, or acceleration of, other material indebtedness, (v) certain bankruptcy, insolvency or receivership events affecting us, (vi) a change in our control, (vii) the Company or its subsidiaries becoming subject to certain material judgments, claims or liabilities, or (viii) a material defect in the lenders’ lien against the collateral securing the obligations under the Secured Credit Agreement.

In the event of an event of default, the Administrative Agent may, and at the request of the requisite number of lenders under the Secured Credit Agreement must, terminate the lenders’ commitments to make loans under the Secured Credit Agreement and declare all obligations under the Secured Credit Agreement immediately due and payable.  For certain events of default related to bankruptcy, insolvency and receivership, the commitments of the lenders will be automatically terminated and all outstanding obligations of the Company under the Secured Credit Agreement will become immediately due and payable.

The Company pays a commitment fee equal to a percentage of the actual daily unused portion of the Secured Revolver under the Secured Credit Agreement.  This percentage, currently 0.300% per annum, is determined quarterly by reference to the senior secured leverage ratio and will range between 0.300% per annum and 0.500% per annum.

As of June 30, 2011, there was $43,514 outstanding under the Revolver, $20,250 outstanding under the Term Loan and $1,380 in outstanding letters of credit. The available balance under the Revolver was $85,106 at June 30, 2011. The average interest rates on the borrowings outstanding under the Secured Credit Agreement at June 30, 2010 and 2011 were 7.10% and 5.58%, respectively, including the applicable spread paid to the banks and the effect of the interest rate swap agreements tied to the debt (see Note 3 for discussion on Fair Value Measurements).

On August 16, 2005, the Company issued senior unsecured notes in the amount of $150,000. These notes bear interest at 7.625% payable semi-annually each February and August. A portion of the senior notes are tied to an interest rate swap agreement (see Note 3 for discussion on Fair Value Measurements). After taking the swap agreement into effect, the average interest rates on the senior notes at June 30, 2010 and 2011 were 5.90% and 5.78%, respectively. The maturity date of the notes is August 15, 2015. The proceeds from the senior notes, less financing costs, were used to pay down senior bank debt.  Since the senior notes are not widely traded, the market value of these notes approximates book value at June 30, 2011.

The Company has the option to redeem all or a portion of the senior notes at the redemption prices (expressed in percentages of principal amount on the redemption date), plus accrued interest to the redemption date, if redeemed, during the 12-month period commencing on August 15 of the years set forth below:

	Redemption
Period	Price
2011	102.542	%
2012	101.271	%
2013 and thereafter	100.000	%

As of June 30, 2011, the Company had not redeemed any of its senior notes.

The terms of the senior notes include customary covenants, including, but not limited to, restrictions pertaining to: (i) incurrence of additional indebtedness and issuance of preferred stock, (ii) payment of dividends on or making of distributions in respect of capital stock or making certain other restricted payments or investments, (iii) entering into agreements that restrict distributions from restricted subsidiaries, (iv) sale or other disposition of assets, including capital stock of restricted subsidiaries, (v) transactions with affiliates, (vi) incurrence of liens, (vii) sale/leaseback transactions, and (viii) merger, consolidation or sale of substantially all of our assets, in each case subject to numerous baskets, exceptions and thresholds. The Company was in compliance with these and all other financial covenants at June 30, 2011.

The terms of the senior notes provide for customary events of default, including, but not limited to: (i) failure to pay any principal or interest when due, (ii) failure to comply with covenants and limitations, (iii) certain insolvency or receivership events affecting us or any of our subsidiaries, and (iv) unsatisfied material judgments, claims or liabilities against us. There were no events of default under the senior notes at June 30, 2011.

Capital lease obligations on the Company’s fleet of vehicles totaled $3,833 and $3,302 at December 31, 2010 and June 30, 2011, respectively.

Required payments under the Company’s debt and capital lease obligations are as follows:

	Amount
2011 (six months)	$	2,200
2012	4,176
2013	60,177
2014	487
2015	150,026
Thereafter	—
	$	217,066

The Company historically has not needed sources of financing other than its internally generated cash flow and revolving credit facilities to fund its working capital, capital expenditures, and smaller acquisitions. As a result, the Company anticipates that its cash flow from operations and revolving credit facilities will be sufficient to meet its anticipated cash requirements for at least the next twelve months.

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Fair Value Measurements

6 Months Ended

Jun. 30, 2011

Fair Value Measurements

Fair Value Measurements

3.   Fair Value Measurements

The Company has adopted accounting guidance regarding fair value measurements, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

Level 1:  Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2:  Inputs, other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3:  Unobservable inputs that reflect the reporting entity’s own assumptions.

The following table summarizes the basis used to measure certain financial assets and financial liabilities at fair value on a recurring basis in the balance sheet:

			Basis of Fair Value Measurments
	Balance at June 30, 2011		Quoted Prices In Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Interest rate swap derivative financial instruments (included in accrued expenses and other current liabilities)	$	606	$	—	$	606	$	—
Interest rate swap derivative financial instruments (included in other assets)	$	181	$	—	$	181	$	—
Fuel comodity derivative (included in other current assets)	$	122	$	—	$	—	$	122

The Company has entered into standard International Swaps and Derivatives Association (“ISDA”) interest rate swap agreements (“Swap Agreements”) to manage the interest rate associated with its debt. The interest rate Swap Agreements effectively convert a portion of the Company’s variable rate debt to a long-term fixed rate. Under these agreements the Company receives a variable rate of LIBOR plus a markup and pays a fixed rate.

The Company has also entered into an interest rate swap agreement to manage the interest rate associated with its senior unsecured notes. This interest rate swap agreement effectively converts a portion ($100 million) of our fixed rate senior unsecured notes to a variable rate. Under this interest rate swap agreement the Company receives a fixed rate of 7.625% and pays a variable rate of LIBOR plus the applicable margin charged by the banks. This interest rate swap agreement has an associated call feature that allows the counterparty to terminate this agreement at their option.  This call feature was exercised by the counter-party in July of 2011.  See Footnote 12, Subsequent Events, for more detailed information.

In December 2010 the Company entered into a fuel commodity derivative to manage the fuel cost of its fleet of vehicles. The derivative is effective April 1, 2011 and expires December 31, 2011.  The derivative has a monthly notional amount of 80,000 gallons from April 1, 2011 through December 31, 2011 for a total notional amount of 720,000 gallons.  The Company has a put price of $3.015 per gallon and a strike price of $3.50 per gallon. The Company recognized a non-cash unrealized loss of $157 on this fuel commodity derivative as a result of the change in the fair value for the three months ended June 30, 2011 and a non-cash unrealized gain of $122 for the six months ended June 30, 2011.

The fair value of these interest rate swap agreements are based on quoted prices for similar instruments from a commercial bank and are considered a Level 2 item. The fuel commodity derivative is based on market assumptions and a quoted price from the counter party and is considered a Level 3 item.

The fuel commodity derivative activity for the six months ended June 30, 2011 is as follows:

Balance, December 31, 2010	$	—
Realized gains	70
Unrealized gains	122
Settlements	(70		)
Balance, June 30, 2011	$	122

One of the Company’s interest rate Swap Agreements qualifies as a cash flow hedge while the others do not. The change in the fair value of the interest rate Swap Agreements that do not qualify for hedge accounting treatment is recognized in the income statement in the period in which the change occurs. The effective portion of the interest rate Swap Agreement that qualifies for hedge accounting is included in Other Comprehensive Loss in the period in which the change occurs, while the ineffective portion, if any, is recognized in income in the period in which the change occurs.

During the first quarter of 2010 the Company no longer qualified for hedge accounting treatment for one of its interest rate swap agreements.  Accordingly, the amount included in Accumulated Other Comprehensive Loss at the time hedge accounting was lost must be reclassified as an earnings charge through the maturity date of the underlying debt agreement.  This charge amounted to $123 and $271 for the three and six months ended June 30, 2011, respectively, compared to $213 and $884 for the three and six months ended June 30, 2010, respectively. The remaining balance of $330 associated with this interest rate swap and included in Accumulated Other Comprehensive Loss will be charged against income through the maturity date of the underlying debt agreement on April 1, 2013.

The table below outlines the details of each remaining interest rate Swap Agreement:

			Notional	Notional
	Original		Amount	Amount
Date of	Notional		Fixed/	June 30,		Expiration	Fixed
Origin	Amount		Amortizing	2011		Date	Rate
May 8, 2008	$	45,000	Amortizing	$	30,000	Apr 1, 2013	3.78	%
May 8, 2008	$	40,000	Amortizing	$	27,000	Apr 1, 2013	3.78	%
January 4, 2010	$	100,000	Fixed	$	100,000	Aug 15, 2015	7.63	%

In accordance with the interest rate Swap Agreements and on a quarterly basis, interest expense is calculated based on the floating 90-day LIBOR and the fixed rate. With regard to the Company’s floating to fixed rate interest rate swap agreements, if interest expense, as calculated, is greater based on the 90-day LIBOR, the financial institution pays the difference to the Company.  If interest expense, as calculated, is greater based on the fixed rate, the Company pays the difference to the financial institution. With regard to the Company’s fixed to floating rate interest rate swap agreement, if interest expense, as calculated, is greater based on the 90-day LIBOR, the Company pays the difference to the financial institution.  If interest expense, as calculated, is greater based on the fixed rate, the financial institution pays the difference to the Company.

Depending on fluctuations in the LIBOR, the Company’s interest rate exposure and its related impact on interest expense and net cash flow may increase or decrease. The counterparty to the interest rate Swap Agreements exposes the Company to credit loss in the event of non-performance; however, nonperformance is not anticipated.

The tables below display the impact the Company’s derivative instruments had on the Condensed Consolidated Balance Sheets as of December 31, 2010 and June 30, 2011 and the Condensed Consolidated Income Statements for the three months ended June 30, 2010 and 2011.

Fair Values of Derivative Instruments

	December 31, 2010				June 30, 2011
	Balance Sheet Location	Fair Value			Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments:
Interest rate contracts	Accrued expenses	$	(1,015	)	Accrued expenses	$	(1,033	)
Interest rate contracts	Other liabilites	(931		)	Other assets	(633		)
Derivatives not designated as hedging instruments:
Interest rate contracts	Accrued expenses	532			Accrued expenses	427
Interest rate contracts	Other liabilites	(4		)	Other assets	814
Fuel commodity derivative	Prepaid facilities management rent and other current assets	—			Prepaid facilities management rent and other current assets	122
Total derivatives		$	(1,418	)		$	(303	)

The Effect of Derivative Instruments on the Condensed Consolidated Income Statements

for the three months ended June 30, 2010 and 2011

Derivatives in Net Investment	Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)						Location of Gain or (Loss)Reclassified from Accumulated	Amount of (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)						Derivatives Not Designated as	Location of Gain or (Loss) Recognized	Amount of Gain (Loss) Recognized in Income on Derivative
Hedging	June 30,			June 30,			OCI into Income	June 30,			June 30,			Hedging	in Income on	June 30,		June 30,
Relationships	2010			2011			(Effective Portion)	2010			2011			Instruments	Derivative	2010		2011
Interest rate contracts	$	(541	)	$	(249	)	Interest expense, including the change in the fair value of non-hedged derivative instruments	$	(566	)	$	(386	)	Interest rate contracts	Interest expense, including the change in the fair value of non-hedged derivative instruments	$	2,273	$	1,355
Fuel commodity derivative	$	—		$	—		Cost of revenue	$	—		$	—		Fuel commodity derivative	Cost of revenue	$	—	$	(87	)

The Effect of Derivative Instruments on the Condensed Consolidated Income Statements

for the six months ended June 30, 2010 and 2011

Derivatives in Net Investment	Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)						Location of Gain or (Loss)Reclassified from Accumulated	Amount of (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)						Derivatives Not Designated as	Location of Gain or (Loss) Recognized	Amount of Gain (Loss) Recognized in Income on Derivative
Hedging	June 30,			June 30,			OCI into Income	June 30,			June 30,			Hedging	in Income on	June 30,		June 30,
Relationship	2010			2011			(Effective Portion)	2010			2011			Instruments	Derivative	2010		2011
Interest rate contracts	$	(1,650	)	$	(244	)	Interest expense, including the change in the fair value of non-hedged derivative instruments	$	(1,751	)	$	(795	)	Interest rate contracts	Interest expense, including the change in the fair value of non-hedged derivative instruments	$	2,892	$	1,568
Fuel commodity derivative	$	—		$	—		Cost of revenue	$	—		$	—		Fuel commodity derivative	Cost of revenue	$	—	$	192

The tables above include realized and unrealized gains and losses related to derivative instruments.

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Payment of dividends

6 Months Ended

Jun. 30, 2011

Payment of dividends

Payment of dividends

11.  Payment of dividends

The Company’s Board of Directors declared dividends of $0.055 per share payable on April 1, 2011 and July 1, 2011.  Dividends were paid prior to March 31, 2011 and June 30, 2011 and have been reflected in the current financial statements.

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Goodwill and Intangible Assets

6 Months Ended

Jun. 30, 2011

Goodwill and Intangible Assets

Goodwill and Intangible Assets

4.  Goodwill and Intangible Assets

Goodwill and intangible assets consist of the following:

	As of December 31, 2010
	Cost		Accumulated Amortization		Net Book Value
Goodwill	$	58,608			$	58,608
	$	58,608			$	58,608
Intangible assets:
Trade name	$	14,050	$	—	$	14,050
Non-compete agreements	4,041		3,995		46
Contract rights	237,888		60,966		176,922
Distribution rights	1,623		621		1,002
Deferred financing costs	6,798		3,674		3,124
	$	264,400	$	69,256	$	195,144

	As of June 30, 2011
	Cost		Accumulated Amortization		Net Book Value
Goodwill	$	58,390			$	58,390
	$	58,390			$	58,390
Intangible assets:
Trade name	$	14,050	$	—	$	14,050
Non-compete agreements	3,187		3,156		31
Contract rights	237,828		66,947		170,881
Distribution rights	1,623		703		920
Deferred financing costs	6,798		4,111		2,687
	$	263,486	$	74,917	$	188,569

Estimated future amortization expense of intangible assets consists of the following:

2011 (six months)	$	6,258
2012	12,440
2013	12,119
2014	12,014
2015	11,846
Thereafter	118,859
	$	173,536

Amortization expense of intangible assets for the six months ended June 30, 2010 and 2011 was $6,624 and $6,515, respectively.

Intangible assets primarily consist of various non-compete agreements, contract rights, and trade names recorded in connection with acquisitions. The deferred financing costs were incurred in connection with our senior secured credit facility and our senior notes and are amortized from five to ten years. The non-compete agreements are amortized using the straight-line method over the life of the agreements, which range from five to fifteen years. Contract rights are amortized using the straight-line method over fifteen to twenty years. The life assigned to acquired contracts is based on several factors, including:  (i) the historical renewal rate of the contract portfolio for the most recent years prior to the acquisition, (ii) the number of years the average contract has been in the contract portfolio, (iii) the overall level of customer satisfaction within the contract portfolio, and (iv) our ability to maintain comparable renewal rates in the future. The contract rights acquired are aggregated for purposes of calculating their fair value upon acquisition due to the fact that there are thousands of individual contracts in each market. No single contract accounts for more than 2% of the revenue of any acquired portfolio and the contracts are homogeneous. The fair values of acquired portfolios are established based upon discounted cash flows generated by the acquired contracts.  The fair values of the contracts are allocated to asset groups, comprised of the Company’s geographic markets, based on an estimate of relative fair value.  Trade names are not amortized as they have an indefinite life and the Company continues to utilize these assets in the normal course of business.

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CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (USD $) In Thousands, except Share data	Total	Common Stock	Additional Paid In Capital	Accumulated Other Comprehensive Income (Loss)	Comprehensive Income	Retained Earnings	Treasury Stock
Balance at Dec. 31, 2010	$ 108,051	$ 140	$ 81,296	$ (1,563)		$ 28,180	$ (2)
Balance (in shares) at Dec. 31, 2010		14,026,919					176
Increase (Decrease) in Stockholders' Equity
Net income	2,570				2,570	2,570
Other comprehensive income:
Unrealized gain on derivative instrument, net of tax of $212 (Note 3)	338			338	338
Comprehensive income					2,908
Options exercised	683	2	679				2
Options exercised (in shares)		87,926					(176)
Stock issuance - Employee Stock Purchase Plan	97		97
Stock issuance - Employee Stock Purchase Plan (in shares)		8,722
Stock compensation expense	1,526		1,526
Dividends paid, $.11 per share	(1,566)		32			(1,598)
Stock grants	414	1	415			(2)
Stock grants (in shares)		141,763
Balance at Jun. 30, 2011	$ 112,113	$ 143	$ 84,045	$ (1,225)		$ 29,150
Balance (in shares) at Jun. 30, 2011		14,265,330

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands	6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
Cash flows from operating activities:
Net income	$ 2,570	$ 2,451
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation and amortization	22,740	23,360
Increase in allowance for doubtful accounts and lease reserves	4	43
(Gain) on disposition of assets	(157)	(113)
Loss from disposal of discontinued operations		294
Stock grants	414	112
Non-cash derivative interest income	(442)	(1,723)
Non-cash fuel commodity derivative income	(122)
Deferred income taxes	481	391
Non-cash stock compensation	1,526	1,310
Decrease in accounts receivable	2,106	637
(Increase) in inventory	(532)	(310)
Decrease (increase) in prepaid facilities management rent and other assets	(2,268)	1,112
(Decrease) in accounts payable, accrued facilities management rent, accrued expenses and other liabilities	(1,259)	(5,316)
Net cash flows used in operating activities from discontinued operations		(44)
Net cash flows provided by operating activities	25,061	22,204
Cash flows from investing activities:
Capital expenditures	(15,526)	(8,648)
Proceeds from sale of assets	206	304
Proceeds from disposal of discontinued operations		8,274
Net cash flows used in investing activities	(15,320)	(70)
Cash flows from financing activities:
Payments on capital lease obligations	(881)	(929)
Payments on secured revolving credit facility	(61,212)	(62,829)
Borrowings on secured revolving credit facility	54,373	44,906
Payments on secured term credit facility	(1,500)	(1,750)
Proceeds from exercise of stock options	683	317
Proceeds from issuance of common stock	97	116
Cash dividend paid	(1,566)	(1,372)
Net cash flows used to pay down term facility from discontinued operations		(8,000)
Net cash flows used in financing activities	(10,006)	(29,541)
(Decrease) in cash and cash equivalents	(265)	(7,407)
Cash and cash equivalents, beginning of period	13,013	21,599
Cash and cash equivalents, end of period	12,748	14,192
Supplemental disclosure of non-cash investing and financing activities:
Capital lease agreements	$ 350	$ 1,099

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Income Taxes

6 Months Ended

Jun. 30, 2011

Income Taxes.

Income Taxes

9.  Income Taxes

The following table presents the provision for income taxes and the effective income tax rates for the three and six months ended June 30, 2010 and 2011:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2011			2010			2011
Provision for incomes taxes	$	641		$	277		$	1,960		$	1,689
Effective tax rate	34		%	35		%	42		%	40		%

The effective income tax rate on continuing operations is based upon the estimated income for the year and adjustments, if any, resulting from tax audits or other tax contingencies.

The changes in the effective tax rates for the three and six months ended June 30, 2010 and 2011 are the result of the relative impact of permanent differences due to changes in pretax profits.

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Document and Entity Information	6 Months Ended
	Jun. 30, 2011	Aug. 01, 2011
Document and Entity Information
Entity Registrant Name	MAC-GRAY CORP
Entity Central Index Key	0001038280
Document Type	10-Q
Document Period End Date	Jun. 30, 2011
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		14,270,130
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q2

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)	Jun. 30, 2011	Dec. 31, 2010
CONDENSED CONSOLIDATED BALANCE SHEETS
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	30,000,000	30,000,000
Common stock, shares issued	14,265,330	14,026,919
Common stock, shares outstanding	14,265,330	14,026,743
Common stock in treasury, shares		176