* First, our product mix within Product Sales was not favorable. We experienced a dramatic increase in Maytag/Whirlpool equipment sales, which carry a lower margin than our MicroFridge products. * Second, based on a comprehensive review of laundry equipment that we remove from the field in the normal course of business and then place back in service, we made the decision that top-loading equipment that is not Energy Star(R) rated should not be retained for refurbishing because of declining demand for this less efficient equipment. As a result, we incurred higher equipment disposal costs of approximately $500,000 in the third quarter. These costs were charged to depreciation expense, and are consequently reflected in our revised depreciation guidance for 2006. * Third, income from operations also was hampered by higher general and administrative expenses associated with stock-based compensation expenses as well as compliance costs in conjunction with the first-year implementation of Sarbanes-Oxley 404. * Fourth, we realized a $767,000, or 26%, increase in interest expense, reflecting approximately $19 million of additional borrowing for acquisitions made in 2006, as well as the rates paid on the bonds we sold in August 2005 for a full quarter in 2006.

"Our third-quarter bottom-line results also were affected by a non-cash loss of nearly $1 million related to derivative instruments, which do not qualify for hedge accounting treatment. These interest rate protection contracts, with a blended rate of 3.3%, continue to be a valuable commodity for Mac-Gray, but are subject to a non-cash gain or loss each quarter based on the interest rate environment. Year-to-date, the third-quarter non-cash loss from the derivative instruments was largely offset by a nearly equivalent non-cash gain in the first six months of 2006. Hedge accounting treatment aside, having these contracts in place has saved us approximately $230,000 in cash interest expense in Q3 and $600,000 year-to-date."

Nine-Months Results

For the nine months ended September 30, 2006, Mac-Gray reported record revenue of $206.7 million, an increase of 8.0% from revenue of $191.3 million for the first nine months of 2005. Revenue in the core laundry facilities business was up 8.7% year-to-date, consisting of 4.8% organic growth and the balance attributable to acquisitions made in 2006. Net income for the first nine months of 2006 was $1.9 million, or $0.14 per diluted share, compared with $10.4 million, or $0.79 per diluted share, for the first nine months of 2005. Excluding:

* a non-cash loss related to derivative instruments of $40,000, and non-cash stock-based compensation expense of $888,000, in the first nine months of 2006 and * a non-cash $1.7 million gain related to derivative contracts, a non-cash $668,000 charge for the early extinguishment of debt and a $10.8 million gain on real estate in the first nine months of 2005,

adjusted net income for the nine months ended September 30, 2006 was $2.2 million, or $0.17 per diluted share, compared with $3.7 million, or $0.28 per diluted share, for the comparable period in 2005.

For the first nine months of 2006, Mac-Gray's earnings before interest expense, provision for income taxes, depreciation and amortization expense (EBITDA) was $40.2 million, compared with $50.1 million in the year-earlier period. EBITDA, as adjusted for items previously mentioned, increased 7.0% to $41.1 million, from $38.4 million in the first nine months of 2005.

Please refer to Tables 1 and 2, included at the end of this news release, for a reconciliation of reported net income to net income, as adjusted, EBITDA and EBITDA, as adjusted.

Business Outlook and Financial Guidance

"Our underlying business fundamentals remain strong, as the company continues to produce steady growth," concluded MacDonald. "Within our core laundry facilities management business, we are driving incremental revenue by adding new accounts and renewing existing accounts to long-term contracts, as well as technological innovations and vend increases. We also are continuing to evaluate accretive acquisition possibilities that increase our geographic density."

Based on its nine-month results and current market conditions, Mac-Gray is updating its previously announced guidance for the full-year 2006. The revised ranges are set forth below:

* Revenue in the range of $275 million to $280 million, revised from prior guidance of $270 million to $285 million; * Depreciation and amortization in the range of $35 million to $37 million, revised from prior guidance of $33 million to $36 million; * Interest expense in the range of $13 million to $15 million; * An income tax rate of 35% to 40%, revised from prior guidance of 40% to 42%; * Diluted earnings per share in the range of $0.25 to $0.30, revised from prior guidance of $0.35 to $0.40; and * Total capital expenditures in the range of $32 million to $34 million, including laundry facilities management contract incentives, revised from prior guidance of $32 million to $35 million.

The foregoing estimates reflect management's view of current and future market conditions, including assumptions with respect to vacancy rates, no change in the number of shares outstanding in calculating earnings per share data and the earnings impact of the events referenced in this release. Excluded from the guidance is any impact from fluctuations in interest rates, which could impact interest expense and/or create gains or losses related to derivative instruments held by the Company. These estimates may be subject to fluctuations as a result of a number of factors, including the Company's ability to successfully integrate acquired assets and operations, as well as the risk that the Company will incur unanticipated costs related to acquired businesses' operations or not realize expected revenues, synergies and cost savings. There can be no assurance that Mac-Gray's actual results will not differ materially from the estimates set forth above.

Conference Call Information

The Company will host a conference call at 10:00 a.m. ET today during which Stewart MacDonald, Mac-Gray's chairman and chief executive officer, and Michael Shea, chief financial officer, will summarize the Company's financial results, review business and operating highlights from the quarter, provide a business and financial outlook, and answer questions. To hear a live broadcast of the call, log onto http://www.macgray.com/ or dial (913) 981-5592 or (888) 202-2422 prior to the call.

You can also access a replay of the conference call in the Investor Relations section of Mac-Gray's website at http://www.macgray.com/.

About Mac-Gray Corporation

Founded in 1927, Mac-Gray derives its revenue principally through the contracting of card- and coin-operated laundry facilities in multiple housing facilities such as apartment buildings, college and university residence halls, condominiums and public housing complexes. Mac-Gray contracts its laundry rooms under long-term leases. These leases typically grant Mac-Gray exclusive contract rights to laundry rooms on the lessor's premises for a fixed term, which is generally seven to 10 years, in exchange for a negotiated portion of the revenue collected. Mac-Gray serves approximately 63,000 multi-housing laundry rooms located in 40 states and the District of Columbia.

Mac-Gray also sells, services and leases commercial laundry equipment to commercial laundromats and institutions through its product sales division. This division also includes the Company's MicroFridge(R) business, where Mac-Gray sells its proprietary MicroFridge(R) line of products, which are combination refrigerators/freezers/microwave ovens utilizing patented Safe Plug(TM) circuitry. The products are marketed throughout the United States to colleges, the federal government for military housing, hotels and motels, and assisted living facilities. MicroFridge(R) also has entered into agreements with Maytag Corporation to market Maytag's Magic Chef(R), Amana(R) and Maytag(R) lines of home appliances under its MaytagDirect(TM) program throughout the United States. MicroFridge(R) and Maytag(R) products bear the ENERGY STAR(R) designation. To learn more about Mac-Gray, visit the Company's website at http://www.macgray.com/.

Intelligent Laundry Solutions(TM), Intelligent Laundry Systems(TM), LaundryView(TM), PrecisionWash(TM) and MaytagDirect(TM) are trademarks of Mac-Gray Corporation. MicroFridge(R) is a registered trademark of Mac-Gray Corporation. All other product names, service marks and trademarks mentioned herein are trademarks of their respective owners.

Safe Harbor Statement

This news release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding the Company's estimates of revenue, earnings, earnings per share, interest expense, income tax rate, depreciation and amortization expense, and capital expenditures for the full year 2006. The Company intends such forward-looking statements to be covered by the Safe Harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of complying with these Safe Harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, may be identified by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project," or similar expressions. Investors should not rely on forward-looking statements because they are subject to a variety of risks, uncertainties and other factors that could cause actual results to differ materially from such forward-looking statements. Certain factors which could cause actual results to differ materially from the forward-looking statements include, but are not limited to, the Company's ability to successfully integrate acquired assets and operations, and service the increased debt incurred to finance the acquisition, as well as the risks that the Company will incur unanticipated costs related to the acquired operations or not realize expected revenues, synergies and cost savings, and those risks set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 2005 under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in other reports subsequently filed with the Securities and Exchange Commission.

MAC-GRAY CORPORATION CONDENSED CONSOLIDATED INCOME STATEMENTS (In thousands, except per share amounts; Unaudited) Three months ended Nine months ended September 30, September 30, 2005 2006 2005 2006 Revenue $65,573 $70,003 $191,329 $206,720 Cost of revenue: Cost of facilities management revenue 34,916 37,539 105,058 113,925 Depreciation and amortization 7,780 9,189 23,360 25,906 Cost of products sold 11,234 11,329 26,115 27,887 Total cost of revenue 53,930 58,057 154,533 167,718 Gross margin 11,643 11,946 36,796 39,002 Operating expenses: Selling, general and administration expenses 7,417 8,197 22,771 25,863 Loss on early extinguishment of debt 461 - 668 - (Gain) loss on sale or disposal of assets, net (52) (92) (10,939) 23 Total operating expenses 7,826 8,105 12,500 25,886 Income from operations 3,817 3,841 24,296 13,116 Interest expense, net 2,899 3,666 7,724 10,247 (Gain) loss related to derivative instruments (1,659) 965 (1,659) 40 Income (loss) before provision for income taxes 2,577 (790) 18,231 2,829 Provision for income taxes 1,141 (523) 7,793 933 Net income (loss) $ 1,436 $ (267) $ 10,438 $ 1,896 Net income (loss) per common share - basic $ 0.11 $ (0.02) $ 0.81 $ 0.15 Net income (loss) per common share - diluted $ 0.11 $ (0.02) $ 0.79 $ 0.14 Weighted average common shares outstanding - basic 12,879 13,034 12,845 12,988 Weighted average common shares outstanding - diluted 13,351 13,467 13,240 13,414 MAC-GRAY CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except par value) December 31, September 30, 2005 2006 (unaudited) Assets Current assets: Cash and cash equivalents $ 11,046 $ 11,862 Trade receivables, net of allowance for doubtful accounts 10,308 10,493 Inventory of finished goods 6,398 7,679 Prepaid expenses, facilities management rent and other current assets 9,961 11,164 Total current assets 37,713 41,198 Property, plant and equipment, net 118,459 121,411 Goodwill 37,941 38,454 Intangible assets, net 116,793 127,656 Prepaid expenses, facilities management rent and other assets 13,177 16,962 Total assets $ 324,083 $ 345,681 Liabilities and Stockholders' Equity Current liabilities: Current portion of capital lease obligations $1,185 $1,164 Trade accounts payable and accrued expenses 22,724 19,637 Accrued facilities management rent 15,629 15,577 Deferred revenues and deposits 682 623 Total current liabilities 40,220 37,001 Long-term debt and capital lease obligations 165,493 184,480 Deferred income taxes 29,010 31,270 Other liabilities 759 670 Commitments and contingencies - - Stockholders' equity: Preferred stock of Mac-Gray Corporation ($.01 par value, 5 million shares authorized, no shares outstanding) - - Common stock of Mac-Gray Corporation ($.01 par value, 30 million shares authorized, 13,443,754 issued and 12,924,340 outstanding at December 31, 2005, and 13,443,754 issued and 13,050,549 outstanding at September 30, 2006) 134 134 Additional paid in capital 69,032 70,239 Accumulated other comprehensive income 315 228 Retained earnings 24,513 25,742 93,994 96,343 Less: common stock in treasury, at cost (519,414 shares at December 31,2005 and 393,205 shares at September 30, 2006) (5,393) (4,083) Total stockholders' equity 88,601 92,260 Total liabilities and stockholders' equity $ 324,083 $ 345,681 MAC-GRAY CORPORATION TABLE 1 Reconciliation of Reported Net Income (Loss) to Adjusted Net Income (In thousands, except per share amounts) Three months ended Nine months ended September 30, September 30, 2005 2006 2005 2006 Net income (loss), as reported $1,436 $(267) $10,438 $1,896 Income (loss) before provision for income taxes, as reported $2,577 $(790) $18,231 $2,829 Stock compensation expense (1) - 294 - 888 Gain on non-recurring sale of assets (2) - - (10,767) - (Gain) loss related to derivative instruments (3) (1,659) 965 (1,659) 40 Loss on early extinguishment of debt (4) 461 - 668 - Income before provision for income taxes, as adjusted 1,379 469 6,473 3,757 Provision for income taxes, as adjusted 590 191 2,767 1,533 Net income, as adjusted $ 789 $ 278 $ 3,706 $2,224 Diluted earnings per share, as adjusted $ 0.06 $0.02 $ 0.28 $ 0.17 (1) On January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payments", ("FAS123(R)"). These amounts represent expenses relating to issuances of equity awards during the periods presented. (2) Represents a pre-tax gain recognized in connection with the sale of the Company's office and warehouse facility in Cambridge, Massachusetts on June 30, 2005. (3) Represents the unrealized (gain) loss on interest rate protection contracts, which do not qualify for hedge accounting treatment. (4) Represents unamortized costs related to terminated credit facilities.

To supplement the Company's unaudited condensed consolidated financial statements presented on a generally accepted accounting principles (GAAP) basis, management has used a non-GAAP measure of net income. Management believes presentation of this measure is appropriate to enhance an overall understanding of our historical financial performance and future prospects. Adjusted net income, which is adjusted to exclude certain gains and losses from the comparable GAAP net income, is an indication of our baseline performance before gains, losses or other charges that are considered by management to be outside of our core operating results. These non-GAAP results are among the primary indicators management uses as a basis for evaluating the Company's financial performance as well as for forecasting future periods. For these reasons, management believes these non-GAAP measures can be useful to investors, potential investors and others. The presentation of this additional information is not meant to be considered in isolation or as a substitute for net income or other measures prepared in accordance with GAAP.

MAC-GRAY CORPORATION TABLE 2 Reconciliation of Reported Net Income (Loss) to Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") and EBITDA, as adjusted (In thousands) Three months ended Nine months ended September 30, September 30, 2005 2006 2005 2006 Net income (loss) $1,436 $(267) $10,438 $1,896 Interest expense, net 2,899 3,666 7,724 10,247 Provision for income taxes 1,141 (523) 7,793 933 Depreciation and amortization 8,061 9,600 24,190 27,081 EBITDA 13,537 12,476 50,145 40,157 Stock compensation expense (1) - 294 - 888 Gain on non-recurring sale of assets (2) - - (10,767) - (Gain) loss related to derivative instruments (3) (1,659) 965 (1,659) 40 Loss on early extinguishment of debt (4) 461 - 668 - EBITDA, as adjusted $12,339 $13,735 $38,387 $41,085 (1) On January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payments", ("FAS123(R)"). These amounts represent expenses relating to issuances of equity awards in the periods presented. (2) Represents a pre-tax gain recognized in connection with the sale of the Company's office and warehouse facility in Cambridge, Massachusetts on June 30, 2005. (3) Represents the unrealized (gain) loss on interest rate protection contracts, which do not qualify for hedge accounting treatment. (4) Represents unamortized costs related to terminated credit facilities.

EBITDA is defined as net income before interest expense, provision for income taxes, and depreciation and amortization expense. Adjusted EBITDA is EBITDA further adjusted to exclude the items described in the table above. We have excluded these items because we believe they are not reflective of our ongoing operating performance. EBITDA and Adjusted EBITDA are not measures of our liquidity or financial performance under GAAP and should not be considered as alternatives to net income or any other performance measure derived in accordance with GAAP, or as an alternative to cash flows from operating activities as a measure of our liquidity.

Our management believes EBITDA and Adjusted EBITDA are useful to investors because they help enable investors to evaluate our business in the same manner as our management. Management uses EBITDA and Adjusted EBITDA as follows: (a) to evaluate the Company's historical and prospective financial performance, (b) to set internal revenue targets and spending budgets, (c) to measure operational profitability and the accuracy of forecasting, and (d) as an important factor in determining variable compensation for management. In addition, these measures are frequently used by securities analysts, investors and other interested parties in the evaluation of companies with substantial financial leverage. Moreover, investors have historically requested and the Company has historically reported these non-GAAP financial measures as a means of providing consistent and comparable information with past reports of financial results.

While management believes that these non-GAAP financial measures provide useful supplemental information to investors, there are limitations associated with the use of these non-GAAP financial measures. These measures are not prepared in accordance with GAAP and may not be directly comparable to similarly titled measures of other companies due to potential differences in the exact method of calculation. Further, EBITDA and Adjusted EBITDA exclude interest expense and depreciation and amortization expense, which represent significant and unavoidable operating costs given the level of indebtedness and the capital expenditures needed to maintain our business. In addition, our measures of EBITDA and Adjusted EBITDA are different from those used in the covenants contained in our 2005 senior credit facilities and the indenture governing our 7 5/8% senior notes. Management compensates for these limitations by relying primarily on our GAAP results and by using EBITDA and Adjusted EBITDA only supplementally and by reviewing the reconciliations of the non-GAAP financial measures to their most comparable GAAP financial measures.

Non-GAAP financial measures are not in accordance with, or an alternative for, generally accepted accounting principles in the United States. The Company's non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP financial measures, and should be read only in conjunction with the Company's consolidated financial statements prepared in accordance with GAAP.

Contacts: Michael J. Shea Chief Financial Officer Mac-Gray Corporation 781-487-7610 Email: mshea@macgray.com Jim Buckley Executive Vice President Sharon Merrill Associates, Inc. 617-542-5300 Email: jbuckley@investorrelations.com


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