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Mac-Gray Announces Fourth-Quarter and Full-Year 2012 Financial Results

    Mac-Gray Announces Fourth-Quarter and Full-Year 2012 Financial Results

Company Delivers Increased Q4 and Full-Year Profitability; Provides Annual
Guidance for 2013

PR Newswire

WALTHAM, Mass., March 7, 2013

WALTHAM, Mass., March 7, 2013 /PRNewswire/ --Mac-Gray Corporation (NYSE:
TUC), the nation's premier provider of laundry facilities management services
to multi-family housing, today announced its financial results for the quarter
and year ended December 31, 2012.

Mac-Gray reported revenue of $82.2 million for the fourth quarter of 2012,
compared with $82.7 million in the fourth quarter of 2011. Net income for the
fourth quarter of 2012 was $2.6 million, or $0.17 per diluted share, compared
with net income of $102,000, or $0.01 per diluted share, for the fourth
quarter of 2011. Fourth-quarter 2012 net income includes a pre-tax unrealized
gain of $193,000 related to interest rate derivative instruments, and a
pre-tax unrealized loss of $46,000 related to fuel commodity derivatives.
Fourth-quarter 2011 net income included a pre-tax unrealized gain of $177,000
related to interest rate derivative instruments, a pre-tax unrealized gain of
$99,000 related to fuel commodity derivatives and a pre-tax loss of $1.9
million related to the early extinguishment of debt. Excluding these items
from both periods, adjusted net income for the fourth quarter of 2012
increased to $2.5 million, or $0.17 per diluted share, compared with adjusted
net income of $1.1 million, or $0.07 per diluted share, for the same period of
2011.

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

For the fourth quarter of 2012, Mac-Gray's earnings before interest expense,
provision for income tax expense, depreciation and amortization expense
(EBITDA) was $17.1 million, compared with $14.5 million for the same period of
2011. EBITDA, excluding from both periods unrealized gains and losses related
to interest rate and fuel commodity derivative instruments and the loss on
extinguishment of debt, increased to $17.0 million for the fourth quarter of
2012, compared with $16.2 million in the year-earlier quarter.

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

Comments on the Fourth Quarter
"Mac-Gray concluded 2012 with a solid fourth-quarter performance," said
Stewart G. MacDonald, Mac-Gray's chief executive officer. "We improved our
operating margins, achieved a higher level of adjusted EBITDA and more than
doubled our adjusted earnings. In addition, for the third consecutive
quarter, we increased our profitability despite flat total revenue.

"Our core laundry facilities management business grew slightly in the quarter
driven by same location revenue, which was up nearly 1%. Our total revenue
was flat, year-over-year, primarily due to lower commercial laundry equipment
sales in the fourth quarter. Overall, the current economic pressures on
consumers continue to weigh on discretionary spending as evidenced by the
'same-location' apartment revenue reported by our various branches. Of our 28
branches, 18 reported increased 'same-location' revenue and 10 reported
year-over-year decreases in this metric. We view this metric, which excludes
academic locations, as a reasonable proxy for apartment occupancies and the
corresponding usage of our equipment. Given the current environment, we are
continuing to execute our strategy of focusing our resources in the most
promising markets for organic growth.

"In addition, while the effect of Hurricane Sandy on our revenue was less than
we originally feared, it still cost us more than $600,000 in capital
expenditures to replace damaged or destroyed equipment in the Northeast.
Overall, we invested $6 million in capital expenditures in the fourth quarter,
bringing our year-to-date total to $36.9 million, compared with $32.5 million
in 2011. The 14% increase in annual capital spending reflects our expectations
of achieving continued profitable growth in our core business in 2013."

Full-Year Results
For the twelve months ended December 31, 2012, Mac-Gray reported revenue of
$322.1 million, compared with $322.0 million for 2011. Net income  for 2012
was $4.3 million, or $0.29 per diluted share, compared with net income of $3.3
million, or $0.22 per diluted share, for 2011. Excluding a pre-tax unrealized
gain of $553,000 related to interest rate derivative instruments, a pre-tax
unrealized loss of $3,000 related to fuel commodity derivatives, a loss of
$3.8 million on the early extinguishment of debt and $377,000 in incremental
proxy costs related to our 2012 annual meeting, net income, as adjusted, for
the twelve months ended December 31, 2012 was $6.4 million, or $0.43 per
diluted share. Excluding a pre-tax unrealized gain of $664,000 related to
interest rate derivative instruments, a pre-tax unrealized loss of $34,000
related to fuel commodity derivatives, a loss of $1.9 million on the early
extinguishment of debt and $269,000 in incremental costs related to our 2011
proxy contest, net income, as adjusted, for the twelve months ended December
31, 2011 was $4.2 million, or $0.28 per diluted share.

For 2012, Mac-Gray's EBITDA was $59.9 million, compared with $63.6 million in
2011. EBITDA, as adjusted for the items mentioned in the preceding paragraph,
was $63.5 million for 2012 compared with $65.2 million for 2011.

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, and to
EBITDA and EBITDA, as adjusted.

Comments on 2012
"2012 was a year of stable top-line performance for Mac-Gray with improved
profitability," MacDonald said. "Our revenue was flat with 2011 as the organic
growth we achieved in the core business was offset by a planned step down in
our commercial equipment sales business, where we exited some geographies that
were not sufficiently profitable. On the cost side, we lowered our SG&A
expenses for the year by more than 5%. Also, despite increasing our capital
investment in the core business and raising the dividend by 10%, we
significantly reduced our annual interest expense by more than 30% in 2012
through our successful refinancing actions and steady pay-down of our funded
debt. The combination of these savings helped us achieve a 50% increase in
adjusted net income."

Executive Appointment
Mac-Gray announced today that Executive Vice President Philip Emma has been
named to the position of Chief Operations Officer. He will oversee Mac-Gray's
regional operations and its national accounts program.

"Since his arrival at Mac-Gray in 2002, Phil has been a valuable member of the
executive team and played an important role in directing the operational
responsibilities of the Company. His contributions during the past decade,
along with his broad experience prior to Mac-Gray at Coca-Cola Enterprises and
Pepsi-Cola, make him an ideal choice to become our Chief Operations Officer.
His proven ability to achieve results will be a critical resource for us as we
execute our growth strategy."

Outlook and Guidance
"We are guardedly optimistic as we enter 2013. Although apartment occupancy
rates have risen to levels that are favorable to us, rising rent rates and
other inflationary pressures, when combined with higher taxes and minimal
improvements in wage growth, continue to put pressure on discretionary
consumer spending, including laundering decisions. However, we remain
confident in our ability to grow in this environment. Our commitment to
service excellence and our industry-leading technology, including our Change
Point^® payment and monitoring platforms, continue to be important competitive
differentiators for us.

"Looking ahead, we have a positive long-term outlook on our core business as
we continue to see opportunities to increase revenue through organic growth
and acquisitions. We have strengthened our balance sheet, reduced funded debt
by over $10 million in 2012, and improved our financial outlook. As a result,
we recently announced a 45% increase in our dividend, making2013 the third
consecutive year of a double-digit increase in our dividend, achieved even
while increasing our capital expenditures for the core business. We will
continue to seek opportunities to return value to our shareholders in the
years ahead," MacDonald concluded.

Based on its 2012 performance and current market conditions, the Company's
outlook for 2013 includes:

  oRevenue in the range of $328 million to $332 million;
  oCapital expenditures in the range of $36 million to $39 million, including
    laundry facilities management contract incentives;
  oReduction of total funded debt in the range of $13 million to $16 million;
  oNet income, as adjusted, in the range of $0.70 to $0.80 per diluted share;
    and 
  oEBITDA, as adjusted, in the range of $68 million to $71 million.

Net income, as adjusted, and EBITDA, as adjusted, exclude unrealized
gains/losses related to interest rate derivative instruments and fuel
commodity derivatives, and any one-time charges to income.

The foregoing estimates reflect management's view of current and future market
conditions, including assumptions with respect to apartment occupancy rates,
and exclude the impact of any potential acquisitions. These estimates may be
subject to fluctuations as a result of a number of factors and there can be no
assurance that Mac-Gray's actual results will not differ 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
management will summarize the Company's financial results, review business and
operating highlights from the quarter, and provide a business and financial
outlook. To hear a live broadcast of the call, visit the "Investor Relations"
section of the Company's website at www.macgray.com or dial (877) 407-5790 or
(201) 689-8328. If you are unable to listen to the live call, you can access
a replay at www.macgray.com.

About Mac-Gray Corporation
Founded in 1927, Mac-Gray derives its revenue principally through the
contracting of debit-card- and coin-operated laundry facilities in multi-unit
housing facilities such as apartment buildings, college and university
residence halls, condominiums and public housing complexes. Mac-Gray manages
laundry rooms located in 43 states and the District of Columbia. Mac-Gray also
sells and services commercial laundry equipment to retail laundromats and
other customers through its product sales division. To learn more about
Mac-Gray, visit the Company's website at www.macgray.com.

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 continued profitable growth in the Company's core business and
returning value to shareholders, as well as estimates of its 2013 revenue, net
income, as adjusted, EBITDA, as adjusted, capital expenditures and debt
reduction. 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,"
"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, general economic conditions, changes in
multi-housing vacancy rates, the Company's ability to renew long-term customer
contracts, and those risks set forth in the Company's Annual Report on Form
10-K for the year ended December 31, 2011 under "Risk Factors" and in other
reports subsequently filed with the Securities and Exchange Commission.

MAC-GRAY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share amounts)
                             Three months ended      Twelve months ended
                             December 31,            December 31,
                             2011         2012       2011          2012
Revenue                     $          $        $  322,028  $  
                             82,654       82,183                  322,119
Cost of revenue:
 Cost of facilities      53,803       54,631     211,363       215,471
management revenue
 Depreciation and        10,724       10,643     43,236        42,179
amortization
 Cost of products sold   3,479        3,075      12,201        11,750
 Total cost of      68,006       68,349     266,800       269,400
revenue
Gross margin                 14,648       13,834     55,228        52,719
Operating expenses:
 Selling, general and    9,346        7,814      34,286        32,381
administration expenses
 Gain on sale or         (30)         (71)       (200)         (168)
disposal of assets, net
 Incremental costs of    -            -          269           377
proxy contests
 Total operating    9,316        7,743      34,355        32,590
expenses
Income from operations       5,332        6,091      20,873        20,129
Interest expense, including
change in fair value
 of non-hedged interest
rate derivative instruments
and
 amortization of deferred  3,318        1,833      13,481        9,068
financing costs
Loss on early extinguishment 1,894        -          1,894         3,762
of debt
Income before income tax     120          4,258      5,498         7,299
expense
Income tax expense           18           1,704      2,222         2,989
Net income                  $       $       $          $    
                             102          2,554     3,276        4,310
Other comprehensive gain,
net of tax:
 Unrealized gain on        230          169        771           662
derivative instruments
Comprehensive income         $       $       $          $    
                             332          2,723     4,047        4,972
Net income per share – basic $        $      $         $     
                             0.01        0.18      0.23         0.30
Net income per share –      $        $      $         $     
diluted                      0.01        0.17      0.22         0.29
Weighted average common      14,313       14,506     14,234        14,423
shares outstanding - basic
Weighted average common      15,023       15,099     14,976        15,084
shares outstanding – diluted

MAC-GRAY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
                                       December 31,         December 31,
                                       2011                 2012
Assets
Current assets:
 Cash and cash equivalents             $      13,881   $      14,328
 Trade receivables, net of allowance   5,586                5,835
 for doubtful accounts
 Inventory of finished goods, net      1,487                1,284
 Prepaid expenses, facilities
 management rent and
    other current assets               10,804               10,624
    Total current assets               31,758               32,071
Property, plant and equipment, net     127,204              129,947
Goodwill                               58,173               57,737
Intangible assets, net                 181,609              169,640
Prepaid expenses, facilities           10,955               12,014
management rent and other assets
    Total assets                       $     409,699    $     401,409
Liabilities and Stockholders' Equity
Current liabilities:
 Current portion of long-term debt and $       4,190  $      
 capital lease obligations                                  1,201
 Trade accounts payable and accrued    26,413               22,866
 expenses
 Accrued facilities management rent    20,917               20,930
    Total current liabilities          51,520               44,997
Long-term debt and capital lease       198,638              190,969
obligations
Deferred income taxes                  43,804               46,770
Other liabilities                      1,923                1,386
    Total liabilities                  295,885              284,122
Commitments and contingencies         -                    -
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,
    14,335,290 issued and outstanding
    at December 31, 2011,
    and 14,516,074 issued and          143                  145
    outstanding at December 31, 2012)
 Additional paid in capital            86,217               89,706
 Accumulated other comprehensive loss  (792)                (130)
 Retained earnings                     28,246               27,566
    Total stockholders' equity         113,814              117,287
Total liabilities and stockholders'    $     409,699    $     401,409
equity





MAC-GRAY CORPORATION
TABLE 1
Reconciliation of Reported Net Income to Adjusted Net Income
(In thousands, except per share amounts)
                                   Three months ended  Twelve months ended
                                   December 31,        December 31,
                                   2011         2012     2011        2012
Net income, as reported            $        $      $        $   
                                   102         2,554   3,276       4,310
Income before income tax expense,  $        $      $        $   
as reported                        120         4,258   5,498       7,299
Unrealized gain related to change
in fair value of non-hedged        (177)        (193)    (664)       (553)
interest rate derivative
instruments ^(1)
Unrealized loss (gain) related to
change in fair value of fuel       (99)         46       34          3
commodity derivative instruments
^(2)
Loss on early extinguishment of    1,894        -        1,894       3,762
debt ^(3)
Incremental costs of proxy         -            -        269         377
contests ^(4)
Income before income tax expense,  1,738        4,111    7,031       10,888
as adjusted
Income tax expense, as adjusted    672          1,595    2,841       4,459
Net income, as adjusted            1,066        2,516    4,190       6,429
Diluted earnings per share, as     $        $     $       $    
adjusted                           0.07         0.17    0.28        0.43

(1) Represents the un-realized gain or loss on change in fair value of
interest rate protection contracts, which do not qualify for hedge accounting
treatment.

(2) Represents the un-realized gain or loss on change in fair value of fuel
commodity derivatives which do not qualify for hedge accounting treatment.

(3) Represents the premium paid to redeem $50,000 in 2011 and $100,000 in 2012
of senior notes as well as a writeoff of deferred financing costs associated
with our senior notes and a partial writeoff of deferred financing costs
associated with our 2008 Credit Facility.

(4) Represents additional costs incurred for legal advice and proxy
solicitation in response to proxy contests relating to the Company's 2011 and
2012 annual meetings.

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 that the presentation of "Income from operations as adjusted" is
useful to investors 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. Management establishes performance
targets, annual budgets and makes critical operating decisions based upon
these metrics. Accordingly, disclosure of these non-GAAP measures provides
investors with the same information that management uses to understand the
Company's true economic performance year over year. 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 to Earnings Before Interest, Taxes,
Depreciation and Amortization ("EBITDA") and EBITDA, as adjusted
(In thousands)
                                Three months ended    Twelve months
                                                        ended
                                December 31,          December 31,
                                2011           2012     2011        2012
Net income                      $         $     $        $   
                                102           2,554    3,276      4,310
Interest expense                3,316          1,936    13,309      9,175
Income tax expense              18             1,704    2,222       2,989
Depreciation and amortization   10,925         10,851   44,001      43,013
Amortization of deferred        179            90       836         446
financing costs
EBITDA                         14,540         17,135   63,644      59,933
Unrealized gain related to
change in fair value of         (177)          (193)    (664)       (553)
non-hedged interest rate
derivative instruments ^(1)
Unrealized loss (gain) related
to change in fair value of fuel (99)           46       34          3
commodity derivative
instruments ^(2)
Loss on early extinguishment of 1,894          -        1,894       3,762
debt ^(3)
Incremental costs of proxy      -              -        269         377
contests ^(4)
EBITDA, as adjusted             $           $      $         $  
                                16,158         16,988   65,177     63,522



(1) Represents the un-realized gain or loss on change in fair value of
interest rate protection contracts which do not qualify for hedge accounting
treatment.

(2) Represents the un-realized gain or loss on change in fair value of
fuel commodity derivatives which do not qualify for hedge accounting
treatment.

(3) Represents the premium paid to redeem $50,000 in 2011 and $100,000 in
2012 of senior notes as well as a writeoff of deferred financing costs
associated with our senior notes and a partial writeoff of deferred financing
costs associated with our 2008 Credit Facility.

(4) Represents additional costs incurred for legal advice and proxy
solicitation in response to proxy contests relating to the Company's 2011 and
2012 annual meetings.

EBITDA is defined as net income before interest expense, provision for income
taxes, and depreciation and amortization expense. EBITDA, as adjusted, 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 EBITDA, as adjusted, 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 EBITDA, as adjusted, are useful to
investors because they help enable investors to evaluate our business in the
same manner as our management. Management uses EBITDA and EBITDA, as
adjusted, 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 EBITDA, as adjusted,
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 EBITDA, as adjusted, are different from
those used in the covenants contained in our senior credit facilities.
Management compensates for these limitations by relying primarily on our GAAP
results and by using EBITDA and EBITDA, as adjusted, 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
617-542-5300
Email: tuc@investorrelations.com

SOURCE Mac-Gray Corporation

Website: http://www.macgray.com
 
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