UNITED
      STATES


SECURITIES
      AND
      EXCHANGE COMMISSION


Washington,
      D.C.
      20549





**Form
      10-Q**





QUARTERLY
      REPORT
      PURSUANT TO SECTION 13 OR 15(d)


OF
      THE SECURITIES
      EXCHANGE ACT OF 1934





For
                The
                Quarterly Period Ended
            Commission
                FileApril
                29,
                2006
            Number
                1-5674








**ANGELICA
      CORPORATION**


(Exact
      name of
      Registrant as specified in its charter)








MISSOURI
            43-0905260(State
                or
                other jurisdiction of
            (I.R.S.
                Employer Identification No.)incorporation
                or organization)424
                South
                Woods Mill RoadCHESTERFIELD,
                MISSOURI
            63017(Address
                of
                principal executive offices)
            (Zip
                Code)








(314)
      854-3800


(Registrant's
      telephone number, including area code)








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
      ___





Indicate
      by check
      mark whether the Registrant is a large accelerated filer, an accelerated filer,
      or a non-accelerated filer. See definition of “accelerated filer and large
      accelerated filer” in Rule 12b-2 of the Exchange Act. Large accelerated filer _ Accelerated
      filer _X_ Non-accelerated
      filer





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





The
      number of
      shares outstanding of Registrant's Common Stock, par value $1.00 per share,
      at June 1, 2006 was 9,431,341 shares.














ANGELICA
      CORPORATION AND SUBSIDIARIES





TABLE
      OF
      CONTENTS





APRIL
      29, 2006 FORM
      10-Q QUARTERLY REPORT





Page
                NumberReference**Part
                I. Financial Information:**Item
                1.
                Condensed Financial Statements:Consolidated
                Statements of Income - First
                Quarter endedApril
                29, 2006 and April 30, 2005
                (Unaudited)
            2Consolidated
                Balance Sheets - April 29,
                2006and
                January 28, 2006
                (Unaudited)
            3Consolidated
                Statements of Cash Flows -
                First Quarterended
                April 29, 2006 and April 30, 2005
                (Unaudited)
            4Notes
                to Unaudited Consolidated Financial
                Statements
            5-15Item
                2. Management's Discussion and Analysis
                ofFinancial
                Condition and Results of
                Operations
            16-20Item
                3. Quantitative and Qualitative
                DisclosuresAbout
                Market Risk
            21Item
                4. Controls and Procedures
            21-22**Part
                II. Other Information:**Item
                1A. Risk Factors
            23Item
                2. Unregistered Sales of Equity Securities and
                Use of Proceeds
            23Item
                6. Exhibits
            23Signatures
            24Exhibit
                Index
            25








CONSOLIDATED
      STATEMENTS OF INCOME


*Angelica
      Corporation and Subsidiaries*


*Unaudited
      (Dollars in thousands, except per share amounts)*





First
                Quarter
                EndedApril
                29,
                2006
            
            April
                30,
                2005**Continuing
                Operations:**Textile
                service revenues
            
            $
            107,006
            
            $
            100,481Cost
                of
                textile services
            
            
            (92,265
            )
            
            (84,946
            )Gross
                profit
            
            
            14,741
            
            
            15,535Selling,
                general and administrative expenses
            
            
            (14,412
            )
            
            (12,513
            )Amortization
                of other acquired assets
            
            
            (1,080
            )
            
            (799
            )Other
                operating income (expense), net
            
            
            551
            
            
            (52
            )(Loss)
                income
                from operations
            
            
            (200
            )
            
            2,171Interest
                expense
            
            
            (2,220
            )
            
            (1,150
            )Non-operating
                (expense) income, net
            
            
            (56
            )
            
            539(Loss)
                income
                from continuing operationsbefore
                income
                taxes
            
            
            (2,476
            )
            
            1,560Income
                tax
                benefit (provision)
            
            
            977
            
            
            (421
            )(Loss)
                income
                from continuing operations
            
            
            (1,499
            )
            
            1,139**Discontinued
                Operations:**Loss
                from
                discontinued operations, net oftax
                benefit
                of $0 and $44
            
            
            -
            
            
            (119
            )Net
                (loss)
                income
            
            $
            (1,499
            )
            $
            1,020**Basic
                (loss) earnings per share:**(Loss)
                income
                from continuing operations
            
            $
            (0.16
            )
            $
            0.13Loss
                from
                discontinued operations
            
            
            -
            
            
            (0.02
            )Net
                (loss)
                income
            
            $
            (0.16
            )
            $
            0.11**Diluted
                (loss) earnings per share:**(Loss)
                income
                from continuing operations
            
            $
            (0.16
            )
            $
            0.12Loss
                from
                discontinued operations
            
            
            -
            
            
            (0.01
            )Net
                (loss)
                income
            
            $
            (0.16
            )
            $
            0.11





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





2


CONSOLIDATED
      BALANCE SHEETS


*Angelica
      Corporation and Subsidiaries*


*Unaudited
      (Dollars in thousands)*





April
                29,
            
            January
                28,2006
            
            2006**ASSETS**Current
                Assets:Cash
                and cash
                equivalents
            
            $
            3,780
            
            $
            4,377Receivables,
                less reserves of $1,484 and $994
            
            
            57,326
            
            
            58,151Linens
                in
                service
            
            
            46,075
            
            
            43,785Prepaid
                expenses and other current assets
            
            
            3,573
            
            
            3,602Total
                Current
                Assets
            
            
            110,754
            
            
            109,915Property
                and
                Equipment
            
            
            204,594
            
            
            202,927Less
                --
                accumulated depreciation
            
            
            100,309
            
            
            96,634Total
                Property and Equipment
            
            
            104,285
            
            
            106,293Other:Goodwill
            
            
            49,259
            
            
            49,259Other
                acquired assets
            
            
            41,337
            
            
            42,470Cash
                surrender value of life insurance
            
            
            2,254
            
            
            1,941Deferred
                income taxes
            
            
            16,355
            
            
            15,389Miscellaneous
            
            
            6,167
            
            
            6,161Total
                Other
                Assets
            
            
            115,372
            
            
            115,220Total
                Assets
            
            $
            330,411
            
            $
            331,428**LIABILITIES
                AND SHAREHOLDERS' EQUITY**Current
                Liabilities:Current
                maturities of long-term debt
            
            $
            299
            
            $
            319Accounts
                payable
            
            
            34,582
            
            
            37,229Accrued
                wages
                and other compensation
            
            
            7,029
            
            
            7,037Deferred
                compensation and pension liabilities
            
            
            2,977
            
            
            2,977Deferred
                income taxes
            
            
            3,105
            
            
            3,321Other
                accrued
                liabilities
            
            
            33,227
            
            
            30,535Total
                Current
                Liabilities
            
            
            81,219
            
            
            81,418Long-Term
                Debt, less current maturities
            
            
            86,930
            
            
            85,096Other
                Long-Term Liabilities
            
            
            15,186
            
            
            15,366Shareholders'
                Equity:Common
                Stock,
                $1 par value, authorized 20,000,000shares,
                issued: 9,478,587 and 9,471,538 shares
            
            
            9,478
            
            
            9,472Capital
                surplus
            
            
            7,961
            
            
            7,189Retained
                earnings
            
            
            138,272
            
            
            140,805Accumulated
                other comprehensive loss
            
            
            (2,882
            )
            
            (2,553
            )Unamortized
                restricted stock
            
            
            (4,161
            )
            
            (2,841
            )Common
                Stock
                in treasury, at cost: 68,744 and 169,415 shares
            
            
            (1,592
            )
            
            (2,524
            )Total
                Shareholders' Equity
            
            
            147,076
            
            
            149,548Total
                Liabilities and Shareholders' Equity
            
            $
            330,411
            
            $
            331,428





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




3





CONSOLIDATED
      STATEMENTS OF CASH
      FLOWS


*Angelica
      Corporation and Subsidiaries*


*Unaudited
      (Dollars in thousands)*





First
                Quarter
                EndedApril
                29,
                2006
            
            April
                30,
                2005Cash
                Flows
                from Operating Activities:(Loss)
                income
                from continuing operations
            
            $
            (1,499
            )
            $
            1,139Non-cash
                items included in (loss) income from continuing
                operations:Depreciation
            
            
            3,697
            
            
            3,690Amortization
            
            
            1,400
            
            
            1,127Deferred
                income taxes
            
            
            (977
            )
            
            1,558Cash
                surrender value of life insurance
            
            
            (321
            )
            
            (168
            )(Gain)
                loss
                on sale of assets
            
            
            (551
            )
            
            61Change
                in
                working capital components of continuingoperations,
                net of businesses acquired/disposed of
            
            
            (1,402
            )
            
            (4,745
            )Other,
                net
            
            
            (10
            )
            
            (202
            )Net
                cash
                provided by operating activities ofcontinuing
                operations
            
            
            337
            
            
            2,460Cash
                Flows
                from Investing Activities:Expenditures
                for property and equipment, net
            
            
            (2,735
            )
            
            (4,081
            )Cost
                of
                businesses and assets acquired
            
            
            -
            
            
            (49,491
            )Disposals
                of
                assets
            
            
            853
            
            
            26Life
                insurance premiums paid, net
            
            
            382
            
            
            (149
            )Net
                cash used
                in investing activities of continuing operations
            
            
            (1,500
            )
            
            (53,695
            )Cash
                Flows
                from Financing Activities:Repayments
                of
                long-term debt
            
            
            (26,686
            )
            
            (41,705
            )Borrowings
                of
                long-term debt
            
            
            28,500
            
            
            76,100Borrowings
                from life insurance policy loans
            
            
            -
            
            
            19,474Debt
                issuance
                costs
            
            
            (17
            )
            
            (44
            )Dividends
                paid
            
            
            (1,034
            )
            
            (1,009
            )Exercise
                of
                stock options
            
            
            82
            
            
            488Net
                cash
                provided by financing activities ofcontinuing
                operations
            
            
            845
            
            
            53,304Cash
                Flows
                from Discontinued Operations:(Restated
                -
                See Note 1)Operating
                cash flows
            
            
            (279
            )
            
            (247
            )Investing
                cash flows
            
            
            -
            
            
            (260
            )Net
                (decrease) increase in cash and cash equivalents
            
            
            (597
            )
            
            1,562Balance
                at
                beginning of year
            
            
            4,377
            
            
            926Balance
                at
                end of period
            
            $
            3,780
            
            $
            2,488





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




4




NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL
      STATEMENTS





FIRST
      QUARTER ENDED
      APRIL 29, 2006


AND
      APRIL 30,
      2005





Note
      1. Basis of
      Presentation




The
      accompanying
      condensed consolidated financial statements are unaudited, and these
      consolidated statements should be read in conjunction with the Company’s audited
      consolidated financial statements and notes thereto contained in the Company’s
      Annual Report on Form 10-K for the fiscal year ended January 28, 2006 (fiscal
      2005). It is management’s opinion that all adjustments, consisting only of
      normal recurring adjustments, necessary for a fair statement of the results
      during the interim period have been included. All significant intercompany
      accounts and transactions have been eliminated. The results of operations and
      cash flows for the first quarter ended April 29, 2006 are not necessarily
      indicative of the results that will be achieved for the full fiscal year
      2006.




Subsequent
      to the
      issuance of its unaudited consolidated financial statements for the quarter
      ended April 30, 2005, management of the Company determined that the cash flows
      associated with discontinued operations should not have been presented as a
      single line item within the Consolidated Statements of Cash Flows. As a result,
      in the fourth quarter of fiscal 2005, the Company changed the presentation
      of
      cash flows from discontinued operations to present separate disclosure of the
      cash flows from operating, investing, and financing activities.





Note
      2.
      Stock-Based Compensation




The
      Company has
      various stock option and stock bonus plans that provide for the granting of
      incentive stock options, non-qualified stock options, restricted stock and
      performance awards to certain employees and directors. A total of 1,975,000
      shares have been authorized to be issued under all such plans. Options and
      awards have been granted at or above the fair market value at the date of grant,
      although certain plans allow for awards to be granted at a price below fair
      market value. Options vest over four years except for those granted in fiscal
      2004 and 2005 which vest in six months, and are exercisable not less than six
      months or more than 10 years after the date of grant. Restricted shares granted
      to non-employee directors generally vest over one to three years. Restricted
      shares granted to employees generally represent performance-contingent awards
      that vest at the end of three years upon the attainment of certain earnings
      performance goals.




Effective
      January
      29, 2006, the first day of fiscal 2006, the Company adopted Statement of
      Financial Accounting Standards No. 123 (revised 2004) “Share-Based Payment”
(SFAS 123(R)) using the modified prospective method of adoption, which does
      not
      require restatement of prior periods. Under the modified prospective method,
      the
      Company is required to record compensation cost for all awards granted after
      the
      date of adoption and for the unvested portion of previously granted awards
      that
      remain outstanding at the date


5


of
      adoption, net of
      an estimate of expected forfeitures. Under SFAS 123(R), compensation cost is
      based on the estimated fair values of stock options and restricted stock
      determined on the date of grant and is recognized over the related vesting
      period. For performance-contingent restricted stock, if it is determined that
      the performance contingency will not be satisfied, any previously recognized
      compensation cost is reversed in the period such determination is made. As
      of
      January 17, 2006, the Board of Directors approved the accelerated vesting of
      64,334 unvested stock options. The exercise price of these options was greater
      than the market price of the underlying stock on the date of modification.
      By
      accelerating the vesting of these options, approximately $173,000 and $43,000
      of
      compensation expense will be avoided in fiscal years 2006 and 2007,
      respectively.  The adoption of
      SFAS No. 123(R) did not have a material impact on the consolidated financial
      statements.





The
      Company
      determines the fair value of its restricted stock awards based on the market
      price of its common stock on the date of grant. Restricted stock activity for
      the quarter ended April 29, 2006 was as follows:




Shares
            
            Weighted
              Average
              Grant
                Date
              Fair
                ValueNonvested
                at
                January 29, 2006
            
            
            141,972
            
            $
            25.64Granted
            
            
            109,042
            
            
            16.75Vested
            
            
            (1,642
            )
            
            26.26Forfeited
            
            
            (7,911
            )
            
            25.94Nonvested
                at
                April 29, 2006
            
            
            241,461
            
            $
            21.61








The
      Company
      estimates the fair value of its option awards on the date of grant using the
      Black-Scholes option pricing model. No options were granted in the quarter
      ended
      April 29, 2006. For the quarter ended April 28, 2005, the Company granted 6,000
      options with a weighted average fair value of $6.94, using the Black-Scholes
      model and the following assumptions: risk-free interest rate of 4.04%; expected
      dividend yield of 3.8%; volatility of 31.4% and expected lives of nine to ten
      years. The risk-free interest rate was based on external data while all other
      assumptions were determined based on the Company’s historical experience with
      stock options. Activity in the Company’s stock option plans for the quarter
      ended April 29, 2006 was as follows:





Shares
            
            Weighted
              Average
              Exercise
                Price
            
            Weighted
              Average
              Remaining
                Contractual
              Term
                (Years)
            
            Aggregate
              Intrinsic
                ValueOptions
                outstanding at January 29, 2006
            
            
            813,675
            
            $
            21.77
            
            
            6.1Granted
            
            
            -
            
            
            -Exercised
            
            
            (8,000
            )
            
            11.38Forfeited
            
            
            (11,450
            )
            
            27.65Expired
            
            
            (125,000
            )
            
            20.42Options
                outstanding at April 29, 2006
            
            
            669,225
            
            $
            22.04
            
            
            6.9
            
            $
            1,542,000Options
                exercisable at April 29, 2006
            
            
            647,100
            
            $
            22.23
            
            
            6.9
            
            $
            1,458,000





6




Cash
      proceeds, tax
      benefits and intrinsic value related to total stock options exercised during
      the
      first quarters of 2006 and 2005 were as follows:


First
                Quarter
                EndedApril
                29,
            
            April
                30,2006
            
            2005Proceeds
                from
                stock options exercised
            
            $
            91,000
            
            $
            633,000Tax
                benefits
                related to stock options exercised
            
            $
            -
            
            $
            300,000Intrinsic
                value of stock options exercised
            
            $
            70,000
            
            $
            779,000





The
      Company did not
      realize a tax benefit related to the exercise of stock options in the first
      quarter of fiscal 2006 as there was no taxable income for the benefit to
      offset.





Prior
      to March 24,
      2006, the Company generally issued shares from treasury stock to satisfy
      restricted stock awards and stock option exercises. Effective on this date,
      the
      Company began issuing new shares to satisfy such awards and
      exercises.





Total
      compensation
      expense charged to income for all stock option and stock bonus plans during
      the
      quarter ended April 29, 2006 was $229,000 (net of $144,000 related income tax
      benefit). During the quarter ended April 30, 2005, the Company recognized
      $243,000 of expense for restricted stock and performance-based awards, net
      of
      $90,000 related income tax benefit. The total compensation cost related to
      nonvested stock options and awards not yet recognized is currently expected
      to
      be a combined total of approximately $2,915,000. This cost is expected to be
      recognized over a weighted average period of 2.5 years. Substantially all of
      the
      Company’s current quarter and expected future stock-based compensation expense
      is related to restricted stock awards.


Prior
      to the
      adoption of SFAS 123(R), the Company measured compensation expense for
      stock-based compensation plans using the intrinsic value-based method of
      accounting prescribed by Accounting Principles Board Opinion No. 25, “Accounting
      for Stock Issued to Employees” (APB 25), and followed the disclosure-only
      provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” as
      amended by SFAS No. 148, “Accounting for Stock-Based Compensation - Transition
      and Disclosure.” Accordingly, no compensation expense was recognized for
      stock-based compensation plans other than for restricted stock and
      performance-based awards. Had compensation expense for stock-based compensation
      plans for the first quarter ended April 30, 2005 been determined consistent
      with
      SFAS No. 123, the Company’s net income and earnings per share would approximate
      the following pro forma amounts:






7


First
                Quarter
                EndedApril
                30,(Dollars
                in
                thousands, except per share amounts)
            
            2005Net
                income:As
                reported
            
            $
            1,020Add:
                stock-based employee compensation expenseincluded
                in
                net income, net of tax
            
            
            243Deduct:
                stock-based employee compensationexpense
                determined under fair-value basedmethod
                for
                all awards, net of tax
            
            
            (562
            )Pro
                forma net
                income
            
            $
            701Basic
                earnings per share:As
                reported
            
            $
            0.11Pro
                forma
            
            
            0.08Diluted
                earnings per share:As
                reported
            
            $
            0.11Pro
                forma
            
            
            0.08





Note
      3.
      Acquisitions





On
      March 21, 2005,
      the Company acquired one hundred percent of the issued and outstanding shares
      of
      common stock and warrants of Royal Institutional Services, Inc. and its
      affiliate, The Surgi-Pack Corporation (together “Royal”). The total purchase
      price of $45,179,000 was paid in cash, plus an additional $713,000 of related
      acquisition costs, and was funded through long-term borrowings. The net assets
      acquired consisted primarily of working capital, leasehold interests in two
      operating facilities and the related equipment, customer contracts and
      goodwill.





The
      results of
      operations of Royal are included in the Company’s Consolidated Statement of
      Income for the first quarter ended April 30, 2005 since the date of acquisition
      on March 21, 2005. Unaudited pro forma consolidated textile service revenues
      for
      the first quarter ended April 30, 2005, assuming the Royal acquisition had
      been
      completed as of the beginning of the period, totaled $107,272,000, and unaudited
      pro forma consolidated income from continuing operations amounted to $1,047,000
      or $0.11 per diluted share. These pro forma amounts are not necessarily
      indicative of the consolidated results of operations that would have occurred
      had this acquisition been made at the beginning of the 2005 first quarter.





Note
      4.
      Non-Operating (Expense) Income, Net





In
      the first
      quarter of fiscal 2006, the Company recorded non-operating expense of $56,000
      which included a $281,000 loss related to a natural gas derivative (see Note
      11)
      offset primarily by interest income.





In
      the first
      quarter of fiscal 2005, the Company recorded non-operating income
      of




8




$539,000
      which
      included $360,000 from the second cash distribution received in connection
      with
      the liquidation of the parent company of an issuer of life insurance policies
      owned by the Company following its demutualization in 2000. These distributions
      did not affect the life insurance policies or their cash surrender value. The
      Company does not anticipate any further significant distributions from this
      liquidation.





Non-operating
      (expense) income, net, also includes interest earned on invested cash balances
      and notes receivable.





Note
      5. Income
      Taxes


The
      Company
      recorded a tax benefit of $725,000 from continuing operations for the first
      quarter ended April 29, 2006, based upon the Company’s estimated effective tax
      rate of 29.3% for the year, in addition to a tax benefit of $252,000 from
      federal and state tax credits. The effective tax rate of 29.3% on income from
      continuing operations for the first quarter ended April 29, 2006, reflects
      the
      statutory tax rate adjusted for permanent items and state tax benefits, as
      applicable.




Management
        has
        established accruals for tax contingencies for exposures associated with
        tax
        deductions and return filing positions which may be challenged. The ultimate
        disposition of any of these items is not expected to have a material impact
        on
        the Company’s financial condition but may be material to the period of
        resolution. The tax contingency accruals are reviewed quarterly and adjusted
        as
        necessary in light of changing circumstances.




The
        Company has a
        federal net operating loss carryover of $29,286,000 which will expire beginning
        in 2025; $2,532,000 in federal tax credit carryover which expires at various
        dates beginning in 2022; $8,027,000 of state tax credit carryover which expires
        at various dates beginning in 2012 or have no expiration date; and various
        other
        charitable contribution carryovers, tax credits and state net operating loss
        carryovers.
  In
        assessing the
        adequacy of the deferred tax assets, the Company considers whether it is
        more
        likely than not that some portion or all of the deferred tax assets will
        not be
        realized. The Company considers projected future taxable income and tax planning
        strategies in making this assessment.




Note
      6. Commitments and Contingencies





Prior
      to its sale
      of the Life Uniform retail business segment to Healthcare Uniform Company,
      Inc.
      in fiscal 2004, the Company was a guarantor under certain Life Uniform store
      lease agreements. These guarantees obligated the Company to make all payments
      due under the leases until their expiration in the event of default of Life
      Uniform. In connection with the sale of Life Uniform, the Company requested
      consents, as required, from landlords to assign the store leases to Healthcare
      Uniform Company. As a condition to such consents, certain landlords required
      that the Company continue as a guarantor of the leases. Under the Company’s
      agreement with Healthcare Uniform Company, these guarantees will only extend
      until the end of each lease’s then current term. As of April 29, 2006, the
      Company is secondarily obligated as a guarantor for 67 store lease agreements
      and the estimated maximum potential amount of future payments the Company could
      be required to make under these guarantees is $10,900,000. Although these
      guarantees






9




expire
      at various
      dates through fiscal year 2014, approximately 68% of the estimated maximum
      potential future payments expires by the end of fiscal year 2008.





The
      Company has
      provided certain indemnities to the buyer in connection with the sale of Life
      Uniform. Although indemnification claims are generally subject to an aggregate
      limit of $6,000,000, the Company believes the likelihood of making any payments
      for indemnification claims is remote and has reserved accordingly.





In
      connection with
      the March 2005 Royal acquisition (see Note 3), a portion of the purchase price
      was placed into escrow, with payment to the sellers contingent upon the occurrence
      of
      certain events as specified in the purchase agreement. As of April 29, 2006,
      $2,050,000 remained in escrow. Of this amount, $1,000,000 is due the sellers
      in
      March 2015 upon compliance with the restrictive covenants. The sellers are
      also
      scheduled to receive $1,000,000 in March 2007 absent indemnification claims.
      The
      remaining $50,000 relates to the March 2006 general indemnification payment
      which is being held in escrow pending a potential indemnification
      claim.





The
      Company faces a
      possible exposure to outstanding workers’ compensation claims incurred prior to
      fiscal 1999 that were sold to a former insurance carrier, in addition to
      exposure for deposits with that carrier for claims incurred in fiscal years
      1999, 2000 and 2001 that have not yet been resolved and for claims in excess
      of
      the deductible for fiscal years 1999, 2000, 2001 and 2002. This carrier is
      experiencing financial difficulties and may be unable to fulfill its obligation
      to pay these claims, which could have a material unfavorable impact on the
      Company’s results of operations and financial condition if it is forced to
      assume these liabilities. The Company estimates its possible exposure from
      these
      outstanding claims and deposits to be approximately $1,250,000 as of April
      29,
      2006.





The
      Company faces
      some significant risk and uncertainty to its business operations related to
      the
      status of labor relations at its service centers. Approximately 80% of the
      Company’s workforce is represented by one of several unions. In May 2006, the
      Company and UNITE HERE reached agreement on collective bargaining agreements
      covering service centers in Colton and San Diego, California, and covering
      several service centers in the Los Angeles, California area. In addition, the
      Company and UNITE HERE have reached agreement on collective bargaining
      agreements at seven service centers that were organized in the last half of
      fiscal 2005; these agreements were ratified by the membership and are expected
      to be finalized in the second quarter of fiscal 2006. Collectively, these new
      agreements apply to approximately 30% of the Company’s workforce. At five other
      service centers, collective bargaining agreements covering production employees
      are scheduled to expire in mid- to late fiscal 2006. These contracts apply
      to
      approximately 22% of the Company’s workforce. Any work interruptions or
      stoppages that may result from the inability to reach ratified agreements at
      any, some or all of these locations could have a material adverse impact on
      the
      Company’s results of operations and financial condition.





The
      Company is a
      party to various claims and legal proceedings which arose in the ordinary course
      of its business. Although the ultimate disposition of these proceedings is
      not
      presently determinable, management does not believe that an adverse
      determination in any or all of such proceedings will have a material adverse
      effect upon the consolidated financial condition or operating results of the
      Company.




10


Note
      7.
      Discontinued Operations





During
      the third
      quarter of fiscal 2005, the Company made the decision to close its Columbia,
      Illinois service center and exit the St. Louis market. The service center’s
      customer contracts, personal property and real estate were sold prior to the
      end
      of fiscal 2005. The results of operations and cash flows for the service center
      are segregated and reported as discontinued operations for all periods presented
      in this report.





Note
      8. (Loss)
      Earnings Per Share




Basic
      (loss)
      earnings per share is computed by dividing net (loss) income by the weighted
      average number of shares of Common Stock outstanding during the period. Diluted
      (loss) earnings per share is computed by dividing net income by the weighted
      average number of Common and Common equivalent shares outstanding.





The
      following table
      reconciles weighted average shares outstanding to amounts used to calculate
      basic and diluted (loss) earnings per share for the first quarter ended April
      29, 2006 and April 30, 2005 (shares in thousands):




First
                  Quarter
                  EndedApril
                  29,
                2006
              
              April
                  30,
                2005Weighted
                  Average Shares:Average
                  shares outstanding
              
              
              9,164
              
              
              9,032Effect
                  of
                  dilutive securities
              
              
              -
              
              
              279Average
                  shares outstanding,adjusted
                  for
                  dilutive effects
              
              
              9,164
              
              
              9,311


Potentially
      dilutive securities of 48,000 shares were not included in the calculation of
      weighted average shares outstanding for the quarter ended April 29, 2006 as
      their effect is antidilutive on loss per share for the period.





Note
      9. Goodwill
      and Other Acquired Assets





In
      accordance with
      SFAS No. 142, "Goodwill and Other Intangible Assets,” the Company performed its
      annual goodwill impairment test at the end of the third quarter of fiscal 2005
      which resulted in no indication of impairment.





Other
      acquired
      assets consisted of the following (dollars in thousands):





11


April
                29,
                2006
            
            January
                28,
                2006Gross
            
            
            
            Other
            
            Gross
            
            
            
            OtherCarrying
            
            Accumulated
            
            Acquired
            
            Carrying
            
            Accumulated
            
            AcquiredAmount
            
            Amortization
            
            Assets,
                net
            
            Amount
            
            Amortization
            
            Assets,
                netCustomer
                contracts
            
            $
            42,041
            
            $
            (9,023
            )
            $
            33,018
            
            $
            42,094
            
            $
            (8,290
            )
            $
            33,804Non-compete
                covenants
            
            
            11,089
            
            
            (2,770
            )
            
            8,319
            
            
            11,089
            
            
            (2,423
            )
            
            8,666Other
                acquired assets
            
            $
            53,130
            
            $
            (11,793
            )
            $
            41,337
            
            $
            53,183
            
            $
            (10,713
            )
            $
            42,470





Aggregate
      amortization expense for the first quarter ended April 29, 2006 and April 30,
      2005 amounted to $1,080,000 and $799,000, respectively. Other acquired assets
      are scheduled to be fully amortized by fiscal year 2020 with corresponding
      annual amortization expense estimated for each of the next five fiscal years
      as
      follows (dollars in thousands):





2006
            $4,2922007
            4,1892008
            3,8362009
            3,5272010
            3,061





Note
      10. Long
      Term Debt





The
      Company’s
      long-term bank borrowings are financed through a $150,000,000 revolving credit
      facility that matures on November 30, 2010. Amounts borrowed under the credit
      facility bear interest at a floating rate equal to either (i) LIBOR plus a
      margin, or (ii) a Base Rate, defined as the higher of either (a) the Federal
      Funds Rate plus 0.50% or (b) the Prime Rate. The margin for the LIBOR rate
      option is based on the Company’s ratio of “Funded Debt” to “EBITDA,” as each is
      defined in the loan agreement, and may range from 2.0% to 2.75%. The LIBOR
      interest rate option may be selected for periods of 1 to 3 months, 6 months
      or
      12 months. The Company has fixed the interest rate on $10,000,000 of the credit
      facility borrowings with an interest rate swap agreement that extends through
      May 2007.





As
      of April 29,
      2006, there was $86,900,000 of outstanding debt under the credit facility, secured
      by a first
      lien on all equipment, inventory, and accounts receivable, and certain real
      estate. Of this amount, $10,000,000 bears interest at a fixed rate of 3.58%
      pursuant to an interest rate swap agreement plus the LIBOR margin under the
      credit facility, which was 2.75% as of April 29, 2006. Of the remaining debt,
      $70,000,000 bore interest at 5.07% under a LIBOR contract, plus a margin (2.75%
      as of April 29, 2006), and $6,900,000 bore interest at 7.75%, the Prime Rate,
      as
      of April 29, 2006. Furthermore, the Company had $13,540,000 outstanding in
      irrevocable letters of credit as of April 29, 2006, which reduced the amount
      available to borrow under the line of credit to $7,600,000. As of April 29,
      2006, the fee on the outstanding letters of credit and unused funds was 2.75%
      and 0.375%, respectively.





The
      Company is
      subject to certain financial covenants under its loan agreement. One
      of




12




these
      covenants
      requires that the Company maintain a minimum consolidated net worth of
      $120,920,000 plus an aggregate amount equal to 50% of quarterly net income
      beginning with the fourth quarter of fiscal 2005 (with no reduction for net
      losses), and an asset coverage ratio of 1 to 1. Other covenants require the
      Company to maintain a minimum ratio of “EBITDA” to “Fixed Charges” of no less
      than 1.05 to 1, increasing to 1.15 to 1 effective October 31, 2006, and a
      maximum ratio of “Funded Debt” to “EBITDA” of no more than 4.0 to 1, decreasing
      to 3.5 to 1 effective January 31, 2010. The Company was in compliance with
      these
      loan covenants as of April 29, 2006.





As
      of April 29,
      2006, there was $29,177,000 of life insurance policy loans outstanding. The
      loans bear interest at a fixed rate of 8.0% or variable rates ranging from
      5.3%
      to 5.8%. The proceeds upon surrender of the policies will be reduced by the
      amount of any loans outstanding, unless repaid by the Company prior to that
      time. The total amount borrowed is netted against cash surrender value of life
      insurance in the Consolidated Balance Sheet as of April 29, 2006 and January
      28,
      2006.




Note
      11.
      Derivative Instruments and Hedging Activities




The
      Company entered
      into an interest rate swap agreement with one of its lenders effective September
      9, 2002. The swap agreement fixes the variable portion of the interest rate
      (excluding a margin) at 3.58% on $10,000,000 of the outstanding debt under
      the
      revolving line of credit until termination on May 30, 2007. The Company has
      elected to apply cash flow hedge accounting for the interest rate swap agreement
      in accordance with SFAS No. 133, “Accounting for Derivative Instruments and
      Hedging Activities.” Accordingly, the derivative is recorded as an asset or
      liability at its fair value and the effective portion of changes in the fair
      value of the derivative, as measured quarterly, is reported in accumulated
      other
      comprehensive income. The gain on the derivative included in accumulated other
      comprehensive loss in the first quarter ended April 29, 2006 and April 30,
      2005
      amounted to $7,000 and $54,000, respectively, net of tax. The Company has
      recorded a long-term asset of $176,000 and $165,000 for the fair value of the
      derivative as of April 29, 2006 and January 28, 2006, respectively.





Since
      October 2005,
      the Company has entered into natural gas futures contracts to fix the price
      for
      a portion of its future purchases of natural gas and reduce its exposure to
      volatility in the cost of natural gas consumed by its service centers due to
      fluctuations in the price on the New York Mercantile Exchange (NYMEX). These
      futures contracts combined are expected to hedge approximately 58% of the
      Company’s total requirements for natural gas (measured at current usage rates)
      for 2006 and 2007 fiscal years, and approximately 38% and
      16% of the
      Company’s natural gas requirements, respectively, in 2008 and 2009. As of April
      29, 2006, the weighted-average cost of natural gas under these contracts for
      the
      remainder of their term is $9.77 per decatherm. The Company has elected to
      apply
      cash flow hedge accounting for a portion of these derivatives in accordance
      with
      SFAS No. 133. Accordingly, the net loss on the derivatives included in
      accumulated other comprehensive loss for the quarter ended April 29, 2006,
      amounted to $336,000, net of tax. The change in fair market value of a portion
      of the derivatives not considered as a cash flow hedge for accounting purposes
      was included in non-operating income for the quarter ended April 29, 2006,
      and
      amounted to a loss of $281,000. The Company has recorded a current liability
      of
      $1,614,000 and $914,000 as of April 29, 2006 and January 28, 2006, respectively,
      and a long-term liability of $312,000 and $340,000 as of April 29, 2006 and
      January 28, 2006, respectively for the fair value of the derivatives. The
      Company estimates that $1,315,000




13




of
      unrealized
      losses included in accumulated other comprehensive loss before taxes as of
      April
      29, 2006 will be reclassified to cost of textile services within the next 12
      months as natural gas is purchased for consumption in the service
      centers.





In
      addition to the
      futures contracts, the Company has existing contracts as of April 29, 2006
      for
      the physical delivery of natural gas that fix the NYMEX cost of gas for
      approximately 4% of its estimated natural gas purchase requirements in the
      next
      12 months, and that fix the basis cost of gas for approximately 79% of its
      estimated natural gas purchase requirements in the next 12 months. Although
      these contracts are considered derivative instruments, they meet the normal
      purchases exclusion contained in SFAS No. 133, as amended by SFAS No. 138,
      “Accounting for Certain Derivative Instruments and Certain Hedging Activities,”
and SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and
      Hedging Activities,” and are therefore exempted from the related accounting
      requirements.





Note
      12.
      Comprehensive (Loss) Income





Comprehensive
      (loss) income, consisting primarily of net (loss) income and changes in the
      fair
      value of derivatives (see Note 11), net of taxes, totaled $(1,828,000) and
      $1,074,000 for the first quarter ended April 29, 2006 and April 30, 2005,
      respectively.





Note
      13.
      Retirement Benefits





The
      Company has a
      non-contributory defined benefit pension plan covering primarily all salaried
      and hourly administrative non-union personnel who had met participation
      requirements prior to September 1, 2004. The benefit formula is based on years
      of service and compensation during employment. The funding policy of the pension
      plan is in accordance with the requirements of the Employee Retirement Income
      Security Act of 1974. The Company amended the pension plan, effective September
      1, 2004, to freeze participation in the plan. No employee shall become a
      participant in the pension plan on or after that date.





The
      net periodic
      pension expense recognized in the first quarter ended April 29, 2006 and April
      30, 2005 was as follows:


First
                Quarter
                EndedApril
                29,
            
            April
                30,(Dollars
                in
                thousands)
            
            2006
            
            2005Pension
                expense:Service
                cost
            
            $
            113
            
            $
            105Interest
                cost
            
            
            312
            
            
            317Expected
                return on plan assets
            
            
            (322
            )
            
            (333
            )Amortization
                of prior service cost
            
            
            -
            
            
            5Recognized
                actuarial loss
            
            
            17
            
            
            -Net
                periodic
                pension expense
            
            $
            120
            
            $
            94








14


Note
      14. New
      Accounting Pronouncements





In
      May 2005, the
      FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.”
SFAS
      No. 154 replaces APB Opinion No. 20, “Accounting Changes,” and SFAS No. 3,
“Reporting Accounting Changes in Interim Financial Statements,” and changes the
      requirements for the accounting for and reporting of a voluntary change in
      accounting principle. This statement requires retrospective application to
      prior
      periods’ financial statements of changes in accounting principle, unless it is
      impracticable to determine either the period-specific effects or the cumulative
      effect of the change, instead of including in net income of the period of the
      change the cumulative effect of changing to the new accounting principle. SFAS
      No. 154 is effective for accounting changes and corrections of errors made
      in
      fiscal years beginning after December 15, 2005.





In
      February 2006,
      the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial
      Instruments” which amends SFAS No. 133, “Accounting for Derivative Instruments
      and Hedging Activities” and SFAS No. 140, “Accounting for Transfers and
      Servicing of Financial Assets and Extinguishment of Liabilities.” SFAS No. 155
      simplifies the accounting for certain derivatives embedded in other financial
      instruments by allowing them to be accounted for as a whole if the holder elects
      to account for the whole instrument on a fair value basis. SFAS No. 155 also
      clarifies and amends certain other provisions of SFAS No. 133 and SFAS No.
      140.
      SFAS No. 155 is effective for all financial instruments acquired, issued or
      subject to a remeasurement event occurring in fiscal years beginning after
      September 15, 2006. Earlier adoption is permitted, provided the Company has
      not
      yet issued financial statements, including for interim periods, for that fiscal
      year. The Company does not expect the adoption of SFAS No. 155 to have a
      material impact on its consolidated financial statements.





Note
      15.
      Subsequent Event





Subsequent
      to the
      end of the first quarter, the Company completed the transfer of all customer
      accounts from its Rio Vista service center to other service centers within
      its
      Los Angeles market area. The Company is pursuing a sale of the Rio Vista real
      estate and does not expect to recognize any significant asset impairment or
      other charges related to the closing of this service center.





15


**Item
      2.
      Management’s Discussion and Analysis of Financial Condition****and
      Results
      of Operations**





FIRST
      QUARTER ENDED
      APRIL 29, 2006


COMPARED
      WITH


FIRST
      QUARTER ENDED
      APRIL 30, 2005








General




Angelica
      Corporation is a leading provider of outsourced linen management services to
      the
      healthcare industry in the United States. We offer comprehensive linen
      management services to the U.S. healthcare industry, including hospitals,
      long-term care facilities, surgery centers, medical clinics, dental offices,
      and
      other medical providers. Among the items that we clean and provide, on either
      a
      rental or customer-owned basis, are bed linens, towels, gowns, scrubs, surgical
      linens and surgical packs, as well as mops, mats and other dust control
      products. To a more limited extent, we also provide linen management services
      to
      customers in the hospitality business. Currently, we operate 31 laundry service
      centers and serve customers in 23 states.





Results
      of
      Operations





First
      quarter
      fiscal 2006 textile service revenues were $107.0 million, an increase of $6.5
      million, or 6.5%, compared with the same period in fiscal 2005. Organic growth
      from net new business additions and price increases contributed $2.8 million
      of
      the first quarter increase, representing an organic growth rate of 3.1%. Fiscal
      2005 acquisitions contributed $8.3 million of the revenue increase, offset
      in
      part by the loss of $4.6 million of revenues due to the sale of non-healthcare
      customer accounts in fiscal 2005.





Cost
      of textile
      services of $92.3 million in the first quarter of fiscal 2006 increased by
      $7.3
      million, or 8.6%, from the same year ago period. The principal factor for this
      increase is our higher revenue level resulting from the acquisition we completed
      in the first quarter of fiscal 2005. Direct and indirect production labor and
      fringe benefit costs increased $2.7 million to 34.6% of revenues in first
      quarter fiscal 2006 versus 34.2% of revenues in first quarter fiscal 2005,
      due
      largely to temporary labor expenses incurred during the union strike at our
      Colton facility. Higher energy prices continue to impact fiscal 2006, as natural
      gas costs rose to 6.1% of revenues in first quarter fiscal 2006 from 4.9% of
      revenues in first quarter fiscal 2005, and delivery fuel increased to 2.0%
      of
      revenues in first quarter fiscal 2006 from 1.8% of revenues in first quarter
      fiscal 2005.





Gross
      margin
      percentage increased from 10.6% in fourth quarter fiscal 2005 to 13.8% in first
      quarter fiscal 2006, although it remained below the 15.5% in the year ago period
      for the reasons noted above.





In
      the first
      quarter fiscal 2006, selling, general and administrative expenses increased
      by
      $1.9 million over first quarter fiscal 2005 to $14.4 million, or 13.5% of
      revenues, compared to 12.5% of revenues a year ago. The increase in SG&A
      expenses as a


16


percent
      of revenues
      resulted primarily from $0.6 million of consulting fees incurred related to
      our
      operations process improvement implementation and $0.3 million of legal expenses
      associated with the Board of Directors’ Special Committee. Legal fees associated
      with labor activity were consistent with a year ago as efforts to resolve open
      contracts in 13 service centers and costs associated with the Colton strike
      were
      comparable to first quarter fiscal 2005 legal costs when the Company was
      defending itself against a union corporate campaign. Other legal fees increased
      from prior year due to the Special Committee previously mentioned and costs
      associated with a third-party lawsuit.





Amortization
      expense of other acquired assets increased by $0.3 million, or 35.2%, to $1.1
      million in the first quarter of fiscal 2006, reflecting the impact of intangible
      assets acquired during fiscal 2005.





In
      the first
      quarter fiscal 2006, we reported other operating income of $0.6 million
      reflecting gains from the sale of two parcels of real estate.





Interest
      expense in
      first quarter fiscal 2006 increased by $1.0 million to $2.2 million resulting
      from a combination of both higher interest rates and higher borrowings. Interest
      rates increased from an average 4.7% in first quarter fiscal 2005 to an average
      7.1% in first quarter fiscal 2006. Higher average debt levels for the first
      quarter of 2006 reflected the impact of the March 2005 acquisition borrowings
      outstanding for a full quarter. At April 29, 2006, we had $86.9 million in
      total
      debt outstanding under our bank credit facility. In addition, there was $29.2
      million of life insurance policy loans outstanding against the cash surrender
      value of life insurance policies we own. Interest from bank and insurance debt
      is included in our interest expense.





We
      recorded $0.1
      million pretax non-operating expense during the first quarter of fiscal 2006
      which included a $0.3 million loss related to a natural gas derivative, mostly
      offset by interest income. During the first quarter of fiscal 2005, we recorded
      pretax non-operating income of $0.5 million, due primarily to a $0.4 million
      distribution from the liquidation of the parent company of the issuer of life
      insurance policies we own.





For
      the first
      quarter of fiscal 2006, we recorded a tax benefit of $1.0 million compared
      to
      income tax expense of $0.4 million in the first quarter of fiscal 2005. The
      lower income tax expense in the current year quarter resulted primarily from
      the
      decline in pretax income for the first quarter of fiscal 2006.





We
      reported a net
      loss from continuing operations of $1.5 million in the first quarter of fiscal
      2006 compared with income of $1.1 million in the prior year quarter. The
      decrease resulted from the combination of higher prices for natural gas,
      delivery fuel and labor that negatively impacted gross profit, higher
      professional fees, increased intangible amortization and higher interest expense
      that reflected both higher rates and acquisition borrowings. These higher
      expenses were partially offset by the increase in textile service revenues
      resulting from prior year acquisitions and current year organic
      growth.


17




Financial
      Condition





As
      of April 29,
      2006, working capital totaled $29.5 million and the current ratio ( *i.e.* ,
      the ratio of
      current assets to current liabilities) was 1.4 to 1, compared with $28.5 million
      and 1.4 to 1, respectively, at January 28, 2006. The increase in working capital
      reflects a $2.3 million increase in linens in service explained
      below.





Although
      receivables decreased by $0.8 million in the first quarter fiscal 2006, accounts
      receivable days outstanding increased slightly to 46 from 45 days sales
      outstanding at the end of fiscal 2005. Linens in service increased by $2.3
      million as a result of a significant injection of linens into the system to
      increase our customer order fill rates.





Accounts
      payable
      decreased by $2.6 million as higher payable balances at the beginning of the
      quarter were paid down to more normal levels. The higher balances at January
      28,
      2006, were attributable to higher in-transit payments at January 28, 2006,
      yielding increased payables and increased cash, as well as the timing of certain
      invoices. The decline in accounts payable was offset by an increase in other
      accrued liabilities reflecting higher accrued interest and insurance reserves
      as
      well as changes in the fair value of our natural gas derivatives. Long-term
      debt
      of $86.9 million as of April 29, 2006 was $1.8 million greater than at January
      28, 2006, reflecting additional borrowings from our credit facility. Our ratio
      of total debt to total capitalization as of April 29, 2006 was 37.2% compared
      to
      36.4% as of January 28, 2006. Book value per share at the end of first quarter
      fiscal 2006 was $15.63, a decline from $16.08 as of January 28,
      2006.





Liquidity
      and
      Capital Resources





Cash
      flow provided
      by operating activities of continuing operations decreased $2.2 million for
      the
      quarter ended April 29, 2006 compared with the same period a year ago. The
      current year decline resulted primarily from a pretax loss of $2.5 million
      in
      the first quarter of fiscal 2006 compared with pretax income of $1.6 million
      in
      the comparable quarter of the prior year. Partially offsetting the income
      decline was a favorable change in working capital components of $2.0 million,
      excluding income tax changes, as the prior year amount reflected a significant
      increase in working capital subsequent to acquisition activity in fiscal year
      2004.




Cash
      flows from
      investing activities for the quarter ended April 29, 2006, included capital
      expenditures of $2.7 million, down from the prior year quarter as we implement
      best practices systemwide before expending discretionary capital expenditures.
      In the first quarter of fiscal 2006, we also received net proceeds of $0.8
      million from the disposal of certain real estate and $0.5 million from the
      death
      benefit of a Company-owned life insurance policy, the gain on which was
      recognized in the fourth quarter of fiscal 2005. Cash flows from investing
      activities for the quarter ended April 30, 2005 included $49.5 million of cost
      of businesses acquired, including cash paid for Royal and the final payment
      of
      $3.6 million for the fiscal year 2004 acquisition of the Duke University Health
      System laundry.


18


Cash
      provided by
      financing activities was $0.8 million in the first quarter of fiscal 2006
      reflecting additional borrowings of $1.8 million under our loan agreement.
      In
      the first quarter of fiscal 2005, cash provided by financing activities of
      $53.3
      million reflected the net proceeds from bank debt and life insurance policy
      loans of $53.8 million, used primarily to fund the prior year acquisition of
      Royal. In addition, proceeds from stock option exercises decreased from $0.5
      million in the first quarter of fiscal 2005 to $0.1 million in the first quarter
      of fiscal 2006.





As
      of April 29,
      2006, there was $86.9 million outstanding debt under our credit facility. Of
      this amount, $10.0 million bears interest at a fixed rate of 3.58% pursuant
      to
      an interest rate swap agreement plus a margin under the credit facility (2.75%
      as of April 29, 2006). Of the remaining debt, $70.0 million bore interest at
      5.07% under a LIBOR contract, plus a margin (2.75% at April 29, 2006), and
      $6.9
      million bore interest at 7.75%, the Prime Rate, as of April 29,
      2006.





In
      addition to
      amounts due under our loan agreement, at the end of the first quarter there
      was
      $29.2 million of life insurance policy loans outstanding. The proceeds of these
      loans, bearing interest at a fixed rate of 8.0% or variable rates ranging from
      5.3% to 5.8%, were used to pay down our revolving line of credit in fiscal
      2005.
      On April 29, 2006, we also had $13.5 million in irrevocable letters of credit
      outstanding, which reduced the amount available to borrow under the loan
      agreement to $7.6 million.





We
      are subject to
      certain financial covenants under our loan agreement. The covenants require
      us
      to maintain a minimum consolidated net worth of $120.9 million plus an aggregate
      amount equal to 50% of quarterly net income beginning with the fourth quarter
      of
      fiscal 2005 (with no reductions for net losses), and an asset coverage ratio
      of
      1 to 1. We are also required to maintain a minimum ratio of “EBITDA” to “Fixed
      Charges” of no less than 1.05 to 1, increasing to 1.15 to 1 effective October
      31, 2006, and a maximum ratio of “Funded Debt” to “EBITDA” of no more than 4.0
      to 1, decreasing to 3.5 to 1 effective January 31, 2010. We were in compliance
      with these debt covenants as of April 29, 2006.




Management
      believes
      that our financial condition, operating cash flow and available sources of
      external funds are sufficient to satisfy our requirements for debt service,
      capital expenditures, dividends and working capital over the course of the
      next
      12 months. However, if we pursue a large acquisition or are unable to achieve
      our forecasted operating results during the next twelve months, our forecasted
      cash flows could be negatively impacted requiring that we consider alternative
      funding sources in order to avoid violations of our loan covenants.





Recent
      Accounting Pronouncements





Effective
      January
      29, 2006, the first day of fiscal 2006, we adopted Statement of Financial
      Accounting Standards No. 123 (revised 2004) “Share-Based Payment” (SFAS 123(R))
      using the modified prospective method of adoption, which does not require
      restatement of prior periods. Under the modified prospective method, we are
      required to record compensation cost for all awards granted after the date
      of
      adoption and for the unvested portion of previously granted awards that remain
      outstanding at the date of adoption, net of an


19


estimate
      of
      expected forfeitures. Under SFAS 123(R), compensation cost is based on the
      estimated fair values of stock options and restricted stock determined on the
      date of grant and is recognized over the related vesting period. For
      performance-contingent restricted stock, if it is determined that the
      performance contingency will not be satisfied, any previously recognized
      compensation cost is reversed in the period such determination is made. As
      of
      January 17, 2006, the Board of Directors approved the accelerated vesting of
      64,334 unvested stock options. The exercise price of these options was greater
      than the market price of the underlying stock on the date of modification.
      By
      accelerating the vesting of these options, approximately $173,000 and $43,000
      of
      compensation expense will be avoided in fiscal years 2006 and 2007,
      respectively. Substantially all of the Company’s current quarter and expected
      future stock-based compensation expense is related to restricted stock awards.
      The adoption of SFAS No. 123(R) did not have a material impact on our
      consolidated financial statements.




**FORWARD-LOOKING
      STATEMENTS**





Any
      forward-looking
      statements made in this document reflect the Company's current views with
      respect to future events and financial performance and are made pursuant to
      the
      safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
      Such statements are subject to certain risks and uncertainties that may cause
      actual results to differ materially from those set forth in these statements.
      These potential risks and uncertainties include, but are not limited to,
      competitive and general economic conditions, the ability to retain current
      customers and to add new customers in competitive market environments,
      competitive pricing in the marketplace, delays in the shipment of orders,
      availability of labor at appropriate rates, availability and cost of energy
      and
      water supplies, the cost of workers' compensation and healthcare benefits,
      the
      ability to attract and retain key personnel, the ability of the Company to
      recover its seller note and avoid future lease obligations as part of its sale
      of Life Uniform, the ability of the Company to execute its strategy of providing
      delightful service to every customer every day pursuant to its fiscal 2005
      reorganization, unusual or unexpected cash needs for operations or capital
      transactions, the effectiveness of the Company’s initiatives to reduce key
      operating costs as a percent of revenues, the ability to obtain financing in
      required amounts and at appropriate rates and terms, the ability to identify,
      negotiate, fund, consummate and integrate acquisitions, and other factors which
      may be identified in the Company's filings with the Securities and Exchange
      Commission.





20


**Item
      3. Quantitative and Qualitative Disclosures About Market
      Risk**





The
      Company is
      exposed to commodity price risk related to the use of natural gas in its laundry
      service centers. The total cost of natural gas in the first quarter ended April
      29, 2006 was approximately $6.5 million. To reduce the uncertainty of
      fluctuating energy prices, the Company has entered into fixed-price contracts
      as
      of April 29, 2006 for approximately 65% of its estimated natural gas purchase
      requirements in the next 12 months. A hypothetical 10% increase in the cost
      of
      natural gas not covered by these contracts would result in a reduction of
      approximately $0.9 million in annual pretax earnings.





The
      Company is also
      exposed to commodity price risk resulting from the consumption of gasoline
      and
      diesel fuel for delivery trucks. The total cost of delivery fuel in the first
      quarter ended April 29, 2006 was approximately $2.1 million. A hypothetical
      10%
      increase in the cost of delivery fuel would result in a decrease of
      approximately $0.9 million in annual pretax earnings.





The
      Company’s
      exposure to interest rate risk relates primarily to its variable-rate revolving
      debt agreement and life insurance policy loans. As of April 29, 2006, there
      was
      $86.9 million of outstanding debt under the credit facility, of which $10.0
      million bore interest at a fixed rate of 3.58% (plus a margin) under an interest
      rate swap agreement entered into by the Company with one of its lenders to
      moderate the exposure. Amounts borrowed under the credit facility in excess
      of
      the $10.0 million covered by the interest rate swap agreement bore interest
      at a
      rate equal to either (i) LIBOR plus a margin, or (ii) a Base Rate, defined
      as
      the higher of (a) the Federal Funds Rate plus .50% or (b) the Prime Rate. The
      margin is based on the Company’s ratio of “Funded Debt” to “EBITDA,” as each is
      defined in the Loan Agreement. As of April 29, 2006, the margin was 2.75%.
      Of
      the $29.2 million in life insurance policy loans outstanding as of April 29,
      2006, a total of $23.3 million of these loans bore interest at variable rates
      ranging from 5.3% to 5.8%. A hypothetical increase of 100 basis points in
      short-term interest rates applicable to the outstanding variable-rate debt
      not
      covered by the interest rate swap agreement would result in a reduction of
      approximately $1.0 million in annual pretax earnings.





**Item
      4. Controls and Procedures**





The
      Company
      maintains a system of internal controls and procedures designed to provide
      reasonable assurance as to the reliability of the unaudited consolidated
      financial statements and other disclosures included in this report. The
      Company’s Board of Directors, operating through its Audit Committee which is
      composed entirely of independent Directors, provides oversight to the financial
      reporting process.





As
      of the end of
      the period covered by this report, the Company’s Chief Executive Officer and
      Chief Financial Officer evaluated the effectiveness of the design and operation
      of the Company’s disclosure controls and procedures (as defined in Rules
      13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended).
      Based upon their evaluation, the Chief Executive Officer and Chief Financial
      Officer concluded that the Company’s disclosure controls and procedures are
      effective in ensuring that material information relating to the Company,
      including its consolidated subsidiaries, is made known to them by others within
      those entities in a timely manner, particularly during the period for which
      this
      quarterly report is being prepared. The Chief Executive Officer and Chief
      Financial Officer also concluded based upon their evaluation that the Company’s
      disclosure


21


controls
      and
      procedures are effective in ensuring that the information required to be
      disclosed by the Company in the reports that it files or submits under the
      Securities Exchange Act of 1934 is recorded, processed, summarized and reported,
      within the time periods specified in the Securities and Exchange Commission’s
      rules and forms.





There
      were no
      changes in the Company’s internal control over financial reporting during the
      Company’s most recent fiscal quarter that have materially affected, or are
      reasonably likely to materially affect, the Company’s internal control over
      financial reporting.





22


**PART
      II. OTHER INFORMATION**





**Item
      1A. Risk Factors**





There
      have been no
      material changes to the risk factors set forth in Part I, Item 1A, “Risk
      Factors,” of the Company’s Form 10-K for the fiscal year ended January 28, 2006,
      except as follows:





**Our
      operating costs may increase or work stoppages may occur if we are unable to
      reach initial or renewal collective bargaining agreements with the unions
      representing our employees.**





The
      two collective
      bargaining agreements that cover six of our service centers in Southern
      California, as well as the collective bargaining agreement for Colton,
      California, have recently been renegotiated and ratified by the represented
      employees. In addition, initial collective bargaining agreements for seven
      newly
      organized service centers have been negotiated and ratified by the represented
      employees.





**Item
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds**





The
      following table
      sets forth information with respect to shares of our common stock that we
      purchased during the three fiscal months ended April 29, 2006.








**Period**
            **Total**
              **Number**
              **of
                Shares**
              **Purchased**
              **(1)**
            **Average**
              **Price**
              **Paid**
              **Per**
              **Share**
            **Total**
              **Number**
              **of
                Shares**
              **Purchased**
              **as**
              **Part
                of**
              **Publicly**
              **Announced**
              **Programs**
            **Maximum**
              **Number**
              **of
                Shares**
              **That**
              **May
                Yet Be**
              **Purchased**
              **Under
                the**
              **Programs**Jan.
                29, 2006
                - Feb. 25, 2006
            —
            —
            —
            —Feb.
                26, 2006
                - Mar. 25, 2006
            —
            —
            —
            —Mar.
                26, 2006
                - Apr. 29, 2006
            660
            $20.805
            —
            —Total
            660
            $20.805
            —
            —





(1)
            The
                shares
                purchased were restricted stock withheld for the payment of withholding
                taxes upon vesting of restricted
                stock.





**Item
      6. Exhibits**





(a)
            See
                Exhibit
                Index on page 25.




Items 1, 3, 4 and 5
      are not
      applicable for the current quarter and have been
      omitted.


23











SIGNATURES





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 thereunto
      duly
      authorized.








Angelica
                Corporation(Registrant)Date:
                June 8,
                2006
            /s/
                Stephen M. O’HaraStephen
                M.
                O’HaraChairman
                andChief
                Executive Officer/s/
                James
                W. ShafferJames
                W.
                ShafferVice
                President and ChiefFinancial
                Officer(Principal
                Financial Officer)(Principal
                Accounting Officer)










24





**EXHIBIT
      INDEX**







ExhibitNumber
            Description*Asterisk
                indicates exhibits filed herewith.**Incorporated
                by reference from the document listed.3.1
            Restated
                Articles of Incorporation of the Company, as currently in effect.
                Filed as
                Exhibit 3.1 to the Form 10-K for the fiscal year ended January 26,
                1991.**3.2
            Current
                By-Laws of the Company, as amended and restated.*4.1
            Shareholder
                Rights Plan dated August 25, 1998. Filed as Exhibit 1 to Registration
                Statement on Form 8-A on August 28, 1998.**10.1
            Product
                and
                Services Supply Agreement effective June 1, 2006, between the Company
                and
                Ecolab Inc. Filed as Exhibit 10.1 to the current report on Form 8-K
                on May
                30, 2006.**31.1
            Section
                302
                Certification of Chief Executive Officer.*31.2
            Section
                302
                Certification of Chief Financial Officer.*32.1
            Section
                906
                Certification of Chief Executive Officer.*32.2
            Section
                906
                Certification of Chief Financial
                Officer.*







25