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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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Form 10-Q



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(Mark One)

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



For the quarterly period ended September 30, 2005



OR



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



For the transition period from  to



Commission File Number: 000-12954



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CADMUS COMMUNICATIONS CORPORATION

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Virginia                                                       |  | 54-1274108                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



1801 Bayberry Court,
Suite 200

Richmond, Virginia 23226

(Address of principal executive offices) (Zip code)



(804) 287-5680

(Registrants telephone number, including area code)



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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 an accelerated filer (as defined in Rule 12b-2 of the Exchange
Act).    Yes ̈No  x



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



Indicate the number of shares outstanding of each of the registrants classes of common stock, as of the latest practicable date.



|                              |  |                                
|----------------------------- |  | -------------------------------
|Class                         |  | Outstanding at October 31, 2005
|Common Stock, $0.50 Par Value |  | 9,241,622                      



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##### Table of Contents

CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES

INDEX



|           |  |                                                                                                              |  |                                                                                       |  |           
|---------- |  | ------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------- |  | ----------
|           |  |                                                                                                              |  |                                                                                       |  | PageNumber
|Part I.    |  | Financial Information                                                                                        |  |                                                                                      
|           |  |                                                                                                              | 
|           |  | Item 1.                                                                                                      |  | Financial Statements                                                                  |  |           
|           |  |                                                                                                             
|           |  | Condensed Consolidated Balance Sheets  September 30, 2005 (unaudited) and June 30, 2005                     |  | 3                                                                                    
|           |  |                                                                                                             
|           |  | Condensed Consolidated Statements of Operations (unaudited)  Three Months Ended September 30, 2005 and 2004 |  | 4                                                                                    
|           |  |                                                                                                             
|           |  | Condensed Consolidated Statements of Cash Flows (unaudited)  Three Months Ended September 30, 2005 and 2004 |  | 5                                                                                    
|           |  |                                                                                                             
|           |  | Condensed Consolidated Statements of Shareholders Equity  September 30, 2005 (unaudited) and June 30, 2005 |  | 6                                                                                    
|           |  |                                                                                                             
|           |  | Notes to Condensed Consolidated Financial Statements (unaudited)                                             |  | 7                                                                                    
|           |  |                                                                                                              | 
|           |  | Item 2.                                                                                                      |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 11        
|           |  |                                                                                                              | 
|           |  | Item 3.                                                                                                      |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 18        
|           |  |                                                                                                              | 
|           |  | Item 4.                                                                                                      |  | Controls and Procedures                                                               |  | 18        
|           |  |                                                                                                             
|Part II.   |  | Other Information                                                                                            |  |                                                                                      
|           |  |                                                                                                              | 
|           |  | Item 1.                                                                                                      |  | Legal Proceedings                                                                     |  | 19        
|           |  |                                                                                                              | 
|           |  | Item 2.                                                                                                      |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 19        
|           |  |                                                                                                              | 
|           |  | Item 6.                                                                                                      |  | Exhibits                                                                              |  | 19        
|           |  |                                                                                                              | 
|Signatures |  |                                                                                                              |  |                                                                                       |  | 20        



2



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##### Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS



CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)



|                                                                                                                                                            |  |                   |         |   |                    |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ------------------ | - | ------- | -
|                                                                                                                                                            |  | September 30,2005 |         |   | June 30,      2005 |  
|                                                                                                                                                            |  | (Unaudited)       |         |   |                    |  
|ASSETS                                                                                                                                                      |  |                   |         |   |                    |   |         |  
|Current assets:                                                                                                                                             |  |                   |         |   |                    |   |         |  
|Cash and cash equivalents                                                                                                                                   |  | $                 | 820     |   |                    | $ | 237     |  
|Accounts receivable (net of allowance for doubtful accounts of $1,356 at September 30, 2005 and $1,353 at June 30,
2005)                                    |  |                   | 59,625  |   |                    |   | 56,497  |  
|Inventories                                                                                                                                                 |  |                   | 26,887  |   |                    |   | 24,124  |  
|Deferred income taxes                                                                                                                                       |  |                   | 6,806   |   |                    |   | 6,788   |  
|Prepaid expenses and other                                                                                                                                  |  |                   | 3,858   |   |                    |   | 3,668   |  
|                                                                                                                                                            |  |                   |         |   |                    |   |         |  
|Total current assets                                                                                                                                        |  |                   | 97,996  |   |                    |   | 91,314  |  
|                                                                                                                                                            |  |                  
|Property, plant and equipment, net                                                                                                                          |  |                   | 95,419  |   |                    |   | 91,600  |  
|Goodwill                                                                                                                                                    |  |                   | 109,884 |   |                    |   | 109,884 |  
|Other intangibles, net                                                                                                                                      |  |                   | 3,827   |   |                    |   | 3,394   |  
|Other assets                                                                                                                                                |  |                   | 25,099  |   |                    |   | 24,483  |  
|                                                                                                                                                            |  |                   |         |   |                    |   |         |  
|TOTAL ASSETS                                                                                                                                                |  | $                 | 332,225 |   |                    | $ | 320,675 |  
|                                                                                                                                                            |  |                   |         |   |                    |   |         |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                        |  |                   |         |   |                    |   |         |  
|Current liabilities:                                                                                                                                        |  |                   |         |   |                    |   |         |  
|Accounts payable                                                                                                                                            |  | $                 | 38,796  |   |                    | $ | 30,277  |  
|Accrued expenses and other current liabilities                                                                                                              |  |                   | 23,810  |   |                    |   | 24,525  |  
|                                                                                                                                                            |  |                   |         |   |                    |   |         |  
|Total current liabilities                                                                                                                                   |  |                   | 62,606  |   |                    |   | 54,802  |  
|                                                                                                                                                            |  |                   |         |   |                    |   |         |  
|Long-term debt                                                                                                                                              |  |                   | 159,812 |   |                    |   | 158,363 |  
|Long-term pension liability                                                                                                                                 |  |                   | 32,935  |   |                    |   | 32,886  |  
|Other long-term liabilities                                                                                                                                 |  |                   | 19,763  |   |                    |   | 19,764  |  
|                                                                                                                                                            |  |                   |         |   |                    |   |         |  
|Total liabilities                                                                                                                                           |  |                   | 275,116 |   |                    |   | 265,815 |  
|                                                                                                                                                            |  |                  
|Shareholders equity:                                                                                                                                       |  |                   |         |   |                    |   |         |  
|Common stock ($0.50 par value; authorized shares-16,000,000; issued and outstanding shares- 9,235,569 at September 30, 2005 and 9,189,525
at June 30, 2005) |  |                   | 4,618   |   |                    |   | 4,595   |  
|Capital in excess of par value                                                                                                                              |  |                   | 69,058  |   |                    |   | 68,495  |  
|Unearned compensation                                                                                                                                       |  |                   | (74     | ) |                    |   | (108    | )
|Retained earnings                                                                                                                                           |  |                   | 3,979   |   |                    |   | 2,369   |  
|Accumulated other comprehensive loss                                                                                                                        |  |                   | (20,472 | ) |                    |   | (20,491 | )
|                                                                                                                                                            |  |                   |         |   |                    |   |         |  
|Total shareholders equity                                                                                                                                  |  |                   | 57,109  |   |                    |   | 54,860  |  
|                                                                                                                                                            |  |                   |         |   |                    |   |         |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                  |  | $                 | 332,225 |   |                    | $ | 320,675 |  
|                                                                                                                                                            |  |                   |         |   |                    |   |         |  



See
accompanying Notes to Condensed Consolidated Financial Statements.



3



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##### Table of Contents

CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)



|                                           |  |                                  |         |      |   |         |  
|------------------------------------------ |  | -------------------------------- | ------- | ---- | - | ------- | -
|                                           |  | Three Months Ended September 30, |        
|                                           |  | 2005                             |         | 2004 |  
|Net sales                                  |  | $                                | 107,217 |      | $ | 102,977 |  
|                                           |  |                                 
|Cost of sales                              |  |                                  | 89,681  |      |   | 84,236  |  
|Selling and administrative expenses        |  |                                  | 9,868   |      |   | 11,514  |  
|Restructuring and other charges            |  |                                  | 735     |      |   |        |  
|Other income                               |  |                                  |        |      |   | (1,000  | )
|                                           |  |                                  |         |      |   |         |  
|                                           |  |                                  | 100,284 |      |   | 94,750  |  
|                                           |  |                                  |         |      |   |         |  
|Operating income                           |  |                                  | 6,933   |      |   | 8,227   |  
|                                           |  |                                 
|Interest and other expenses:               |  |                                  |         |      |   |         |  
|Interest                                   |  |                                  | 3,493   |      |   | 3,174   |  
|Other, net                                 |  |                                  | 83      |      |   | (42     | )
|                                           |  |                                  |         |      |   |         |  
|                                           |  |                                  | 3,576   |      |   | 3,132   |  
|                                           |  |                                  |         |      |   |         |  
|Income before income taxes                 |  |                                  | 3,357   |      |   | 5,095   |  
|                                           |  |                                 
|Income tax expense                         |  |                                  | 1,171   |      |   | 1,912   |  
|                                           |  |                                  |         |      |   |         |  
|Net income                                 |  | $                                | 2,186   |      | $ | 3,183   |  
|                                           |  |                                  |         |      |   |         |  
|Earnings per share  basic                 |  | $                                | 0.24    |      | $ | 0.35    |  
|                                           |  |                                  |         |      |   |         |  
|Weighted-average common shares outstanding |  |                                  | 9,217   |      |   | 9,166   |  
|                                           |  |                                  |         |      |   |         |  
|Earnings per share  diluted               |  | $                                | 0.23    |      | $ | 0.34    |  
|                                           |  |                                  |         |      |   |         |  
|Weighted-average common shares outstanding |  |                                  | 9,458   |      |   | 9,385   |  
|                                           |  |                                  |         |      |   |         |  
|Cash dividends per common share            |  | $                                | 0.0625  |      | $ | 0.0625  |  
|                                           |  |                                  |         |      |   |         |  



See
accompanying Notes to Condensed Consolidated Financial Statements.



4



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##### Table of Contents

CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



|                                                                                  |  |                                 |        |   |      |   |        |  
|--------------------------------------------------------------------------------- |  | ------------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                  |  | Three Months EndedSeptember 30, |       
|                                                                                  |  | 2005                            |        |   | 2004 |  
|Operating Activities                                                              |  |                                 |        |   |      |   |        |  
|Net income                                                                        |  | $                               | 2,186  |   |      | $ | 3,183  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                 |        |   |      |   |        |  
|Depreciation and amortization                                                     |  |                                 | 4,736  |   |      |   | 4,900  |  
|Restructuring and other charges                                                   |  |                                 | 735    |   |      |   |       |  
|Deferred income taxes                                                             |  |                                 | (440   | ) |      |   | (161   | )
|Other, net                                                                        |  |                                 | 395    |   |      |   | (23    | )
|                                                                                  |  |                                 |        |   |      |   |        |  
|                                                                                  |  |                                 | 7,612  |   |      |   | 7,899  |  
|                                                                                  |  |                                 |        |   |      |   |        |  
|Changes in operating assets and liabilities:                                      |  |                                 |        |   |      |   |        |  
|Accounts receivable                                                               |  |                                 | (3,128 | ) |      |   | (1,324 | )
|Inventories                                                                       |  |                                 | (2,763 | ) |      |   | (738   | )
|Accounts payable and accrued expenses                                             |  |                                 | 7,528  |   |      |   | 2,106  |  
|Restructuring payments                                                            |  |                                 | (237   | ) |      |   |       |  
|Contributions to defined benefit pension plans                                    |  |                                 | (259   | ) |      |   | (318   | )
|Other, net                                                                        |  |                                 | (1,496 | ) |      |   | (978   | )
|                                                                                  |  |                                 |        |   |      |   |        |  
|                                                                                  |  |                                 | (355   | ) |      |   | (1,252 | )
|                                                                                  |  |                                 |        |   |      |   |        |  
|Net cash provided by operating activities                                         |  |                                 | 7,257  |   |      |   | 6,647  |  
|                                                                                  |  |                                 |        |   |      |   |        |  
|Investing Activities                                                              |  |                                 |        |   |      |   |        |  
|Purchases of property, plant and equipment                                        |  |                                 | (8,614 | ) |      |   | (1,996 | )
|Proceeds from sales of property, plant and equipment                              |  |                                 | 72     |   |      |   | 52     |  
|Acquisition of intangible assets                                                  |  |                                 | (642   | ) |      |   |       |  
|                                                                                  |  |                                 |        |   |      |   |        |  
|Net cash used in investing activities                                             |  |                                 | (9,184 | ) |      |   | (1,944 | )
|                                                                                  |  |                                 |        |   |      |   |        |  
|Financing Activities                                                              |  |                                 |        |   |      |   |        |  
|Proceeds from (payments on) long-term revolving credit facility                   |  |                                 | 2,500  |   |      |   | (6,100 | )
|Dividends paid                                                                    |  |                                 | (576   | ) |      |   | (573   | )
|Repurchases of common and restricted stock                                        |  |                                 |       |   |      |   | (365   | )
|Proceeds from exercise of stock options                                           |  |                                 | 586    |   |      |   | 709    |  
|                                                                                  |  |                                 |        |   |      |   |        |  
|Net cash provided by (used in) financing activities                               |  |                                 | 2,510  |   |      |   | (6,329 | )
|                                                                                  |  |                                 |        |   |      |   |        |  
|Increase (decrease) in cash and cash equivalents                                  |  |                                 | 583    |   |      |   | (1,626 | )
|                                                                                  |  |                                
|Cash and cash equivalents at beginning of period                                  |  |                                 | 237    |   |      |   | 1,899  |  
|                                                                                  |  |                                 |        |   |      |   |        |  
|Cash and cash equivalents at end of period                                        |  | $                               | 820    |   |      | $ | 273    |  
|                                                                                  |  |                                 |        |   |      |   |        |  



See accompanying Notes to Condensed
Consolidated Financial Statements.



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##### Table of Contents

CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS
EQUITY

(In thousands, except per share data)



|                                                                     |  |              |   |  |                              |       |   |                      |   |        |                                      |  |   |                                   |   |  |       |         |   |  |   |         |   |  |   |        |  
|-------------------------------------------------------------------- |  | ------------ | - |  | ---------------------------- | ----- | - | -------------------- | - | ------ | ------------------------------------ |  | - | --------------------------------- | - |  | ----- | ------- | - |  | - | ------- | - |  | - | ------ | -
|                                                                     |  | Common Stock |   |  | Capital inExcess ofPar Value |       |   | UnearnedCompensation |   |        | RetainedEarnings(AccumulatedDeficit) |  |   | AccumulatedOtherComprehensiveLoss |   |  | Total |        
|                                                                     |  | Shares       |   |  | Par Value                    |       |   |                      |   |        |                                     
|Balance at June 30, 2004                                             |  | 9,154        |   |  | $                            | 4,577 |   |                      | $ | 69,362 |                                      |  | $ | (306                              | ) |  | $     | (10,325 | ) |  | $ | (12,047 | ) |  | $ | 51,261 |  
|Net income                                                           |  |             |   |  |                              |      |   |                      |   |       |                                      |  |   |                                  |   |  |       | 14,991  |   |  |   |        |   |  |   | 14,991 |  
|Change in minimum pension liability, net of $4,310 in deferred taxes |  |             |   |  |                              |      |   |                      |   |       |                                      |  |   |                                  |   |  |       |        |   |  |   | (8,423  | ) |  |   | (8,423 | )
|Foreign currency translation                                         |  |             |   |  |                              |      |   |                      |   |       |                                      |  |   |                                  |   |  |       |        |   |  |   | (21     | ) |  |   | (21    | )
|                                                                     |  |              |   |  |                              |       |   |                      |   |        |                                      |  |   |                                   |   |  |       |         |   |  |   |         |   |  |   |        |  
|Comprehensive income                                                 |  |              |   |  |                              |       |   |                      |   |        |                                      |  |   |                                   |   |  |       |         |   |  |   |         |   |  |   | 6,547  |  
|                                                                     |  |              |   |  |                              |       |   |                      |   |        |                                      |  |   |                                   |   |  |       |         |   |  |   |         |   |  |   |        |  
|Cash dividends - $0.25 per share                                     |  |             |   |  |                              |      |   |                      |   |       |                                      |  |   |                                  |   |  |       | (2,297  | ) |  |   |        |   |  |   | (2,297 | )
|Shares issued upon exercise of stock options                         |  | 304          |   |  |                              | 152   |   |                      |   | 2,850  |                                      |  |   |                                  |   |  |       |        |   |  |   |        |   |  |   | 3,002  |  
|Repurchases of common stock                                          |  | (260         | ) |  |                              | (130  | ) |                      |   | (3,609 | )                                    |  |   |                                  |   |  |       |        |   |  |   |        |   |  |   | (3,739 | )
|Repurchases of restricted stock                                      |  | (8           | ) |  |                              | (4    | ) |                      |   | (108   | )                                    |  |   |                                  |   |  |       |        |   |  |   |        |   |  |   | (112   | )
|Amortization of unearned compensation                                |  |             |   |  |                              |      |   |                      |   |       |                                      |  |   | 198                               |   |  |       |        |   |  |   |        |   |  |   | 198    |  
|                                                                     |  |              |   |  |                              |       |   |                      |   |        |                                      |  |   |                                   |   |  |       |         |   |  |   |         |   |  |   |        |  
|Balance at June 30, 2005                                             |  | 9,190        |   |  |                              | 4,595 |   |                      |   | 68,495 |                                      |  |   | (108                              | ) |  |       | 2,369   |   |  |   | (20,491 | ) |  |   | 54,860 |  
|                                                                     |  |              |   |  |                              |       |   |                      |   |        |                                      |  |   |                                   |   |  |       |         |   |  |   |         |   |  |   |        |  
|(the following data is unaudited)                                    |  |              |   |  |                              |       |   |                      |   |        |                                      |  |   |                                   |   |  |       |         |   |  |   |         |   |  |   |        |  
|Net income                                                           |  |             |   |  |                              |      |   |                      |   |       |                                      |  |   |                                  |   |  |       | 2,186   |   |  |   |        |   |  |   | 2,186  |  
|Foreign currency translation                                         |  |             |   |  |                              |      |   |                      |   |       |                                      |  |   |                                  |   |  |       |        |   |  |   | 19      |   |  |   | 19     |  
|                                                                     |  |              |   |  |                              |       |   |                      |   |        |                                      |  |   |                                   |   |  |       |         |   |  |   |         |   |  |   |        |  
|Comprehensive income                                                 |  |              |   |  |                              |       |   |                      |   |        |                                      |  |   |                                   |   |  |       |         |   |  |   |         |   |  |   | 2,205  |  
|                                                                     |  |              |   |  |                              |       |   |                      |   |        |                                      |  |   |                                   |   |  |       |         |   |  |   |         |   |  |   |        |  
|Cash dividends - $0.0625 per share                                   |  |             |   |  |                              |      |   |                      |   |       |                                      |  |   |                                  |   |  |       | (576    | ) |  |   |        |   |  |   | (576   | )
|Shares issued upon exercise of stock options                         |  | 46           |   |  |                              | 23    |   |                      |   | 563    |                                      |  |   |                                  |   |  |       |        |   |  |   |        |   |  |   | 586    |  
|Amortization of unearned compensation                                |  |             |   |  |                              |      |   |                      |   |       |                                      |  |   | 34                                |   |  |       |        |   |  |   |        |   |  |   | 34     |  
|                                                                     |  |              |   |  |                              |       |   |                      |   |        |                                      |  |   |                                   |   |  |       |         |   |  |   |         |   |  |   |        |  
|Balance at September 30, 2005                                        |  | 9,236        |   |  | $                            | 4,618 |   |                      | $ | 69,058 |                                      |  | $ | (74                               | ) |  | $     | 3,979   |   |  | $ | (20,472 | ) |  | $ | 57,109 |  
|                                                                     |  |              |   |  |                              |       |   |                      |   |        |                                      |  |   |                                   |   |  |       |         |   |  |   |         |   |  |   |        |  



See accompanying Notes to Condensed
Consolidated Financial Statements.



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##### Table of Contents

CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|1. | The accompanying unaudited condensed consolidated financial statements of Cadmus Communications Corporation and Subsidiaries (the Company) have been prepared in
accordance with generally accepted accounting principles for interim financial reporting and with applicable quarterly reporting regulations of the Securities and Exchange Commission. They do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements and, accordingly, should be read in conjunction with the consolidated financial statements and related footnotes included in the Companys annual report on Form 10-K
for the fiscal year ended June 30, 2005.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation of interim financial information have been included. The results of operations for the period ended September 30, 2005 are not
necessarily indicative of results for the entire fiscal year.



Certain previously reported amounts have been reclassified to conform to the current-year presentation.



|2. | In the fourth quarter of fiscal 2005, the Company initiated a comprehensive equipment upgrade plan to its Publisher Services print platform and Specialty Packaging capabilities.
This program is designed to replace certain older, less efficient presses with state of-the-art and more efficient presses, to add certain needed capacity, and to permit the further rationalization of domestic manufacturing capacity. In connection
with this plan, the Company incurred charges of $0.7 million in the first quarter of fiscal 2006 related to severance expenses, costs to consolidate and reorganize facilities, and additional impairment charges of equipment to be replaced. These
charges were primarily related to the Publisher Services segment and are classified as restructuring and other charges in the Condensed Consolidated Statements of Operations. At September 30, 2005, the restructuring liability was $0.3 million
primarily related to one-time termination benefits and is included in accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheets. There was no liability at June 30, 2005.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Additional restructuring costs associated with this equipment upgrade plan,
which will include any costs incurred in connection with capacity rationalization among manufacturing facilities and reductions in personnel, will be incurred in the remainder of fiscal 2006. The estimated total fiscal 2006 restructuring costs
relate primarily to the Publisher Services segment and include: (i) one-time termination benefits in the range of $1.0 million to $1.3 million, (ii) contract termination costs in the range of $0.2 million to $0.4 million, and
(iii) costs to consolidate and reorganize facilities in the range of $1.7 million to $2.1 million. All activities in connection with this plan are expected to be completed by the end of the first quarter of fiscal 2007.



|3. | The Company entered into a joint venture agreement with Datamatics Technologies Limited (Datamatics) on June 30, 2003, resulting in intangible assets of $3.3
million at June 30, 2003. These intangible assets are amortized using the straight-line method over a five-year period. Accumulated amortization was $1.5 million at September 30, 2005. Annual amortization expense for these assets is
expected to be approximately $0.7 million per year. In the first quarter of fiscal 2006, the Company purchased certain assets to include $0.6 million in intangible assets from a content processing operation located in the United Kingdom. These
intangible assets are amortized using the straight-line method over a two-year period. Other intangibles totaling $1.2 million as of September 30, 2005 and June 30, 2005 relate to assets recognized in connection with the Companys
minimum pension liability.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. | Basic earnings per share is computed on the basis of weighted-average common shares outstanding from the date of issue. Diluted earnings per share is computed on the basis of
weighted-average common shares outstanding plus common shares contingently issuable upon the exercise of dilutive stock options. Incremental shares for dilutive stock options (computed under the treasury stock method) were 241,000 and 219,000 for
the three months ended September 30, 2005 and 2004, respectively.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

|5. | Components of net inventories at September 30, 2005 and June 30, 2005 were as follows (in thousands):
|-- | -----------------------------------------------------------------------------------------------------



|                           |  |                               |        |               |   |       
|-------------------------- |  | ----------------------------- | ------ | ------------- | - | ------
|                           |  | September 30,2005 (unaudited) |        | June 30, 2005
|Raw materials and supplies |  | $                             | 10,705 |               | $ | 9,523 
|Work in process            |  |                               | 13,743 |               |   | 12,039
|Finished goods             |  |                               | 2,439  |               |   | 2,562 
|                           |  |                               |        |               |   |       
|                           |  | $                             | 26,887 |               | $ | 24,124
|                           |  |                               |        |               |   |       



|6. | Long-term debt at September 30, 2005 and June 30, 2005 consisted of the following (in thousands):
|-- | -------------------------------------------------------------------------------------------------



|                                                   |  |                               |         |               |   |        
|-------------------------------------------------- |  | ----------------------------- | ------- | ------------- | - | -------
|                                                   |  | September 30,2005 (unaudited) |         | June 30, 2005
|Senior bank credit facility                        |  | $                             | 34,500  |               | $ | 32,000 
|8.375% senior subordinated notes, due 2014         |  |                               | 125,000 |               |   | 125,000
|Fair market value of interest rate swap agreements |  |                               | 312     |               |   | 1,363  
|                                                   |  |                               |         |               |   |        
|                                                   |  | $                             | 159,812 |               | $ | 158,363
|                                                   |  |                               |         |               |   |        



The interest rate
spreads for the Companys $100.0 million revolving senior bank credit facility range from 2.25% to 3.00% for LIBOR loans and from 1.00% to 1.75% for prime rate loans. The commitment fee rate ranges from 0.375% to 0.625%. Applicable interest
rate spreads and commitment fees paid by the Company will fluctuate, within the ranges above, based upon the Companys performance as measured by the total leverage ratio. At September 30, 2005, the interest rates on the Companys
borrowings under its senior bank credit facility ranged from 6.19% to 8.00%. These interest rates are based on spreads of 2.50% for LIBOR loans and 1.25% for prime rate loans. The senior bank credit facility requires the Company to pay unused
commitment fees with respect to the revolving credit facility based on the total leverage ratio; such fee was 0.50% at September 30, 2005.



Both the senior bank credit facility and the senior subordinated notes contain a covenant that places restrictions on the ability of the Company to pay
dividends. The Companys ability to pay dividends under the senior bank credit facility is governed by the fixed charge coverage ratio. At September 30, 2005, the Companys fixed charge coverage ratio was 2.16 to 1.0, compared to a
covenant that the ratio must exceed 1.15 to 1.0; therefore, the Company had sufficient coverage to pay expected dividends. The senior subordinated notes permit dividends of up to $3.0 million per fiscal year and a computation for a restricted
payments pool out of which additional dividends may be paid. The balance of the restricted payments pool is increased based on net income, cash proceeds from the issuance of stock and cash proceeds from the receipt of equity contributions, and is
reduced based on payment of dividends or other restricted payments. The Company may continue to pay dividends up to $3.0 million per fiscal year or to the extent there is a positive balance in the restricted payments pool in excess of the scheduled
dividend. At September 30, 2005, the Companys $3.0 million limit per year and the restricted payments pool were sufficient to cover expected dividends and, therefore, the Company was not impacted by the limitation of this covenant.



During the first quarter of fiscal 2006, the Company entered
into loan agreements to finance the purchase of certain manufacturing equipment from Heidelberg related to the Companys previously announced comprehensive equipment upgrade program. The total available amount of the loans is approximately
$14.2 million; however, no amounts were outstanding at September 30, 2005.



|7. | At September 30, 2005, the Company had three fixed-to-floating fair value interest rate swap agreements outstanding with a total notional amount of $40.0 million. These swaps
were entered into to convert $40.0 million of the Companys 8.375% senior subordinated notes due in 2014 to floating rate debt. The initial term of these swap agreements expires in 2014, and the counterparties have an option to terminate the
agreements beginning in June 2009. Under the swap agreements, the Company receives interest payments at a fixed rate of 8.375% and pays interest at a variable rate that is based on six-month LIBOR plus a spread. The six-month LIBOR rate is reset
each December 15 and June 15. These swap agreements are an effective hedge. The fair value of the Companys interest rate swap agreements, based on a mark-to-market basis, was a $0.3 million asset and a $1.4 million asset at
September 30, 2005 and June 30, 2005, respectively, which is recorded in the Condensed Consolidated Balance Sheets in other assets with an offset in long-term debt in accordance with Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities. The
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Companys strategy to effectively convert fixed rate financing to variable rate financing through
the use of swap agreements resulted in a reduction of interest expense of $0.1 million and $0.3 million for the three-month periods ended September 30, 2005 and 2004, respectively.



|8. | The Company is focused on two segments. The Publisher Services segment provides products and services to both not-for-profit and commercial publishers in three primary product
lines: scientific, technical and medical (STM) journals, special interest and trade magazines, and books and directories. Publisher Services provides a full range of content management, editorial, prepress, printing, reprinting,
warehousing and distribution services. The Specialty Packaging segment provides high quality specialty packaging and promotional printing, assembly, fulfillment and distribution services to consumer product companies, healthcare companies and other
customers.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The accounting policies for the
segments conform to those described in Note 1 Significant Accounting Policies to the Consolidated Financial Statements in the Companys annual report on Form 10-K for the fiscal year ended June 30, 2005. The Company primarily
evaluates the performance of its operating segments based on operating income, excluding restructuring charges. Intergroup sales are not significant. The Company manages income taxes on a consolidated basis.



Summarized segment data is as follows:



|                                       |  |                   |        |                    |   |        |  |   |        
|-------------------------------------- |  | ----------------- | ------ | ------------------ | - | ------ |  | - | -------
|(In thousands)                         |  | PublisherServices |        | SpecialtyPackaging |   | Total 
|Three Months Ended September 30, 2005: |  |                   |        |                    |   |        |  |   |        
|Net sales                              |  | $                 | 84,660 |                    | $ | 22,557 |  | $ | 107,217
|Operating income                       |  |                   | 6,643  |                    |   | 2,433  |  |   | 9,076  
|                                       |  |                   |       
|Three Months Ended September 30, 2004: |  |                   |        |                    |   |        |  |   |        
|Net sales                              |  | $                 | 86,581 |                    | $ | 16,396 |  | $ | 102,977
|Operating income                       |  |                   | 9,465  |                    |   | 1,214  |  |   | 10,679 



A reconciliation of
segment data to consolidated data is as follows:



|                                               |  |                                 |        |   |      |   |        |  
|---------------------------------------------- |  | ------------------------------- | ------ | - | ---- | - | ------ | -
|                                               |  | Three Months EndedSeptember 30, |       
|(In thousands)                                 |  | 2005                            |        |   | 2004 |  
|Earnings from operations:                      |  |                                 |        |   |      |   |        |  
|Reportable segment operating income            |  | $                               | 9,076  |   |      | $ | 10,679 |  
|Unallocated shared services and other expenses |  |                                 | (1,408 | ) |      |   | (2,452 | )
|Restructuring and other charges                |  |                                 | (735   | ) |      |   |       |  
|Interest expense                               |  |                                 | (3,493 | ) |      |   | (3,174 | )
|Other, net                                     |  |                                 | (83    | ) |      |   | 42     |  
|                                               |  |                                 |        |   |      |   |        |  
|Income before income taxes                     |  | $                               | 3,357  |   |      | $ | 5,095  |  
|                                               |  |                                 |        |   |      |   |        |  



|9. | During the fourth quarter of fiscal 2004, the Company adopted the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation under
the prospective method described in SFAS No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure. This transition method requires recognition of compensation expense based on the fair value at the date of
grant for awards issued after the date of adoption. Effective July 1, 2005, the Company adopted SFAS No. 123 (R), Share-Based Payment which replaced SFAS No. 123. The new standard requires public companies to treat stock
options and all other forms of shared-based payments to employees as compensation costs in the income statement; however, the approach is similar to the guidance set forth in SFAS No. 123. The adoption of SFAS No. 123 (R) had no
impact on the Companys condensed consolidated financial statements for the first quarter of fiscal 2006.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On November 10, 2004, the Companys shareholders approved the 2004 Key Employee Stock Compensation Plan, replacing the 1990 Stock Compensation
Plan which expired on June 30, 2003. On November 10, 2004, the Human Resources and Compensation Committee of the Companys Board of Directors adopted two 2005-2007 long term incentive subplans (LTIPs) under the 2004 Key
Employee Stock Compensation Plan and pursuant to these LTIPs authorized the grant of performance-based restricted stock and performance units. The restricted stock and performance units tentatively vest over the period from October 1, 2004 to
June 30, 2007 if certain earnings per share targets are met. Vesting of the restricted stock and performance units is generally subject to continued employment through the date of the Human Resources and



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##### Table of Contents

Compensation Committees final determination of vesting during the first four months of fiscal
2008. The restricted stock and performance units also may vest in whole or in part upon satisfaction of certain performance criteria in case of death, disability, retirement, termination by the Company without cause, termination by an employee
for good reason under an employment agreement, or change in control. Compensation expense will be recognized on a straight-line basis over the vesting period based on the estimated number of shares and performance units that will ultimately vest. No
compensation expense was recognized in the first quarter of fiscal 2006 because no compensation was earned under the criteria of this plan.



On November 10, 2004, the Companys shareholders approved the 2004 Non-Employee Director Stock Compensation Plan. Under this plan, which
provides for the automatic grant of 1,000 options for common stock to each non-employee director serving on each November 15 from 2004 to 2008, a total of 60,000 options for common stock may be issued. These options vest six months from the
grant date and are exercisable up to ten years from issuance.



|10. | The following information is provided in connection with the disclosure requirements of SFAS No. 132 (revised 2003), Employers Disclosures about Pensions and Other
Postretirement Benefits:
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                               |  |                                                     |        |   |                                                        |   |        |      |  |   |      |   |  |   |      |  
|---------------------------------------------- |  | --------------------------------------------------- | ------ | - | ------------------------------------------------------ | - | ------ | ---- |  | - | ---- | - |  | - | ---- | -
|                                               |  | Pension Benefits  Three Months Ended  September 30, |        |   | Postretirement BenefitsThree Months EndedSeptember 30, |  
|(In thousands)                                 |  | 2005                                                |        |   | 2004                                                   |   |        | 2005 |  |   | 2004 |  
|Service cost                                   |  | $                                                   | 102    |   |                                                        | $ | 91     |      |  | $ |     |   |  | $ |     |  
|Interest cost                                  |  |                                                     | 2,059  |   |                                                        |   | 2,007  |      |  |   | 42   |   |  |   | 16   |  
|Expected return on plan assets                 |  |                                                     | (2,160 | ) |                                                        |   | (2,104 | )    |  |   |     |   |  |   |     |  
|Amortization of unrecognized transition amount |  |                                                     | (25    | ) |                                                        |   | (25    | )    |  |   |     |   |  |   |     |  
|Amortization of prior service cost             |  |                                                     | 25     |   |                                                        |   | 25     |      |  |   |     |   |  |   | (24  | )
|Amortization of unrecognized net losses        |  |                                                     | 13     |   |                                                        |   | 17     |      |  |   | 5    |   |  |   |     |  
|Recognized losses (gains)                      |  |                                                     | 333    |   |                                                        |   | 102    |      |  |   | (1   | ) |  |   | (100 | )
|Contributions to multiemployer plans           |  |                                                     | 134    |   |                                                        |   | 148    |      |  |   |     |   |  |   |     |  
|                                               |  |                                                     |        |   |                                                        |   |        |      |  |   |      |   |  |   |      |  
|Net periodic benefit cost (income)             |  | $                                                   | 481    |   |                                                        | $ | 261    |      |  | $ | 46   |   |  | $ | (108 | )
|                                               |  |                                                     |        |   |                                                        |   |        |      |  |   |      |   |  |   |      |  



In December of 2003
Congress passed the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act). The Act reformed Medicare in such a way that the Company expected to receive subsidy payments beginning in 2006 for
continuing retiree prescription drug benefits. In the first quarter of fiscal 2005, based on available guidance at that time, the Company adopted FASB Staff Position 106-2, Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003. Upon adoption of the Act, the accumulated postretirement benefit obligation was reduced by $2.6 million. Subsequently issued guidance from the Centers for Medicare and Medicaid
Services contains additional criteria pertaining to how plan sponsors qualify for federal subsidy payments for their Medicare-eligible plan participants. Pursuant to this new guidance, the Company will not be eligible for these payments in
connection with the Medicare Part D program. As a result, the Company adjusted its benefit cost estimate and reversed amounts previously recorded as income during the third quarter of fiscal 2005 including $0.1 million recorded in the first quarter
of fiscal 2005.



|11. | The Companys effective income tax rate was 34.9% for the first quarter of fiscal 2006, compared to 37.5% for the first quarter of fiscal 2005. The amount of tax expense
differs from the amount obtained by application of the federal statutory rate primarily due to (i) the impact of state income taxes, (ii) the impact from the Section 199 deduction for domestic production activities income pursuant to
the American Jobs Creation Act of 2004, and (iii) the impact from permanent book-to-tax differences.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



GENERAL



Headquartered in Richmond, Virginia, Cadmus Communications Corporation and Subsidiaries (Cadmus or the Company) is a leading provider of end-to-end, integrated graphic communications and
content processing services to professional publishers, not-for-profit societies and corporations. Cadmus provides a wide range of technology-enabled content management, composition, editorial, prepress, printing, article reprints, digital rights
management, and fulfillment and distribution services. Cadmus is the worlds largest provider of content processing and production services to scientific, technical and medical (STM) journal publishers, the fifth largest periodicals
printer in North America, and a leading provider of specialty packaging and promotional printing services.



The Company is focused on two segments. The Publisher Services segment provides products and services to both not-for-profit and commercial publishers in three primary product lines: STM journals, special interest and
trade magazines, and books and directories. Publisher Services provides a full range of content management, editorial, prepress, printing, reprinting, warehousing and distribution services under the division names of Cadmus Professional
Communications and Cadmus Specialty Publications. The Specialty Packaging segment provides high quality specialty packaging and promotional printing, assembly, fulfillment and distribution services to consumer product and other customers.



EXECUTIVE SUMMARY



The Company focuses primarily on niche markets where it sees underlying demand strength, a
willingness on the part of customers to outsource non-core activities, and relatively few large and well-positioned competitors. More specifically, the Company has focused on providing outsourced publisher services (both content processing and
printing) for the scholarly publishing, educational and other markets. The Company has a leading position in the STM market and delivers customized content processing services using state-of-the-art technologies, in addition to traditional print
services. The Company has continued to invest in opportunities in the educational market and in the proprietary technology products known as Emerging Solutions, which include ArticleWorks, KnowledgeWorks, MediaWorks, 3Path, and dPub.



The Companys Specialty Packaging segment has achieved strong growth and
greatly improved financial performance in recent years as a result of focusing on growth markets that benefit from the customized package design and production services the Company offers, particularly in the healthcare, consumer products and
telecommunications markets. The Companys U.S. packaging facility is both ISO-9001:2000 registered and has passed customer cGMP compliance audits as evidence of the high level of quality delivered to our customers. The Specialty Packaging
segment has also differentiated itself by developing a proprietary network of offshore production affiliates, known as Global Packaging Solutions, and by linking those operations and its customers via a proprietary inventory management and
fulfillment system.



The focus on more stable niche markets and on providing
more and profitable services to those markets, when combined with the strong growth and improved profitability of the Specialty Packaging segment, has permitted the Company to achieve more stable operating results and reduce leverage in a
challenging economic and industry environment.



In June 2005, the Company
initiated a comprehensive equipment upgrade plan to its Publisher Services print platform and Specialty Packaging capabilities. The plan is designed to continue to grow the Companys position in its target publishing markets, to sustain the
growth generated in its Specialty Packaging segment, to retire older and less efficient press equipment, and to more aggressively rationalize capacity across its manufacturing platform. In connection with this equipment upgrade plan, the Company
will be expanding and renovating several of its facilities to accommodate new equipment, to permit improved work flows, and to facilitate the rationalization of similar work currently performed at multiple sites. The Company has ordered
substantially all of the equipment in connection with this plan and has commenced building renovations and site preparation. It is expected that the equipment upgrades and the expansion of facilities will be substantially complete in fiscal 2006.



APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES



As of September 30, 2005, there have been no significant changes
with regard to the application of critical accounting policies and estimates disclosed in Managements Discussion and Analysis in the Companys annual report on Form 10-K for the fiscal year ended June 30, 2005. The
policies disclosed included the accounting for the allowance for doubtful accounts, valuation of intangible assets and goodwill, pension and other post retirement benefits, income taxes and self-insurance reserves.



11



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##### Table of Contents

RESULTS OF OPERATIONS



The following table presents the major components from the Condensed Consolidated Statements of Operations as a percent of net sales for the
three-month periods ended September 30, 2005 and 2004.



|                                    |  |                                  |   |  |       |  
|----------------------------------- |  | -------------------------------- | - |  | ----- | -
|                                    |  | Three Months Ended September 30, |  
|                                    |  | 2005                             |   |  | 2004  |  
|Net sales                           |  | 100.0                            | % |  | 100.0 | %
|Cost of sales                       |  | 83.6                             |   |  | 81.8  |  
|Selling and administrative expenses |  | 9.2                              |   |  | 11.2  |  
|Restructuring and other charges     |  | 0.7                              |   |  |      |  
|Other income                        |  |                                 |   |  | (1.0  | )
|                                    |  |                                  |   |  |       |  
|Operating income                    |  | 6.5                              |   |  | 8.0   |  
|Interest expense                    |  | 3.3                              |   |  | 3.1   |  
|Other, net                          |  | 0.1                              |   |  | (0.1  | )
|                                    |  |                                  |   |  |       |  
|Income before income taxes          |  | 3.1                              |   |  | 5.0   |  
|Income tax expense                  |  | 1.1                              |   |  | 1.9   |  
|                                    |  |                                  |   |  |       |  
|Net income                          |  | 2.0                              | % |  | 3.1   | %
|                                    |  |                                  |   |  |       |  



Net Sales



Net sales for the first quarter of fiscal 2006 totaled $107.2 million compared with $103.0
million for the first quarter of fiscal 2005, an increase of 4%. Publisher Services segment net sales were $84.7 million, a decrease of 2% from $86.6 million last year, as growth in revenues at facilities serving the STM market was more than offset
by a decline in freight and postage and in revenues at facilities primarily serving the special interest magazine market. Specialty Packaging segment net sales were $22.6 million, an increase of 38% from $16.4 million last year, as the Company
continued to benefit from its Global Packaging Solutions network and previous investments in new manufacturing equipment and more efficient technology.



Cost of Sales



Cost of sales increased to 83.6% of net sales for the first quarter of fiscal 2006, compared to 81.8% of net sales for the first quarter of fiscal 2005. The increase was primarily the result of (i) additional
costs incurred during the quarter within the Companys content processing operations when the Companys facility in Mumbai, India was temporarily non-operational due to severe flooding, (ii) costs incurred in connection with the
Companys growth-oriented initiatives, including continued expansion into the educational market, and (iii) excess capacity at the Companys special interest magazine facilities, particularly during the month of July.



Selling and Administrative Expenses



Selling and administrative expenses totaled $9.9 million, or 9.2% of net sales, for the
first quarter of fiscal 2006, compared to $11.5 million, or 11.2% of net sales, for the first quarter of fiscal 2005. The decrease in selling and administrative expenses was primarily attributable to lower compensation costs associated with the
reduction in the number of domestic associates, and managements continued focus on cost reduction efforts.



Restructuring and Other Charges



In the first quarter of fiscal 2006, the Company incurred charges of $0.7 million, or 0.7% of net sales, relating to severance expenses, costs to consolidate and
reorganize facilities, and additional impairment charges of equipment to be replaced in connection with a comprehensive equipment upgrade plan initiated in fiscal 2005. These charges were primarily related to the Publisher Services segment and are
classified as restructuring and other charges in the Condensed Consolidated Statements of Operations. Additional restructuring costs associated with this equipment upgrade plan, which will include any costs incurred in connection with capacity
rationalization among manufacturing facilities and reductions in personnel, will be incurred in fiscal 2006. The estimated total fiscal 2006 restructuring costs relate primarily to the Publisher Services segment and include: (i) one-time
termination benefits in the range of $1.0 million to $1.3 million, (ii) contract termination costs in the range of $0.2 million to $0.4 million, and (iii) costs to consolidate and reorganize facilities in the range of $1.7 million to $2.1
million. All activities in connection with this plan are expected to be completed by the end of the first quarter of fiscal 2007.



12



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##### Table of Contents

Operating Income



The Company reported operating income of $6.9 million for the first quarter of fiscal 2006, compared to $8.2 million for the first quarter of fiscal 2005. Operating
income margin was 6.5% for the first quarter of fiscal 2006, compared to 8.0% for the first quarter of fiscal 2005. Included in the results for the first quarter of fiscal 2006 are restructuring and other charges of $0.7 million, or 0.7% of net
sales, related to severance expenses, costs to consolidate and reorganize facilities, and additional impairment of assets to be replaced, which are part of the Companys previously announced equipment upgrade plan. Results for the first quarter
of fiscal 2005 included $1.0 million, or 1.0% of net sales, of other income from a previously disclosed insurance recovery. Adjusted for the impact of the items noted above, operating income was $7.7 million, or 7.2% of net sales, for the first
quarter of fiscal 2006, compared to $7.2 million, or 7.0% of net sales, for the first quarter of fiscal 2005.



Publisher Services segment operating income was $6.6 million for the first quarter of fiscal 2006, compared to $9.5 million last year. Adjusted for the $1.0 million insurance recovery noted above, Publisher Services
segment operating income was $8.5 million for the first quarter of fiscal 2005. The decline was due to (i) the $1.0 million insurance recovery recorded in the first quarter of fiscal 2005, (ii) additional costs incurred during the quarter
within the Companys content processing operations when the Companys facility in Mumbai, India was temporarily non-operational due to severe flooding, (iii) costs incurred in connection with the Companys growth-oriented
initiatives, including continued expansion into the educational market, and (iv) excess capacity at the Companys special interest magazine facilities, particularly during the month of July. Specialty Packaging segment operating income
doubled to $2.4 million and operating income margins increased to 10.8% of net sales from 7.4% of net sales last year as the business continued to benefit from higher overall volume, improved business mix, and efficiencies derived from new and more
efficient technology and global work flows.



Interest and Other Expenses



Interest expense for the first quarter of fiscal 2006 was $3.5
million, compared to $3.2 million for the first quarter of fiscal 2005. The increase in interest expense was due primarily to higher year-over-year floating interest rates and a lower positive impact from the Companys interest rate swap
agreements resulting from higher floating interest rates.



Income Tax
Expense



The Companys effective income tax rate was 34.9% for
the first quarter of fiscal 2006, compared to 37.5% for the first quarter of fiscal 2005. The amount of tax expense differs from the amount obtained by application of the federal statutory rate primarily due to (i) the impact of state income
taxes, (ii) the impact from the Section 199 deduction for domestic production activities income pursuant to the American Jobs Creation Act of 2004, and (iii) the impact from permanent book-to-tax differences.



Net Income



Net income totaled $2.2 million for the first quarter of fiscal 2006, compared to $3.2 million for the first quarter of fiscal 2005.
Included in the results for the first quarter of fiscal 2006 are restructuring and other charges of $0.5 million, net of $0.2 million in taxes, related to severance expenses, costs to consolidate and reorganize facilities, and additional impairment
of assets to be replaced, which are part of the Companys previously announced equipment upgrade plan. Results for the first quarter of fiscal 2005 include $0.6 million, net of $0.4 million in taxes, of other income from a previously disclosed
insurance recovery. Adjusted for the impact of the items noted above, income was $2.7 million for the first quarter of fiscal 2006, compared to $2.6 million for the first quarter of fiscal 2005.



Earnings Per Share



The Company reported net income of $0.23 per diluted share for the first quarter of fiscal
2006, compared to $0.34 in the first quarter of fiscal 2005. Included in the results for the first quarter of fiscal 2006 are restructuring and other charges of $0.7 million, or $0.05 per share net of taxes, related to severance expenses, costs to
consolidate and reorganize facilities, and additional impairment of assets to be replaced, which are part of the Companys previously announced equipment upgrade plan. Results for the first quarter of fiscal 2005 include $1.0 million, or $0.07
per share net of taxes, of other income from a previously disclosed insurance recovery. Adjusted for the impact of the items noted above, earnings per share was $0.28 for the first quarter of fiscal 2006, compared to $0.27 for the first quarter of
fiscal 2005.



EBITDA



The Company defines EBITDA as earnings before interest, taxes, depreciation and
amortization. The Company also excludes the impact of restructuring and other charges from the computation. In the Companys report on Form 10-Q for the first quarter of fiscal 2005, other income of $1.0 million related to a previously
disclosed insurance recovery, was not excluded from the computation of EBITDA. For purposes of discussion in this report, however, the impact of the insurance recovery has been excluded from EBITDA, as management believes that excluding the impact
of the insurance recovery from comparisons to the prior year better reflects the trends of the underlying operational performance of the business.



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##### Table of Contents

The Company believes EBITDA is a useful measure of operating performance as described in Use of GAAP and Non-GAAP
Measures. In order to provide consistent comparisons of year over year EBITDA, the following reconciliation is provided:



|                                |  |                                  |        |  |          |   |  |                      |        |  |          |   |  |   |        |   |  |   |        |  |      |  
|------------------------------- |  | -------------------------------- | ------ |  | -------- | - |  | -------------------- | ------ |  | -------- | - |  | - | ------ | - |  | - | ------ |  | ---- | -
|                                |  | Three Months Ended September 30, |       
|(In thousands)                  |  | 2005                             |        |  | 2004 (A) |   |  | InsuranceRecovery(B) |        |  | 2004 (C) |  
|Net income, as reported         |  | $                                | 2,186  |  | 2.0      | % |  | $                    | 3,183  |  | 3.1      | % |  | $ | (625   | ) |  | $ | 2,558  |  | 2.5  | %
|Income tax expense              |  |                                  | 1,171  |  | 1.1      |   |  |                      | 1,912  |  | 1.9      |   |  |   | (375   | ) |  |   | 1,537  |  | 1.5  |  
|Interest                        |  |                                  | 3,493  |  | 3.3      |   |  |                      | 3,174  |  | 3.1      |   |  |   |        |   |  |   | 3,174  |  | 3.1  |  
|Depreciation                    |  |                                  | 4,527  |  | 4.2      |   |  |                      | 4,737  |  | 4.6      |   |  |   |        |   |  |   | 4,737  |  | 4.6  |  
|Amortization                    |  |                                  | 209    |  | 0.2      |   |  |                      | 163    |  | 0.1      |   |  |   |        |   |  |   | 163    |  | 0.1  |  
|Restructuring and other charges |  |                                  | 735    |  | 0.7      |   |  |                      |       |  |         |   |  |   |        |   |  |   |       |  |     |  
|                                |  |                                  |        |  |          |   |  |                      |        |  |          |   |  |   |        |   |  |   |        |  |      |  
|EBITDA                          |  | $                                | 12,321 |  | 11.5     | % |  | $                    | 13,169 |  | 12.8     | % |  | $ | (1,000 | ) |  | $ | 12,169 |  | 11.8 | %
|                                |  |                                  |        |  |          |   |  |                      |        |  |          |   |  |   |        |   |  |   |        |  |      |  

---

Margin percentages
reflect percentage of net sales.



|(A) | Reconciliation of EBITDA including the insurance recovery in the results.
|--- | -------------------------------------------------------------------------

|(B) | Insurance recovery of $1.0 million, or $0.6 million net of taxes, for the three months ended September 30, 2004.
|--- | ----------------------------------------------------------------------------------------------------------------

|(C) | Reconciliation of EBITDA excluding the insurance recovery from the results.
|--- | ---------------------------------------------------------------------------



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USE OF GAAP AND NON-GAAP MEASURES



In addition to results presented in accordance with generally accepted accounting principles (GAAP), the Company has included in
this report the following non-GAAP financial measures: (1) operating income and operating income margin adjusted to exclude restructuring and other charges of $0.7 million for the three months ended September 30,
2005, and to exclude the impact of the $1.0 million insurance recovery for the three months ended September 30, 2004 on a consolidated basis and also from Publisher Services segment operating income, (2) income adjusted in the
same manner and for the same items as operating income on a consolidated basis, (3) earnings per share adjusted in the same manner and for the same items as income, and (4) EBITDA and EBITDA margin as a
percent of net sales with EBITDA being defined by the Company as earnings before interest, taxes, depreciation and amortization. The Company also excludes the impact of restructuring and other charges from the computation of EBITDA.



In the Companys report on Form 10-Q for the first quarter of fiscal 2005, other income
of $1.0 million, or $0.07 per share, related to a previously disclosed insurance recovery, was not excluded from certain non-GAAP measures. For purposes of discussion in this report, however, the impact of the insurance recovery has been excluded
from the prior year non-GAAP measures, as management believes that excluding the impact of the insurance recovery from comparisons to the prior year better reflects the trends of the underlying operational performance of the business.



For each non-GAAP financial measure, the Company has presented the most directly comparable
GAAP financial measure and has reconciled the non-GAAP financial measure with such comparable GAAP financial measure.



These non-GAAP financial measures provide useful information to investors to assist in understanding the underlying operational performance of the Company. Specifically,
(1) the exclusion of restructuring and other charges permits comparisons of results for on-going business facilities under the current operating structure, (2) the exclusion of the insurance recovery permits comparisons of trends in the
underlying operational performance of the Company, and (3) EBITDA and EBITDA margin as a percent of net sales are useful measures of operating performance before the impact of investing and financing transactions, providing meaningful
comparisons between companies earnings power and consistent period-over-period comparisons of the Companys performance. In addition, the Company uses these non-GAAP financial measures internally to measure its on-going business
performance and in reports to bankers to permit monitoring of the Companys ability to repay outstanding liabilities.



LIQUIDITY AND CAPITAL RESOURCES



Operating Activities



Net cash provided by operating activities in the first quarter of fiscal 2006 totaled $7.3 million, compared to $6.6 million in the first quarter of fiscal 2005. The
increase was primarily attributable to year-over-year net changes in working capital accounts, partially offset by restructuring payments made in the first quarter of fiscal 2006.



Investing Activities



Net cash used in investing activities was $9.2 million for the first quarter of fiscal 2006, compared to $1.9 million for the first quarter of fiscal 2005. Capital
expenditures for the first quarter of fiscal 2006 totaled $8.6 million compared to $2.0 million for the first quarter of fiscal 2005, and included investments primarily in equipment for the Publisher Services and Specialty Packaging segments. The
Company estimates that total capital expenditures for fiscal 2006 will be approximately $50.0 million to $60.0 million.



Financing Activities



Net cash provided by financing activities was $2.5 million for the first quarter of fiscal 2006, compared to $6.3 million of cash used in financing activities for the
first quarter of fiscal 2005. For the first quarter of fiscal 2006, an increase in total debt of $2.5 million and a $0.6 million dividend payment, were partially offset by $0.6 million in proceeds from the exercise of stock options. For the first
quarter of fiscal 2005, a decrease in total debt of $6.1 million, a $0.6 million dividend payment, and $0.4 million in repurchases of common and restricted stock, were partially offset by $0.7 million in proceeds from the exercise of stock options.



Long-term debt at September 30, 2005 totaled $159.8 million, compared to
$158.4 million at June 30, 2005. The balance at September 30, 2005 was comprised of $34.5 million in borrowings under a revolving senior bank credit facility, $125.0 million of 8.375% senior subordinated notes due 2014, and $0.3 million of
fair market value of interest rate swap



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##### Table of Contents

agreements. The balance at June 30, 2005 was comprised of $32.0 million in borrowings under a revolving senior bank
credit facility, $125.0 million of 8.375% senior subordinated notes due 2014, and $1.4 million of fair market value of interest rate swap agreements. See Notes 6 and 7 of Notes to Condensed Consolidated Financial Statements for further discussion.



At September 30, 2005, there were $34.5 million in borrowings outstanding
under the $100.0 million senior bank credit facility and approximately $2.3 million of standby letters of credit outstanding against which no claims had been made. Therefore the Company had approximately $63.2 million in available borrowings at
September 30, 2005. The senior bank credit facility expires on January 28, 2008.



The primary cash requirements of the Company are for debt service, capital expenditures, working capital, taxes, pension funding and dividends. The primary sources of liquidity are cash flow provided by operations and
unused capacity under the Companys senior bank credit facility. The future operating performance and the ability to service the Companys debt depends on the Companys ability to implement the business strategy and on general
economic, financial, competitive, legislative, regulatory and other factors, many of which are beyond the control of the Company. The Company believes that these sources will provide sufficient liquidity and capital resources to meet its operating
requirements for capital expenditures and working capital.



Off Balance
Sheet Items



As of September 30, 2005, there have been no
material changes to the off balance sheet items disclosed in Managements Discussion and Analysis in the Companys Report on Form 10-K for the fiscal year ended June 30, 2005.



Obligations and Commitments



As of September 30, 2005, there have been no material changes outside the ordinary
course of business to the contractual obligations disclosed in Managements Discussion and Analysis in the Companys Report on Form 10-K for the fiscal year ended June 30, 2005, except for certain loan agreements to
finance the purchase of manufacturing equipment as discussed in Note 6 of Notes to Condensed Consolidated Financial Statements.



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Statements contained in this report relating to Cadmus future prospects and performance are forward-looking
statements that are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Factors that could cause actual results to differ materially from managements
expectations include but are not limited to: (1) the overall economic environment, (2) the equity market performance and interest rate environment, which can impact our pension liability, (3) the impact of price increases for energy
and other materials and services affected by higher oil and fuel prices, (4) our ability to grow revenue and market share in the educational market, (5) significant price pressure in the markets in which we compete, (6) the loss of
significant customers or the decrease in demand from customers, (7) our ability to continue to obtain improved efficiencies and lower production costs, (8) the financial condition and ability to pay of certain customers, (9) our
ability to implement and realize the expected benefits associated with our equipment upgrade program, including our ability to successfully complete certain consolidation initiatives and effect other restructuring actions, (10) our ability to
operate effectively in markets outside of North America, and (11) our ability to realize the tax benefits associated with certain transactions. Other risk factors are detailed from time to time in our other Securities and Exchange Commission
filings. The information provided in this report is provided only as of the date of this report, and we undertake no obligation to update any forward-looking statements made herein.



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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



There have been no material changes to the information concerning the Companys Quantitative and Qualitative Disclosures about Market Risk as previously reported in the Companys Report on Form
10-K for the year ended June 30, 2005. Additional information concerning the Companys quantitative and qualitative disclosures about market risk is included in Note 7 of the Notes to Condensed Consolidated Financial Statements and under
the caption Managements Discussion and Analysis  Liquidity and Capital Resources in this Report on Form 10-Q for the quarterly period ended September 30, 2005, and is incorporated herein by reference.



ITEM 4. CONTROLS AND PROCEDURES



The Company
maintains a system of disclosure controls and procedures that is designed to ensure that material information is accumulated and communicated to management on a timely basis. As required, management, including 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 of the end of the period covered by this report. Based on this evaluation, the Companys
chief executive officer and chief financial officer concluded that the Companys disclosure controls and procedures were operating effectively to ensure that information required to be disclosed by the Company in reports that it files or
submits under the Securities Exchange Act of 1934, as amended, is recorded, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.



Because of the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that the Companys disclosure controls and procedures will detect or uncover every situation involving the failure of persons within the Company to disclose material information otherwise required to be set forth in
the Companys periodic reports.



The Companys management is also
responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. No changes in the Companys internal control over financial reporting occurred 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.



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##### Table of Contents

PART II. OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS



The Company is a party
to various legal actions that are ordinary and incidental to its business. While the outcome of legal actions cannot be predicted with certainty, management believes the outcome of any of these proceedings, or all of them combined, will not have a
materially adverse effect on its consolidated financial position or results of operations.



ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS



On August 19, 2004, the Board of Directors authorized the Company to repurchase up to 1.0 million shares of its common stock on the open market or in privately negotiated transactions. The repurchases are
intended to reduce possible dilution in connection with the exercise of stock option grants. The share repurchase authorization has no stated expiration date and may be discontinued or suspended at any time or from time to time by the Board of
Directors without prior notice. The Company did not repurchase any of its common stock during the three months ended September 30, 2005. As of September 30, 2005, the maximum number of shares that may yet be purchased under this plan was
739,637.



ITEM 6. EXHIBITS



|        |  |                                                                                                                                                                                                                                                                                                                                                                     
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1     |  | Restated Articles of Incorporation of Cadmus Communications Corporation (incorporated by reference to Exhibit 3.1 to the Companys Annual Report on Form 10-K for the fiscal year ended
June 30, 1993 (Commission File No. 0-12954)).                                                                                                                               
|        | 
|3.2     |  | Bylaws of Cadmus Communications Corporation, as amended (incorporated by reference to Exhibit 3.2 to the Companys Current Report on Form 8-K dated July 23, 2001 (Commission File No.
0-12954)).                                                                                                                                                                   
|        | 
|10.1*   |  | Cadmus FY 2006 Executive Incentive Plan adopted August 9, 2005 (incorporated by reference to Exhibit 10.1 to the Companys Annual Report on Form 10-K filed September 22, 2005 (SEC File No.
0-12954)).                                                                                                                                                             
|        | 
|10.41.4 |  | Fourth Amendment dated as of September 12, 2005 to Second Amended and Restated Credit Agreement dated as of January 28, 2004 (incorporated by reference to Exhibit 10.41.4 to the Companys
Annual Report on Form 10-K filed September 22, 2005 (SEC File No. 0-12954)).                                                                                            
|        | 
|10.46   |  | Loan Agreement between Cadmus Journal Services, Inc. and AKA Ausfuhrkredit-Gesellschaft mbH (AKA) signed by Cadmus Journal Services, Inc. on September 15, 2005 and by AKA on
September 22, 2005 (incorporated by reference to Exhibit 10.46 to the Companys Current Report on Form 8-K filed October 3, 2005 (SEC File No. 0-12954)).                           
|        | 
|10.47   |  | Payment Guarantee of Cadmus Communications Corporation signed on September 15, 2005 for the benefit of AKA Ausfuhrkredit-Gesellschaft mbH (AKA) related to the Loan Agreement between
Cadmus Journal Services, Inc. and AKA (incorporated by reference to Exhibit 10.47 to the Companys Current Report on Form 8-K filed October 3, 2005 (SEC File No. 0-12954)).
|        | 
|10.48   |  | Loan Agreement between Washburn Graphics, Inc. and AKA Ausfuhrkredit-Gesellschaft mbH (AKA) signed by Washburn Graphics, Inc. on September 15, 2005 and by AKA on September 22, 2005
(incorporated by reference to Exhibit 10.48 to the Companys Current Report on Form 8-K filed October 3, 2005 (SEC File No. 0-12954)).                                       
|        | 
|10.49   |  | Payment Guarantee of Cadmus Communications Corporation signed on September 15, 2005 for the benefit of AKA Ausfuhrkredit-Gesellschaft mbH (AKA) related to the Loan Agreement between
Washburn Graphics, Inc. and AKA (incorporated by reference to Exhibit 10.49 to the Companys Current Report on Form 8-K filed October 3, 2005 (SEC File No. 0-12954)).      
|        | 
|31.1    |  | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a).                                                                                                                                                                                                                                                                                                
|        | 
|31.2    |  | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a).                                                                                                                                                                                                                                                                                                
|        | 
|32      |  | Certification Pursuant to 18 U.S.C. Section 1350 of Chief Executive Officer and Chief Financial Officer.                                                                                                                                                                                                                                                            

---

|* | Indicates management contract or compensatory plan or arrangement.
|- | ------------------------------------------------------------------



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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.



|             |  |                                                  
|------------ |  | -------------------------------------------------
|             |  | CADMUS COMMUNICATIONS CORPORATION                
|(Registrant)
|             | 
|Date:        |  | November 8, 2005                                 
|             | 
|             |  | /s/ Bruce V. Thomas                              
|             |  | Bruce V. Thomas                                  
|             |  | President and Chief Executive Officer            
|             |  | (Principal Executive Officer)                    
|             | 
|Date:        |  | November 8, 2005                                 
|             | 
|             |  | /s/ Paul K. Suijk                                
|             |  | Paul K. Suijk                                    
|             |  | Senior Vice President and Chief Financial Officer
|             |  | (Principal Financial and Accounting Officer)     



20