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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 December 31, 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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition
of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.



Large Accelerated Filer ̈Accelerated Filer ̈Non-accelerated filer  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 issuers classes of common stock, as of the latest practicable date.



|                              |  |                                
|----------------------------- |  | -------------------------------
|Class                         |  | Outstanding at January 31, 2006
|Common Stock, $0.50 Par Value |  | 9,705,400                      



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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  December 31, 2005 (unaudited) and June 30, 2005                                                        |  | 3         
|           |  |                                                                                                                                               
|           |  | Condensed Consolidated Statements of Operations (unaudited)  Three and Six Months Ended December 31, 2005 and 2004                            |  | 4         
|           |  |                                                                                                                                               
|           |  | Condensed Consolidated Statements of Cash Flows (unaudited)  Six Months Ended December 31, 2005 and 2004                                      |  | 5         
|           |  |                                                                                                                                               
|           |  | Condensed Consolidated Statements of Shareholders Equity  Six Months Ended December 31, 2005 (unaudited) and Fiscal Year Ended 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                                                  |  | 12        
|           |  |                                                                                                                                               
|           |  | 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 4. Submission of Matters to a Vote of Security Holders                                                                                    |  | 19        
|           |  |                                                                                                                                               
|           |  | Item 5. Other Matters                                                                                                                          |  | 20        
|           |  |                                                                                                                                               
|           |  | Item 6. Exhibits                                                                                                                               |  | 20        
|           | 
|Signatures |  | 21                                                                                                                                            



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)



|                                                                                                                                                              |  |                  |         |   |              |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | - | ------------ | - | ------- | -
|                                                                                                                                                              |  | December 31,2005 |         |   | June 30,2005 |  
|                                                                                                                                                              |  | (Unaudited)      |         |   |              |  
|ASSETS                                                                                                                                                        |  |                  |         |   |              |   |         |  
|Current assets:                                                                                                                                               |  |                  |         |   |              |   |         |  
|Cash and cash equivalents                                                                                                                                     |  | $                | 226     |   |              | $ | 237     |  
|Accounts receivable (net of allowance for doubtful accounts of $1,292 at December 31, 2005 and $1,353 at June 30,
2005)                                       |  |                  | 62,992  |   |              |   | 56,497  |  
|Inventories                                                                                                                                                   |  |                  | 29,036  |   |              |   | 24,124  |  
|Deferred income taxes                                                                                                                                         |  |                  | 6,688   |   |              |   | 6,788   |  
|Prepaid expenses and other                                                                                                                                    |  |                  | 3,790   |   |              |   | 3,668   |  
|                                                                                                                                                              |  |                  |         |   |              |   |         |  
|Total current assets                                                                                                                                          |  |                  | 102,732 |   |              |   | 91,314  |  
|                                                                                                                                                              |  |                 
|Property, plant and equipment, net                                                                                                                            |  |                  | 109,968 |   |              |   | 91,600  |  
|Goodwill                                                                                                                                                      |  |                  | 109,884 |   |              |   | 109,884 |  
|Other intangibles, net                                                                                                                                        |  |                  | 3,545   |   |              |   | 3,394   |  
|Other assets                                                                                                                                                  |  |                  | 25,516  |   |              |   | 24,483  |  
|                                                                                                                                                              |  |                  |         |   |              |   |         |  
|TOTAL ASSETS                                                                                                                                                  |  | $                | 351,645 |   |              | $ | 320,675 |  
|                                                                                                                                                              |  |                  |         |   |              |   |         |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                          |  |                  |         |   |              |   |         |  
|Current liabilities:                                                                                                                                          |  |                  |         |   |              |   |         |  
|Current maturities of long-term debt                                                                                                                          |  | $                | 622     |   |              | $ |        |  
|Accounts payable                                                                                                                                              |  |                  | 39,731  |   |              |   | 30,277  |  
|Accrued expenses and other current liabilities                                                                                                                |  |                  | 20,495  |   |              |   | 24,525  |  
|                                                                                                                                                              |  |                  |         |   |              |   |         |  
|Total current liabilities                                                                                                                                     |  |                  | 60,848  |   |              |   | 54,802  |  
|                                                                                                                                                              |  |                  |         |   |              |   |         |  
|Long-term debt                                                                                                                                                |  |                  | 179,853 |   |              |   | 158,363 |  
|Long-term pension liability                                                                                                                                   |  |                  | 32,976  |   |              |   | 32,886  |  
|Other long-term liabilities                                                                                                                                   |  |                  | 20,106  |   |              |   | 19,764  |  
|                                                                                                                                                              |  |                  |         |   |              |   |         |  
|Total liabilities                                                                                                                                             |  |                  | 293,783 |   |              |   | 265,815 |  
|                                                                                                                                                              |  |                 
|Shareholders equity:                                                                                                                                         |  |                  |         |   |              |   |         |  
|Common stock ($0.50 par value; authorized shares - 16,000,000; issued and outstanding shares  9,253,372 at December 31, 2005 and
9,189,525 at June 30, 2005) |  |                  | 4,627   |   |              |   | 4,595   |  
|Capital in excess of par value                                                                                                                                |  |                  | 69,272  |   |              |   | 68,495  |  
|Unearned compensation                                                                                                                                         |  |                  | (41     | ) |              |   | (108    | )
|Retained earnings                                                                                                                                             |  |                  | 4,495   |   |              |   | 2,369   |  
|Accumulated other comprehensive loss                                                                                                                          |  |                  | (20,491 | ) |              |   | (20,491 | )
|                                                                                                                                                              |  |                  |         |   |              |   |         |  
|Total shareholders equity                                                                                                                                    |  |                  | 57,862  |   |              |   | 54,860  |  
|                                                                                                                                                              |  |                  |         |   |              |   |         |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                    |  | $                | 351,645 |   |              | $ | 320,675 |  
|                                                                                                                                                              |  |                  |         |   |              |   |         |  



See
accompanying Notes to Condensed Consolidated Financial Statements.



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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 December 31, |         | Six Months Ended December 31, |  
|                                           |  | 2005                            |         | 2004                          |   | 2005    |  | 2004 |        
|Net sales                                  |  | $                               | 114,188 |                               | $ | 109,081 |  | $    | 221,405 |  | $ | 212,058 |  
|                                           |  |                                 |         |                               |   |         |  |      |         |  |   |         |  
|Cost of sales                              |  |                                 | 97,447  |                               |   | 89,665  |  |      | 187,128 |  |   | 173,901 |  
|Selling and administrative expenses        |  |                                 | 10,046  |                               |   | 10,815  |  |      | 19,914  |  |   | 22,329  |  
|Restructuring and other charges            |  |                                 | 1,478   |                               |   |        |  |      | 2,213   |  |   |        |  
|Other income                               |  |                                 |        |                               |   |        |  |      |        |  |   | (1,000  | )
|                                           |  |                                 |         |                               |   |         |  |      |         |  |   |         |  
|                                           |  |                                 | 108,971 |                               |   | 100,480 |  |      | 209,255 |  |   | 195,230 |  
|                                           |  |                                 |         |                               |   |         |  |      |         |  |   |         |  
|Operating income                           |  |                                 | 5,217   |                               |   | 8,601   |  |      | 12,150  |  |   | 16,828  |  
|                                           |  |                                 |         |                              
|Interest and other expenses:               |  |                                 |         |                               |   |         |  |      |         |  |   |         |  
|Interest                                   |  |                                 | 3,406   |                               |   | 3,203   |  |      | 6,899   |  |   | 6,377   |  
|Other, net                                 |  |                                 | 48      |                               |   | 39      |  |      | 131     |  |   | (3      | )
|                                           |  |                                 |         |                               |   |         |  |      |         |  |   |         |  
|                                           |  |                                 | 3,454   |                               |   | 3,242   |  |      | 7,030   |  |   | 6,374   |  
|                                           |  |                                 |         |                               |   |         |  |      |         |  |   |         |  
|Income before income taxes                 |  |                                 | 1,763   |                               |   | 5,359   |  |      | 5,120   |  |   | 10,454  |  
|                                           |  |                                 |         |                              
|Income tax expense                         |  |                                 | 669     |                               |   | 1,892   |  |      | 1,840   |  |   | 3,804   |  
|                                           |  |                                 |         |                               |   |         |  |      |         |  |   |         |  
|Net income                                 |  | $                               | 1,094   |                               | $ | 3,467   |  | $    | 3,280   |  | $ | 6,650   |  
|                                           |  |                                 |         |                               |   |         |  |      |         |  |   |         |  
|Earnings per common share - basic          |  | $                               | 0.12    |                               | $ | 0.38    |  | $    | 0.36    |  | $ | 0.72    |  
|                                           |  |                                 |         |                               |   |         |  |      |         |  |   |         |  
|Weighted-average common shares outstanding |  |                                 | 9,246   |                               |   | 9,191   |  |      | 9,232   |  |   | 9,179   |  
|                                           |  |                                 |         |                               |   |         |  |      |         |  |   |         |  
|Earnings per common share - diluted        |  | $                               | 0.12    |                               | $ | 0.37    |  | $    | 0.35    |  | $ | 0.71    |  
|                                           |  |                                 |         |                               |   |         |  |      |         |  |   |         |  
|Weighted-average common shares outstanding |  |                                 | 9,491   |                               |   | 9,353   |  |      | 9,474   |  |   | 9,369   |  
|                                           |  |                                 |         |                               |   |         |  |      |         |  |   |         |  
|Cash dividends per common share            |  | $                               | 0.0625  |                               | $ | 0.0625  |  | $    | 0.1250  |  | $ | 0.1250  |  
|                                           |  |                                 |         |                               |   |         |  |      |         |  |   |         |  



See accompanying Notes to Condensed
Consolidated Financial Statements.



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##### Table of Contents

CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



|                                                                                  |  |                               |         |   |      |   |        |  
|--------------------------------------------------------------------------------- |  | ----------------------------- | ------- | - | ---- | - | ------ | -
|                                                                                  |  | Six Months Ended December 31, |        
|                                                                                  |  | 2005                          |         |   | 2004 |  
|Operating Activities                                                              |  |                               |         |   |      |   |        |  
|Net income                                                                        |  | $                             | 3,280   |   |      | $ | 6,650  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                               |         |   |      |   |        |  
|Depreciation and amortization                                                     |  |                               | 9,590   |   |      |   | 9,811  |  
|Restructuring and other charges                                                   |  |                               | 2,213   |   |      |   |       |  
|Deferred income taxes                                                             |  |                               | 1,137   |   |      |   | 737    |  
|Other, net                                                                        |  |                               | (27     | ) |      |   | (27    | )
|                                                                                  |  |                               |         |   |      |   |        |  
|                                                                                  |  |                               | 16,193  |   |      |   | 17,171 |  
|                                                                                  |  |                               |         |   |      |   |        |  
|Changes in operating assets and liabilities:                                      |  |                               |         |   |      |   |        |  
|Accounts receivable                                                               |  |                               | (6,495  | ) |      |   | 37     |  
|Inventories                                                                       |  |                               | (4,912  | ) |      |   | (1,413 | )
|Accounts payable and accrued expenses                                             |  |                               | 4,067   |   |      |   | (2,100 | )
|Contributions to defined benefit pension plans                                    |  |                               | (615    | ) |      |   | (570   | )
|Other, net                                                                        |  |                               | (3,249  | ) |      |   | (1,820 | )
|                                                                                  |  |                               |         |   |      |   |        |  
|                                                                                  |  |                               | (11,204 | ) |      |   | (5,866 | )
|                                                                                  |  |                               |         |   |      |   |        |  
|Net cash provided by operating activities                                         |  |                               | 4,989   |   |      |   | 11,305 |  
|                                                                                  |  |                               |         |   |      |   |        |  
|Investing Activities                                                              |  |                               |         |   |      |   |        |  
|Purchases of property, plant and equipment                                        |  |                               | (27,772 | ) |      |   | (5,327 | )
|Proceeds from sales of property, plant and equipment                              |  |                               | 80      |   |      |   | 53     |  
|Acquisition of intangible assets                                                  |  |                               | (610    | ) |      |   |       |  
|                                                                                  |  |                               |         |   |      |   |        |  
|Net cash used in investing activities                                             |  |                               | (28,302 | ) |      |   | (5,274 | )
|                                                                                  |  |                               |         |   |      |   |        |  
|Financing Activities                                                              |  |                               |         |   |      |   |        |  
|Proceeds from long-term borrowings                                                |  |                               | 10,147  |   |      |   |       |  
|Proceeds from (payments on) long-term revolving credit facility                   |  |                               | 13,500  |   |      |   | (6,300 | )
|Dividends paid                                                                    |  |                               | (1,154  | ) |      |   | (1,149 | )
|Repurchases of common and restricted stock                                        |  |                               |        |   |      |   | (2,226 | )
|Proceeds from exercise of stock options                                           |  |                               | 809     |   |      |   | 1,745  |  
|                                                                                  |  |                               |         |   |      |   |        |  
|Net cash provided by (used in) financing activities                               |  |                               | 23,302  |   |      |   | (7,930 | )
|                                                                                  |  |                               |         |   |      |   |        |  
|Decrease in cash and cash equivalents                                             |  |                               | (11     | ) |      |   | (1,899 | )
|Cash and cash equivalents at beginning of period                                  |  |                               | 237     |   |      |   | 1,899  |  
|                                                                                  |  |                               |         |   |      |   |        |  
|Cash and cash equivalents at end of period                                        |  | $                             | 226     |   |      | $ |       |  
|                                                                                  |  |                               |         |   |      |   |        |  



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) |  |   | AccumulatedOther ComprehensiveLoss |   |  | 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                                                           |  |             |   |  |                              |      |   |                      |   |       |                                      |  |   |                                   |   |  |       | 3,280   |   |  |   |        |   |  |   | 3,280  |  
|Foreign currency translation                                         |  |             |   |  |                              |      |   |                      |   |       |                                      |  |   |                                   |   |  |       |        |   |  |   |        |   |  |   |       |  
|                                                                     |  |              |   |  |                              |       |   |                      |   |        |                                      |  |   |                                    |   |  |       |         |   |  |   |         |   |  |   |        |  
|Comprehensive income                                                 |  |              |   |  |                              |       |   |                      |   |        |                                      |  |   |                                    |   |  |       |         |   |  |   |         |   |  |   | 3,280  |  
|                                                                     |  |              |   |  |                              |       |   |                      |   |        |                                      |  |   |                                    |   |  |       |         |   |  |   |         |   |  |   |        |  
|Cash dividends - $0.125 per share                                    |  |             |   |  |                              |      |   |                      |   |       |                                      |  |   |                                   |   |  |       | (1,154  | ) |  |   |        |   |  |   | (1,154 | )
|Shares issued upon exercise of stock options                         |  | 63           |   |  |                              | 32    |   |                      |   | 777    |                                      |  |   |                                   |   |  |       |        |   |  |   |        |   |  |   | 809    |  
|Amortization of unearned compensation                                |  |             |   |  |                              |      |   |                      |   |       |                                      |  |   | 67                                 |   |  |       |        |   |  |   |        |   |  |   | 67     |  
|                                                                     |  |              |   |  |                              |       |   |                      |   |        |                                      |  |   |                                    |   |  |       |         |   |  |   |         |   |  |   |        |  
|Balance at December 31, 2005                                         |  | 9,253        |   |  | $                            | 4,627 |   |                      | $ | 69,272 |                                      |  | $ | (41                                | ) |  | $     | 4,495   |   |  | $ | (20,491 | ) |  | $ | 57,862 |  
|                                                                     |  |              |   |  |                              |       |   |                      |   |        |                                      |  |   |                                    |   |  |       |         |   |  |   |         |   |  |   |        |  



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 December 31, 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 replacement and consolidation plan to its Publisher Services print platform and Specialty
Packaging capabilities. This plan 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 and $1.4 million for the three and six months ended December 31, 2005, respectively, related to severance expenses, costs to consolidate and reorganize
facilities, and 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
December 31, 2005, the restructuring liability was $0.8 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
restructuring liability at June 30, 2005.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Additional restructuring costs associated with this equipment replacement and consolidation 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 pursuant to this plan 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 $0.7 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 middle of fiscal 2007.



In the second quarter of fiscal 2006, costs associated with certain discontinued merger and acquisition activities in the amount of $0.8 million were charged to restructuring and other charges in the Condensed Consolidated Statements of
Operations.



|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 for these assets was $1.6 million at December 31, 2005, and annual amortization expense is
expected to be approximately $0.7 million per year. In the first quarter of fiscal 2006, the Company purchased certain assets including $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 December 31, 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 245,000 and 242,000 for
the three and six months ended December 31, 2005, respectively, and 162,000 and 190,000 for the three and six months ended December 31, 2004, respectively.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

|5. | Components of net inventories at December 31, 2005 and June 30, 2005 were as follows (in thousands):
|-- | ----------------------------------------------------------------------------------------------------



|                           |  |                  |        |               |   |       
|-------------------------- |  | ---------------- | ------ | ------------- | - | ------
|                           |  | December 31,2005 |        | June 30, 2005
|                           |  | (unaudited)      |        |              
|Raw materials and supplies |  | $                | 10,926 |               | $ | 9,523 
|Work in process            |  |                  | 15,505 |               |   | 12,039
|Finished goods             |  |                  | 2,605  |               |   | 2,562 
|                           |  |                  |        |               |   |       
|                           |  | $                | 29,036 |               | $ | 24,124
|                           |  |                  |        |               |   |       



|6. | Long-term debt at December 31, 2005 and June 30, 2005 consisted of the following (in thousands):
|-- | ------------------------------------------------------------------------------------------------



|                                                   |  |                  |         |   |               |   |        
|-------------------------------------------------- |  | ---------------- | ------- | - | ------------- | - | -------
|                                                   |  | December 31,2005 |         |   | June 30, 2005
|                                                   |  | (unaudited)      |         |   |              
|Senior bank credit facility                        |  | $                | 45,500  |   |               | $ | 32,000 
|8.375% senior subordinated notes, due 2014         |  |                  | 125,000 |   |               |   | 125,000
|Other                                              |  |                  | 10,147  |   |               |   |       
|Fair market value of interest rate swap agreements |  |                  | (172    | ) |               |   | 1,363  
|                                                   |  |                  |         |   |               |   |        
|Total debt                                         |  |                  | 180,475 |   |               |   | 158,363
|Less: Current maturities of long-term debt         |  |                  | 622     |   |               |   |       
|                                                   |  |                  |         |   |               |   |        
|Long-term debt                                     |  | $                | 179,853 |   |               | $ | 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 December 31, 2005, the interest rates on the Companys
borrowings under its senior bank credit facility ranged from 6.82% to 8.50%. 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 December 31, 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 December 31, 2005, the Companys fixed charge coverage ratio was 2.02 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 December 31, 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.



In September 2005, the Company entered into two senior term
loan agreements to finance the purchase of certain manufacturing equipment from Heidelberg related to the Companys equipment replacement and consolidation plan. The total available amount of these loans is approximately $14.2 million. At
December 31, 2005, the total outstanding amount was $10.1 million. The interest rate spreads for these senior term loans is 0.45% above six-month LIBOR. The senior term loans require the Company to pay an unused commitment fee of 0.375% with
respect to the undrawn portion of the loans. At December 31, 2005, the interest rates on the Companys borrowings under these senior term loan agreements ranged from 4.9% to 5.1%. The term for approximately $6.4 million of the term loans
is 8 years, repayable in 16 equal, consecutive, semi-annual installments commencing on the earlier of January 1, 2007 or six months following the computed delivery date of the related equipment. The term for approximately $3.7 million of the
term loans is 6 years, repayable in 12 equal, consecutive, semi-annual installments commencing on the earlier of June 1, 2006 or six months following the computed delivery date of the related equipment.



8



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##### Table of Contents

|7. | At December 31, 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 $0.2 million liability and a $1.4 million asset at
December 31, 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 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 $0.2 million and $0.3 million for the three months ended December 31, 2005 and 2004, respectively, and a reduction of $0.3 million and $0.6 million for the six months ended December 31, 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. Specialty Packaging 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 and other 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 December 31, 2005: |  |                   |         |                    |   |        |  |   |        
|Net sales                             |  | $                 | 92,209  |                    | $ | 21,979 |  | $ | 114,188
|Operating income                      |  |                   | 6,518   |                    |   | 1,896  |  |   | 8,414  
|                                      |  |                   |        
|Three Months Ended December 31, 2004: |  |                   |         |                    |   |        |  |   |        
|Net sales                             |  | $                 | 88,696  |                    | $ | 20,385 |  | $ | 109,081
|Operating income                      |  |                   | 8,693   |                    |   | 1,925  |  |   | 10,618 
|                                      |  |                   |        
|Six Months Ended December 31, 2005:   |  |                   |         |                    |   |        |  |   |        
|Net sales                             |  | $                 | 176,869 |                    | $ | 44,536 |  | $ | 221,405
|Operating income                      |  |                   | 13,161  |                    |   | 4,329  |  |   | 17,490 
|                                      |  |                   |        
|Six Months Ended December 31, 2004:   |  |                   |         |                    |   |        |  |   |        
|Net sales                             |  | $                 | 175,277 |                    | $ | 36,781 |  | $ | 212,058
|Operating income                      |  |                   | 18,158  |                    |   | 3,139  |  |   | 21,297 



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##### Table of Contents

A reconciliation of segment data to consolidated data is as follows (in thousands):



|                                               |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|---------------------------------------------- |  | ------------------------------ | ------ | - | ---------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                               |  | Three Months EndedDecember 31, |        |   | Six Months EndedDecember 31, |  
|                                               |  | 2005                           |        |   | 2004                         |   |        | 2005 |  |   | 2004   |  
|Earnings from operations:                      |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Reportable segment operating income            |  | $                              | 8,414  |   |                              | $ | 10,618 |      |  | $ | 17,490 |   |  | $ | 21,297 |  
|Unallocated shared services and other expenses |  |                                | (1,719 | ) |                              |   | (2,017 | )    |  |   | (3,127 | ) |  |   | (4,469 | )
|Restructuring and other charges                |  |                                | (1,478 | ) |                              |   |       |      |  |   | (2,213 | ) |  |   |       |  
|                                               |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Total operating income                         |  |                                | 5,217  |   |                              |   | 8,601  |      |  |   | 12,150 |   |  |   | 16,828 |  
|Interest expense                               |  |                                | (3,406 | ) |                              |   | (3,203 | )    |  |   | (6,899 | ) |  |   | (6,377 | )
|Other, net                                     |  |                                | (48    | ) |                              |   | (39    | )    |  |   | (131   | ) |  |   | 3      |  
|                                               |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  
|Income before income taxes                     |  | $                              | 1,763  |   |                              | $ | 5,359  |      |  | $ | 5,120  |   |  | $ | 10,454 |  
|                                               |  |                                |        |   |                              |   |        |      |  |   |        |   |  |   |        |  



|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 share-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 three and six months ended December 31, 2005.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 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 for the three and six months ended December 31, 2005 because no compensation is expected to be earned under the criteria of this plan at
this time.



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.



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##### Table of Contents

|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 (in thousands):
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                               |  |                                                 |        |   |                                                        |   |        |      |  |   |      |   |  |   |      |  
|---------------------------------------------- |  | ----------------------------------------------- | ------ | - | ------------------------------------------------------ | - | ------ | ---- |  | - | ---- | - |  | - | ---- | -
|                                               |  | Pension Benefits Three Months EndedDecember 31, |        |   | Postretirement Benefits Three Months EndedDecember 31, |  
|                                               |  | 2005                                            |        |   | 2004                                                   |   |        | 2005 |  |   | 2004 |  
|Service cost                                   |  | $                                               | 102    |   |                                                        | $ | 92     |      |  | $ |     |   |  | $ |     |  
|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 multi-employer plans          |  |                                                 | 147    |   |                                                        |   | 132    |      |  |   |     |   |  |   |     |  
|                                               |  |                                                 |        |   |                                                        |   |        |      |  |   |      |   |  |   |      |  
|Net periodic benefit cost (income)             |  | $                                               | 494    |   |                                                        | $ | 246    |      |  | $ | 46   |   |  | $ | (108 | )
|                                               |  |                                                 |        |   |                                                        |   |        |      |  |   |      |   |  |   |      |  
|                                               |  |                                                
|                                               |  | Pension Benefits Six Months Ended December 31,  |        |   | Postretirement Benefits Six Months Ended December 31,  |  
|                                               |  | 2005                                            |        |   | 2004                                                   |   |        | 2005 |  |   | 2004 |  
|Service cost                                   |  | $                                               | 204    |   |                                                        | $ | 183    |      |  | $ |     |   |  | $ |     |  
|Interest cost                                  |  |                                                 | 4,118  |   |                                                        |   | 4,014  |      |  |   | 84   |   |  |   | 32   |  
|Expected return on plan assets                 |  |                                                 | (4,320 | ) |                                                        |   | (4,208 | )    |  |   |     |   |  |   |     |  
|Amortization of unrecognized transition amount |  |                                                 | (50    | ) |                                                        |   | (50    | )    |  |   |     |   |  |   |     |  
|Amortization of prior service cost             |  |                                                 | 50     |   |                                                        |   | 50     |      |  |   |     |   |  |   | (48  | )
|Amortization of unrecognized net losses        |  |                                                 | 26     |   |                                                        |   | 34     |      |  |   | 10   |   |  |   |     |  
|Recognized losses (gains)                      |  |                                                 | 666    |   |                                                        |   | 204    |      |  |   | (2   | ) |  |   | (200 | )
|Contributions to multi-employer plans          |  |                                                 | 281    |   |                                                        |   | 280    |      |  |   |     |   |  |   |     |  
|                                               |  |                                                 |        |   |                                                        |   |        |      |  |   |      |   |  |   |      |  
|Net periodic benefit cost (income)             |  | $                                               | 975    |   |                                                        | $ | 507    |      |  | $ | 92   |   |  | $ | (216 | )
|                                               |  |                                                 |        |   |                                                        |   |        |      |  |   |      |   |  |   |      |  



In December 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 each of the first
and second quarters of fiscal 2005.



|11. | The Companys effective income tax rate was 37.9% for the second quarter of fiscal 2006, compared to 35.3% for the second quarter of fiscal 2005. The Companys effective
income tax rate was 35.9% for the six months ended December 31, 2005, compared to 36.4% for the six months ended December 31, 2004. 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 management 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. Specialty Packaging provides high quality specialty packaging and promotional printing, assembly, fulfillment and distribution services to consumer product companies, healthcare companies 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 growth and
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.



In June 2005, the Company initiated a comprehensive
equipment replacement and consolidation 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 replacement and consolidation 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 by the middle of
fiscal 2007.



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. Despite the recent adverse effect on operating results of equipment delivery delays and operational inefficiencies from the implementation of the equipment replacement and consolidation plan, the Company believes
that once fully implemented, the plan will enhance the Companys overall competitiveness and create significant long-term value for its shareholders.



APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES



As of December 31, 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.



12



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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 and six months ended December 31, 2005 and 2004.



|                                    |  |                                 |   |  |                               |   |  |       |   |  |       |  
|----------------------------------- |  | ------------------------------- | - |  | ----------------------------- | - |  | ----- | - |  | ----- | -
|                                    |  | Three Months Ended December 31, |   |  | Six Months Ended December 31, |  
|                                    |  | 2005                            |   |  | 2004                          |   |  | 2005  |   |  | 2004  |  
|Net sales                           |  | 100.0                           | % |  | 100.0                         | % |  | 100.0 | % |  | 100.0 | %
|Cost of sales                       |  | 85.3                            |   |  | 82.2                          |   |  | 84.5  |   |  | 82.0  |  
|Selling and administrative expenses |  | 8.8                             |   |  | 9.9                           |   |  | 9.0   |   |  | 10.5  |  
|Restructuring and other charges     |  | 1.3                             |   |  |                              |   |  | 1.0   |   |  |      |  
|Other income                        |  |                                |   |  |                              |   |  |      |   |  | (0.4  | )
|                                    |  |                                 |   |  |                               |   |  |       |   |  |       |  
|Operating income                    |  | 4.6                             |   |  | 7.9                           |   |  | 5.5   |   |  | 7.9   |  
|Interest expense                    |  | 3.0                             |   |  | 3.0                           |   |  | 3.1   |   |  | 3.0   |  
|Other, net                          |  | 0.1                             |   |  |                              |   |  | 0.1   |   |  |      |  
|                                    |  |                                 |   |  |                               |   |  |       |   |  |       |  
|Income before income taxes          |  | 1.5                             |   |  | 4.9                           |   |  | 2.3   |   |  | 4.9   |  
|Income tax expense                  |  | 0.6                             |   |  | 1.7                           |   |  | 0.8   |   |  | 1.8   |  
|                                    |  |                                 |   |  |                               |   |  |       |   |  |       |  
|Net income                          |  | 0.9                             | % |  | 3.2                           | % |  | 1.5   | % |  | 3.1   | %
|                                    |  |                                 |   |  |                               |   |  |       |   |  |       |  



Net Sales



Net sales for the second quarter of fiscal 2006 were $114.2 million, compared to $109.1
million in the same period last year, an increase of 4.7%. Publisher Services segment net sales for the quarter were $92.2 million, an increase of 4.0% from $88.7 million last year, as the Company experienced page and revenue growth from the STM
market, continued growth in its Emerging Solutions technology offering, and improved revenue trends in its printing plants serving the special interest magazine market. Specialty Packaging segment net sales for the quarter were $22.0 million, an
increase of 7.8% from $20.4 million last year, as the Company continued to benefit from its Global Packaging Solutions network and also from its investment in new and more efficient manufacturing equipment. Net sales for the first six months of
fiscal 2006 totaled $221.4 million, compared with $212.1 million last year, an increase of 4.4%. Publisher Services segment net sales were $176.9 million, essentially flat with $175.3 million last year. Specialty Packaging segment net sales were
$44.5 million, an increase of 21.1% from $36.8 million last year.



Cost
of Sales



Cost of sales increased to 85.3% of net sales for the second
quarter of fiscal 2006, compared to 82.2% of net sales in the same period of fiscal 2005, and was 84.5% and 82.0% of net sales for the six months ended December 31, 2005 and 2004, respectively. The increased costs were primarily attributable to
(i) delays in the Companys equipment replacement and consolidation plan causing high levels of overtime, offloading (both within the Company and to outside printers) and reduced efficiencies in print operations, (ii) substantially
higher energy costs, (iii) negative change in the overall work mix at the Companys special interest magazine facilities, and (iv) costs incurred in connection with the Companys growth-oriented initiatives in the education and
government markets and in the Companys Emerging Solutions technology products.



Selling and Administrative Expenses



Selling and
administrative expenses totaled $10.0 million, or 8.8% of net sales, for the second quarter of fiscal 2006, compared to $10.8 million, or 9.9% of net sales, for the same period of fiscal 2005. For the first six months of fiscal 2006, selling and
administrative expenses totaled $19.9 million, or 9.0% of net sales, compared to $22.3 million, or 10.5% of net sales, for the same period of fiscal 2005. The decrease in selling and administrative expenses was primarily attributable to lower
compensation costs associated with lower incentives and the reduction in the number of domestic associates, as well as managements continued focus on cost reduction efforts.



Restructuring and Other Charges



For the three and six months ended December 31, 2005, the Company incurred charges of $0.7 million and $1.4 million, respectively, relating to severance expenses,
costs to consolidate and reorganize facilities, and impairment charges of equipment to be replaced in connection with the equipment replacement and consolidation 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



13



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##### Table of Contents

Condensed Consolidated Statements of Operations. Additional restructuring costs associated with this equipment
replacement and consolidation 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 pursuant to this plan 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 $0.7 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 middle of fiscal 2007.



In the second quarter of fiscal 2006, costs associated with certain discontinued merger
and acquisition activities of $0.8 million were charged to restructuring and other charges in the Condensed Consolidated Statements of Operations.



Operating Income



The Company reported operating income of $5.2 million for the second quarter of fiscal 2006, compared to $8.6 million for the second quarter of fiscal 2005. Operating income margin was 4.6% for the second quarter of
fiscal 2006, compared to 7.9% for the second quarter of fiscal 2005. For the six months ended December 31, 2005, the Company reported operating income of $12.2 million, compared to $16.8 million for the six months ended December 31, 2004.
Operating income margin was 5.5% for the six months ended December 31, 2005, compared to 7.9% for the six months ended December 31, 2004.



Included in the results for the three and six months ended December 31, 2005, are restructuring and other charges of $1.5 million, or 1.3% of net sales, and $2.2
million, or 1.0% of net sales, respectively. The results for the six months ended December 31, 2004 include $1.0 million, or 0.5% of net sales, of other income from the previously disclosed insurance recovery. Adjusted for the impact of these
items, operating income was $6.7 million, or 5.9% of net sales, and $8.6 million, or 7.9% of net sales, for the three months ended December 31, 2005 and 2004, respectively, and $14.4 million, or 6.5% of net sales, and $15.8 million, or 7.4% of
net sales, for the six months ended December 31, 2005 and 2004, respectively.



Interest and Other Expenses



Interest expense in the
second quarter of fiscal 2006 increased to $3.4 million from $3.2 million in the prior year. For the first six months of fiscal 2006, interest expense increased to $6.9 million from $6.4 million in the prior year. The increase in interest expense
was due primarily to higher interest rates as compared to the prior year period and higher debt levels in the first and second quarters of fiscal 2006 due to increased capital expenditures in connection with the Companys equipment replacement
and consolidation plan.



Income Tax Expense



The Companys effective income tax rate was 37.9% for the second quarter of fiscal
2006, compared to 35.3% for the second quarter of fiscal 2005. The Companys effective income tax rate was 35.9% for the six months ended December 31, 2005, compared to 36.4% for the six months ended December 31, 2004. 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 $1.1 million for the second quarter of fiscal 2006, compared to $3.5 million for the second quarter of fiscal 2005. For the six months ended December 31, 2005, the Company reported net income
of $3.3 million, compared to $6.7 million for the six months ended December 31, 2004. Included in the results for the three and six months ended December 31, 2005, are restructuring and other charges of $0.9 million, net of $0.6 million in
taxes, and $1.4 million, net of $0.8 million in taxes, respectively. The results for the six months ended December 31, 2004 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 these items, income was $2.0 million and $3.5 million for the three months ended December 31, 2005 and 2004, respectively, and $4.7 million and $6.0 million for the six months ended December 31, 2005 and 2004,
respectively.



Earnings Per Share



The Company reported net income of $0.12 per diluted share for the second quarter of fiscal
2006, compared to $0.37 per diluted share in the second quarter of fiscal 2005. For the six months ended December 31, 2005, the Company reported net income of $0.35 per diluted share, compared to $0.71 for the six months ended December 31,
2004. Included in the results for the three and six months ended December 31, 2005, are restructuring and other charges of $1.5 million, or $0.09 per share net of taxes, and $2.2 million, or $0.14 per share net of taxes, respectively. The
results for the six months ended



14



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##### Table of Contents

December 31, 2004 include $1.0 million, or $0.07 per share net of taxes, of other income from the previously
disclosed insurance recovery. Adjusted for these items, earnings per share was $0.21 and $0.37 for the three months ended December 31, 2005 and 2004, respectively, and $0.49 and $0.64 for the six months ended December 31, 2005 and 2004,
respectively.



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 second quarter of fiscal 2005, other income of $1.0 million related to the previously
disclosed insurance recovery was not excluded from the computation of EBITDA for the six months ended December 31, 2004. 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.



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



|                                |  |                                 |        |  |      |   |  |   |        |  |      |  
|------------------------------- |  | ------------------------------- | ------ |  | ---- | - |  | - | ------ |  | ---- | -
|                                |  | Three Months Ended December 31, |       
|(In thousands)                  |  | 2005                            |        |  | 2004 |  
|Net income, as reported         |  | $                               | 1,094  |  | 0.9  | % |  | $ | 3,467  |  | 3.2  | %
|Income tax expense              |  |                                 | 669    |  | 0.6  |   |  |   | 1,892  |  | 1.7  |  
|Interest                        |  |                                 | 3,406  |  | 3.0  |   |  |   | 3,203  |  | 3.0  |  
|Depreciation                    |  |                                 | 4,604  |  | 4.1  |   |  |   | 4,748  |  | 4.4  |  
|Amortization                    |  |                                 | 250    |  | 0.2  |   |  |   | 163    |  | 0.1  |  
|Restructuring and other charges |  |                                 | 1,478  |  | 1.3  |   |  |   |       |  |     |  
|                                |  |                                 |        |  |      |   |  |   |        |  |      |  
|EBITDA                          |  | $                               | 11,501 |  | 10.1 | % |  | $ | 13,473 |  | 12.4 | %
|                                |  |                                 |        |  |      |   |  |   |        |  |      |  



|                                |  |                               |        |  |          |   |  |                      |        |  |          |   |  |   |        |   |  |   |        |  |      |  
|------------------------------- |  | ----------------------------- | ------ |  | -------- | - |  | -------------------- | ------ |  | -------- | - |  | - | ------ | - |  | - | ------ |  | ---- | -
|                                |  | Six Months Ended December 31, |       
|(In thousands)                  |  | 2005                          |        |  | 2004 (A) |   |  | InsuranceRecovery(B) |        |  | 2004 (C) |  
|Net income, as reported         |  | $                             | 3,280  |  | 1.5      | % |  | $                    | 6,650  |  | 3.1      | % |  | $ | (625   | ) |  | $ | 6,025  |  | 2.8  | %
|Income tax expense              |  |                               | 1,840  |  | 0.8      |   |  |                      | 3,804  |  | 1.8      |   |  |   | (375   | ) |  |   | 3,429  |  | 1.6  |  
|Interest                        |  |                               | 6,899  |  | 3.1      |   |  |                      | 6,377  |  | 3.0      |   |  |   |        |   |  |   | 6,377  |  | 3.0  |  
|Depreciation                    |  |                               | 9,131  |  | 4.2      |   |  |                      | 9,485  |  | 4.5      |   |  |   |        |   |  |   | 9,485  |  | 4.5  |  
|Amortization                    |  |                               | 459    |  | 0.2      |   |  |                      | 326    |  | 0.2      |   |  |   |        |   |  |   | 326    |  | 0.2  |  
|Restructuring and other charges |  |                               | 2,213  |  | 1.0      |   |  |                      |       |  |         |   |  |   |        |   |  |   |       |  |     |  
|                                |  |                               |        |  |          |   |  |                      |        |  |          |   |  |   |        |   |  |   |        |  |      |  
|EBITDA                          |  | $                             | 23,822 |  | 10.8     | % |  | $                    | 26,642 |  | 12.6     | % |  | $ | (1,000 | ) |  | $ | 25,642 |  | 12.1 | %
|                                |  |                               |        |  |          |   |  |                      |        |  |          |   |  |   |        |   |  |   |        |  |      |  

---

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 six months ended December 31, 2004.
|--- | -------------------------------------------------------------------------------------------------------------

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



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##### Table of Contents

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 $1.5 million
and $2.2 million for the three and six months ended December 31, 2005, respectively, and to exclude the impact of the $1.0 million insurance recovery for the six months ended December 31, 2004, (2) income adjusted in the
same manner and for the same items as operating income, (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 second quarter of fiscal 2005, other income
of $1.0 million, or $0.07 per share, related to the insurance recovery, was not excluded from certain non-GAAP measures for the six months ended December 31, 2004. 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 for the first six months of fiscal 2006 totaled $5.0 million, compared to $11.3 million in fiscal 2005. The decrease was
primarily attributable to year-over-year net changes in working capital including $0.7 million in restructuring payments made during the six months ended December 31, 2005.



Investing Activities



Net cash used in investing activities was $28.3 million for the first six months of fiscal 2006, compared to $5.3 million in the prior year. Capital expenditures for the
first six months of fiscal 2006 totaled $27.8 million, compared to $5.3 million for the corresponding period of the prior year, and included investments primarily in equipment for the Publisher Services and Specialty Packaging segments in connection
with the equipment replacement and consolidation plan. The Company estimates that total capital expenditures for fiscal 2006 will be approximately $50.0 to $60.0 million.



Financing Activities



Net cash provided by financing activities was $23.3 million for the first six months of fiscal 2006, compared to net cash used by financing activities of $7.9 million for
the first six months of fiscal 2005. For the six months ended December 31, 2005, an increase in debt of $23.6 million primarily attributable to capital expenditures in connection with the Companys equipment replacement and consolidation
plan, and proceeds from the exercise of stock options of $0.8 million, were partially offset by $1.2 million in dividend payments. For the six months ended December 31, 2004, a decrease in total debt by $6.3 million due to lower capital
spending and continued focus on working capital initiatives, $1.1 million of dividend payments, and $2.2 million pursuant to the retirement of common and restricted stock, were partially offset by $1.7 million in proceeds from the exercise of stock
options.



Long-term debt at December 31, 2005 totaled $179.9 million,
compared to $158.4 million at June 30, 2005. The balance at December 31, 2005 was comprised of $45.5 million in borrowings under a revolving senior bank credit facility, $125.0 million of 8.375% senior subordinated notes due 2014, $10.1
million in term loan agreements (net of $0.6 million in current maturities), and ($0.2) million fair market value of interest rate swap agreements. The balance at June 30, 2005 was



16



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##### Table of Contents

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 the Notes to Condensed Consolidated Financial Statements included in this report on Form 10-Q for further discussion.



At December 31, 2005, there were $45.5 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 $52.2 million in available borrowings at
December 31, 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 and term loan agreements. The future operating performance and 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 December 31, 2005,
there have been no material changes to 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 December 31, 2005, there have been no material changes outside the normal 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 the Notes to Condensed Consolidated Financial Statements included in this report on Form 10-Q.



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 replacement and consolidation plan, 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 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.



17



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##### Table of Contents

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 December 31, 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.



18



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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 quarter ended December 31, 2005. The maximum number of shares that may yet be purchased under this plan was 739,637 at December 31, 2005.



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



| | (a) | At the 2005 Annual Meeting of Shareholders of the Company (Annual Meeting) held on November 9, 2005, 6,655,440 shares of the Companys outstanding common stock
were present in person or by proxy and entitled to vote.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | At the Annual Meeting, the following matters were voted upon and received the vote set forth below:
| | --- | ---------------------------------------------------------------------------------------------------



(1) Election of Class I Directors. The nominees for director were elected (to serve until the 2008 Annual Meeting),
having received the following vote:



|                      |  |           |  |          
|--------------------- |  | --------- |  | ---------
|Nominee               |  | For       |  | Withheld 
|Thomas E. Costello    |  | 5,424,102 |  | 1,231,338
|Keith Hamill          |  | 5,784,336 |  | 871,104  
|Edward B. Hutton, Jr. |  | 6,619,656 |  | 35,784   
|Nathu R. Puri         |  | 6,563,315 |  | 92,125   



The following other
directors continued in office after the Annual Meeting:



Class II Directors (serving until the 2006 Annual Meeting): G. Waddy Garrett,

Thomas C. Norris, and Bruce V. Thomas.



Class III Directors (serving until the 2007 Annual Meeting): Martina L. Bradford,

Robert E. Evanson, and James E. Rogers.



(2) Ratification of selection of Ernst & Young LLP as independent auditors for current fiscal year. Selection of the auditors was
ratified, having received the following vote:



|                 |  |          
|---------------- |  | ---------
|For:             |  | 6,469,829
|Against:         |  | 175,191  
|Abstain:         |  | 10,420   
|Broker Non-vote: |  |         



19



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##### Table of Contents

ITEM 5. OTHER MATTERS



As previously
reported on a Form 8-K filed with the Commission on December 21, 2005, on December 15, 2005, based upon the determination and approval of its Audit Committee, the Company terminated its engagement of Ernst & Young LLP as its
independent registered public accounting firm primarily for cost-related concerns. On December 21, 2005, the Company engaged BDO Seidman LLP as its independent registered public accounting firm for the fiscal year ending June 30, 2006.



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)).                                    
|      |  
|10.11 | * |  | Cadmus FY 2005-2007 Management Long-Term Incentive Plan (subplan adopted November 9, 2004 under the Cadmus 2004 Key Employee Stock Compensation Plan as amended November 9, 2005), filed
herewith.                                   
|      |  
|10.20 | * |  | Employee Retention Agreement dated November 29, 2005, between Cadmus Communications Corporation and Wayne B. Luck, filed herewith.                                                                                                   
|      |  
|10.25 | * |  | Employee Retention Agreement dated November 29, 2005, between Cadmus Communications Corporation and Gerard P. Lux, Jr., filed herewith.                                                                                              
|      |  
|10.34 | * |  | Employee Retention Agreement dated November 29, 2005, between Cadmus Communications Corporation and Stephen E. Hare, filed herewith.                                                                                                 
|      |  
|10.36 | * |  | Employee Retention Agreement dated November 29, 2005, between Cadmus Communications Corporation and Bruce V. Thomas, filed herewith.                                                                                                 
|      |  
|10.40 | * |  | Employee Retention Agreement dated November 29, 2005, between Cadmus Communications Corporation and Paul K. Suijk, filed herewith.                                                                                                   
|      |  
|10.50 | * |  | Employee Retention Agreement dated November 29, 2005, between Cadmus Communications Corporation and Lisa S. Licata, filed herewith.                                                                                                  
|      |  
|10.51 | * |  | Employee Retention Agreement dated November 29, 2005, between Cadmus Communications Corporation and Bruce G. Willis, filed herewith.                                                                                                 
|      |  
|31.1  |   |  | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a), filed herewith.                                                                                                                                                 
|      |  
|31.2  |   |  | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a), filed herewith.                                                                                                                                                 
|      |  
|32    |   |  | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, filed herewith.                                                                                                             

---

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



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##### Table of Contents

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: |  | February 13, 2006                                
|      | 
|      |  | /s/ Bruce V. Thomas                              
|      |  | Bruce V. Thomas                                  
|      |  | President and Chief Executive Officer            
|      |  | (Principal Executive Officer)                    
|      | 
|Date: |  | February 13, 2006                                
|      | 
|      |  | /s/ Paul K. Suijk                                
|      |  | Paul K. Suijk                                    
|      |  | Senior Vice President and Chief Financial Officer
|      |  | (Principal Financial and Accounting Officer)     



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