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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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Form 10-Q



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(Mark One)

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

For the quarterly period ended September 30, 2006

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)

n/a

(Former name, former address and former fiscal year, if changed since last report)



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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  x |  | Non-accelerated filer ̈

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

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 October 31,
2006
|Common Stock, $0.50 Par Value |  | 9,530,631                      



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##### Table of Contents

CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES

INDEX



|                              |  |          |  |                                                                                                                                                  |  |            
|----------------------------- |  | -------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------ |  | -----------
|                              |  |          |  |                                                                                                                                                  |  | Page Number
|Part I. Financial Information |  |         
|                              |  |          | 
|                              |  | Item 1.  |  | Financial Statements                                                                                                                             |  |            
|                              |  |          | 
|                              |  |          |  | Condensed Consolidated Balance Sheets September 30, 2006 (unaudited) and June 30, 2006                                                          |  | 3          
|                              |  |          | 
|                              |  |          |  | Condensed Consolidated Statements of Operations (unaudited) Three Months Ended September 30, 2006 and 2005                                      |  | 4          
|                              |  |          | 
|                              |  |          |  | Condensed Consolidated Statements of Cash Flows (unaudited) Three Months Ended September 30, 2006 and 2005                                      |  | 5          
|                              |  |          | 
|                              |  |          |  | Condensed Consolidated Statements of Shareholders Equity Three Months Ended September 30, 2006 (unaudited) and Fiscal Year Ended June 30, 2006 |  | 6          
|                              |  |          | 
|                              |  |          |  | Notes to Condensed Consolidated Financial Statements (unaudited)                                                                                 |  | 7          
|                              |  |          | 
|                              |  | Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                            |  | 13         
|                              |  |          | 
|                              |  | Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                                                                                       |  | 20         
|                              |  |          | 
|                              |  | Item 4.  |  | Controls and Procedures                                                                                                                          |  | 20         
|                              | 
|Part II. Other Information    |  |         
|                              |  |          | 
|                              |  | Item 1.  |  | Legal Proceedings                                                                                                                                |  | 21         
|                              |  |          | 
|                              |  | Item 1A. |  | Risk Factors                                                                                                                                     |  | 21         
|                              |  |          | 
|                              |  | Item 2.  |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                                      |  | 21         
|                              |  |          | 
|                              |  | Item 5.  |  | Other Information                                                                                                                                |  | 21         
|                              |  |          | 
|                              |  | Item 6.  |  | Exhibits                                                                                                                                         |  | 22         
|                              | 
|Signatures                    |  | 23      



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##### Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)



|                                                                                                                                                             |  |                   |         |   |                   |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------- | ------- | - | ----------------- | - | ------- | -
|                                                                                                                                                             |  | September 30,2006 |         |   | June 30,     2006 |  
|                                                                                                                                                             |  | (Unaudited)       |         |   |                   |  
|ASSETS                                                                                                                                                       |  |                   |         |   |                   |   |         |  
|Current assets:                                                                                                                                              |  |                   |         |   |                   |   |         |  
|Cash and cash equivalents                                                                                                                                    |  | $                 | 112     |   |                   | $ | 108     |  
|Accounts receivable (net of allowance for doubtful accounts of $1,102 atSeptember 30, 2006 and $967 at June 30,
2006)                                        |  |                   | 62,494  |   |                   |   | 60,962  |  
|Inventories                                                                                                                                                  |  |                   | 28,321  |   |                   |   | 26,266  |  
|Deferred income taxes                                                                                                                                        |  |                   | 725     |   |                   |   | 1,635   |  
|Prepaid expenses and other                                                                                                                                   |  |                   | 3,535   |   |                   |   | 4,970   |  
|                                                                                                                                                             |  |                   |         |   |                   |   |         |  
|Total current assets                                                                                                                                         |  |                   | 95,187  |   |                   |   | 93,941  |  
|                                                                                                                                                             |  |                  
|Property, plant and equipment, net                                                                                                                           |  |                   | 126,988 |   |                   |   | 128,393 |  
|Goodwill                                                                                                                                                     |  |                   | 111,964 |   |                   |   | 111,964 |  
|Other intangibles, net                                                                                                                                       |  |                   | 2,423   |   |                   |   | 2,677   |  
|Other assets                                                                                                                                                 |  |                   | 26,830  |   |                   |   | 27,829  |  
|                                                                                                                                                             |  |                   |         |   |                   |   |         |  
|TOTAL ASSETS                                                                                                                                                 |  | $                 | 363,392 |   |                   | $ | 364,804 |  
|                                                                                                                                                             |  |                   |         |   |                   |   |         |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                         |  |                   |         |   |                   |   |         |  
|Current liabilities:                                                                                                                                         |  |                   |         |   |                   |   |         |  
|Current maturities of long-term debt                                                                                                                         |  | $                 | 1,932   |   |                   | $ | 2,555   |  
|Accounts payable                                                                                                                                             |  |                   | 38,171  |   |                   |   | 36,436  |  
|Accrued expenses and other current liabilities                                                                                                               |  |                   | 32,032  |   |                   |   | 23,475  |  
|                                                                                                                                                             |  |                   |         |   |                   |   |         |  
|Total current liabilities                                                                                                                                    |  |                   | 72,135  |   |                   |   | 62,466  |  
|                                                                                                                                                             |  |                  
|Long-term debt                                                                                                                                               |  |                   | 190,247 |   |                   |   | 196,650 |  
|Long-term pension liability                                                                                                                                  |  |                   | 18,780  |   |                   |   | 22,818  |  
|Other long-term liabilities                                                                                                                                  |  |                   | 20,363  |   |                   |   | 21,614  |  
|                                                                                                                                                             |  |                   |         |   |                   |   |         |  
|Total liabilities                                                                                                                                            |  |                   | 301,525 |   |                   |   | 303,548 |  
|                                                                                                                                                             |  |                   |         |   |                   |   |         |  
|Shareholders equity:                                                                                                                                        |  |                   |         |   |                   |   |         |  
|Common stock ($0.50 par value; authorized shares  16,000,000;issued and outstanding shares  9,194,561 at September 30,
2006and 9,177,721 at June 30, 2006) |  |                   | 4,597   |   |                   |   | 4,589   |  
|Capital in excess of par value                                                                                                                               |  |                   | 67,222  |   |                   |   | 67,058  |  
|Retained earnings                                                                                                                                            |  |                   | 5,326   |   |                   |   | 5,798   |  
|Accumulated other comprehensive loss                                                                                                                         |  |                   | (15,278 | ) |                   |   | (16,189 | )
|                                                                                                                                                             |  |                   |         |   |                   |   |         |  
|Total shareholders equity                                                                                                                                   |  |                   | 61,867  |   |                   |   | 61,256  |  
|                                                                                                                                                             |  |                   |         |   |                   |   |         |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                   |  | $                 | 363,392 |   |                   | $ | 364,804 |  
|                                                                                                                                                             |  |                   |         |   |                   |   |         |  

See accompanying Notes to Condensed Consolidated Financial Statements.



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CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)



|                                                                    |  |                                 |         |   |      |   |         |  
|------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ---- | - | ------- | -
|                                                                    |  | Three Months EndedSeptember 30, |        
|                                                                    |  | 2006                            |         |   | 2005 |  
|Net sales                                                           |  | $                               | 107,308 |   |      | $ | 107,217 |  
|                                                                    |  |                                 |         |   |      |   |         |  
|                                                                    |  |                                
|Cost of sales                                                       |  |                                 | 93,394  |   |      |   | 89,681  |  
|Selling and administrative expenses                                 |  |                                 | 9,461   |   |      |   | 9,868   |  
|Restructuring and other charges (benefit)                           |  |                                 | (296    | ) |      |   | 735     |  
|                                                                    |  |                                 |         |   |      |   |         |  
|                                                                    |  |                                 | 102,559 |   |      |   | 100,284 |  
|                                                                    |  |                                 |         |   |      |   |         |  
|                                                                    |  |                                
|Operating income                                                    |  |                                 | 4,749   |   |      |   | 6,933   |  
|                                                                    |  |                                
|Interest and other expenses:                                        |  |                                 |         |   |      |   |         |  
|Interest                                                            |  |                                 | 4,449   |   |      |   | 3,493   |  
|Other, net                                                          |  |                                 | 243     |   |      |   | 83      |  
|                                                                    |  |                                 |         |   |      |   |         |  
|                                                                    |  |                                 | 4,692   |   |      |   | 3,576   |  
|                                                                    |  |                                 |         |   |      |   |         |  
|Income from continuing operations before income taxes               |  |                                 | 57      |   |      |   | 3,357   |  
|Income tax expense                                                  |  |                                 | (19     | ) |      |   | (1,171  | )
|                                                                    |  |                                 |         |   |      |   |         |  
|Income from continuing operations                                   |  |                                 | 38      |   |      |   | 2,186   |  
|                                                                    |  |                                
|Gain from discontinued operations, net of $33 in federal income tax |  |                                 | 65      |   |      |   |        |  
|                                                                    |  |                                 |         |   |      |   |         |  
|Net income                                                          |  | $                               | 103     |   |      | $ | 2,186   |  
|                                                                    |  |                                 |         |   |      |   |         |  
|Earnings per common share  basic:                                  |  |                                 |         |   |      |   |         |  
|Income from continuing operations                                   |  | $                               |        |   |      | $ | 0.24    |  
|Gain from discontinued operations                                   |  |                                 | 0.01    |   |      |   |        |  
|                                                                    |  |                                 |         |   |      |   |         |  
|Net income                                                          |  | $                               | 0.01    |   |      | $ | 0.24    |  
|                                                                    |  |                                 |         |   |      |   |         |  
|Weighted-average common shares outstanding                          |  |                                 | 9,188   |   |      |   | 9,217   |  
|                                                                    |  |                                 |         |   |      |   |         |  
|Earnings per common share  diluted:                                |  |                                 |         |   |      |   |         |  
|Income from continuing operations                                   |  | $                               |        |   |      | $ | 0.23    |  
|Gain from discontinued operations                                   |  |                                 | 0.01    |   |      |   |        |  
|                                                                    |  |                                 |         |   |      |   |         |  
|Net income                                                          |  | $                               | 0.01    |   |      | $ | 0.23    |  
|                                                                    |  |                                 |         |   |      |   |         |  
|Weighted-average common shares outstanding                          |  |                                 | 9,305   |   |      |   | 9,458   |  
|                                                                    |  |                                 |         |   |      |   |         |  
|                                                                    |  |                                
|Cash dividends per common share                                     |  | $                               | 0.0625  |   |      | $ | 0.0625  |  
|                                                                    |  |                                 |         |   |      |   |         |  

See accompanying Notes to Condensed Consolidated Financial Statements.



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CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



|                                                                                  |  |                                 |        |   |      |   |        |  
|--------------------------------------------------------------------------------- |  | ------------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                  |  | Three Months EndedSeptember 30, |       
|                                                                                  |  | 2006                            |        |   | 2005 |  
|Operating Activities                                                              |  |                                 |        |   |      |   |        |  
|Net income                                                                        |  | $                               | 103    |   |      | $ | 2,186  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                 |        |   |      |   |        |  
|Depreciation and amortization                                                     |  |                                 | 4,938  |   |      |   | 4,736  |  
|Restructuring and other charges (benefit)                                         |  |                                 | (296   | ) |      |   | 735    |  
|Deferred income taxes                                                             |  |                                 | (54    | ) |      |   | (440   | )
|Gain from discontinued operations, net of tax                                     |  |                                 | (65    | ) |      |   |       |  
|Other, net                                                                        |  |                                 | (245   | ) |      |   | 395    |  
|                                                                                  |  |                                 |        |   |      |   |        |  
|                                                                                  |  |                                 | 4,381  |   |      |   | 7,612  |  
|                                                                                  |  |                                 |        |   |      |   |        |  
|Changes in operating assets and liabilities:                                      |  |                                 |        |   |      |   |        |  
|Accounts receivable                                                               |  |                                 | (999   | ) |      |   | (3,128 | )
|Inventories                                                                       |  |                                 | (2,055 | ) |      |   | (2,763 | )
|Accounts payable and accrued expenses                                             |  |                                 | 8,347  |   |      |   | 7,528  |  
|Restructuring payments                                                            |  |                                 | (1,178 | ) |      |   | (237   | )
|Contributions to defined benefit pension plans                                    |  |                                 | (361   | ) |      |   | (259   | )
|Other, net                                                                        |  |                                 | 4,059  |   |      |   | (1,496 | )
|                                                                                  |  |                                 |        |   |      |   |        |  
|                                                                                  |  |                                 | 7,813  |   |      |   | (355   | )
|                                                                                  |  |                                 |        |   |      |   |        |  
|Net cash provided by operating activities                                         |  |                                 | 12,194 |   |      |   | 7,257  |  
|                                                                                  |  |                                 |        |   |      |   |        |  
|                                                                                  |  |                                
|Investing Activities                                                              |  |                                 |        |   |      |   |        |  
|Purchases of property, plant and equipment                                        |  |                                 | (5,915 | ) |      |   | (8,614 | )
|Proceeds from sales of property, plant and equipment                              |  |                                 | 2,884  |   |      |   | 72     |  
|Investment in/advances to unconsolidated joint venture                            |  |                                 | (533   | ) |      |   |       |  
|Acquisition of intangible assets                                                  |  |                                 |       |   |      |   | (642   | )
|                                                                                  |  |                                 |        |   |      |   |        |  
|Net cash used in investing activities                                             |  |                                 | (3,564 | ) |      |   | (9,184 | )
|                                                                                  |  |                                 |        |   |      |   |        |  
|                                                                                  |  |                                
|Financing Activities                                                              |  |                                 |        |   |      |   |        |  
|Payments on long-term borrowings                                                  |  |                                 | (623   | ) |      |   |       |  
|Proceeds from (payments on) long-term revolving credit facility                   |  |                                 | (7,600 | ) |      |   | 2,500  |  
|Dividends paid                                                                    |  |                                 | (575   | ) |      |   | (576   | )
|Repurchases of common and restricted stock                                        |  |                                 | (35    | ) |      |   |       |  
|Proceeds from exercise of stock options                                           |  |                                 | 207    |   |      |   | 586    |  
|                                                                                  |  |                                 |        |   |      |   |        |  
|Net cash provided by (used in) financing activities                               |  |                                 | (8,626 | ) |      |   | 2,510  |  
|                                                                                  |  |                                 |        |   |      |   |        |  
|Increase in cash and cash equivalents                                             |  |                                 | 4      |   |      |   | 583    |  
|Cash and cash equivalents at beginning of period                                  |  |                                 | 108    |   |      |   | 237    |  
|                                                                                  |  |                                 |        |   |      |   |        |  
|Cash and cash equivalents at end of period                                        |  | $                               | 112    |   |      | $ | 820    |  
|                                                                                  |  |                                 |        |   |      |   |        |  

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 in Excess of |       |   | Unearned  |   |        | Retained     |  |   | Accumulated Other Comprehensive |   |  |      |       
|                                                                     |  | Shares       |   |  | Par Value            |       |   | Par Value |   |        | Compensation |  |   | Earnings                        |   |  | Loss |        |   | Total |  
|Balance at June 30, 2005                                             |  | 9,190        |   |  | $                    | 4,595 |   |           | $ | 68,495 |              |  | $ | (108                            | ) |  | $    | 2,369  |   |       | $ | (20,491 | ) |  | $ | 54,860 |  
|Foreign currency translation                                         |  |             |   |  |                      |      |   |           |   |       |              |  |   |                                |   |  |      |       |   |       |   | (8      | ) |  |   | (8     | )
|Net income                                                           |  |             |   |  |                      |      |   |           |   |       |              |  |   |                                |   |  |      | 5,733  |   |       |   |        |   |  |   | 5,733  |  
|Change in minimum pension liability, net of $2,563 in deferred taxes |  |             |   |  |                      |      |   |           |   |       |              |  |   |                                |   |  |      |       |   |       |   | 4,310   |   |  |   | 4,310  |  
|                                                                     |  |              |   |  |                      |       |   |           |   |        |              |  |   |                                 |   |  |      |        |   |       |   |         |   |  |   |        |  
|Comprehensive income                                                 |  |              |   |  |                      |       |   |           |   |        |              |  |   |                                 |   |  |      |        |   |       |   |         |   |  |   | 10,035 |  
|                                                                     |  |              |   |  |                      |       |   |           |   |        |              |  |   |                                 |   |  |      |        |   |       |   |         |   |  |   |        |  
|Cash dividends - $0.25 per share                                     |  |             |   |  |                      |      |   |           |   |       |              |  |   |                                |   |  |      | (2,304 | ) |       |   |        |   |  |   | (2,304 | )
|Shares issued upon exercise of stock options                         |  | 174          |   |  |                      | 87    |   |           |   | 1,934  |              |  |   |                                |   |  |      |       |   |       |   |        |   |  |   | 2,021  |  
|Repurchases of common stock                                          |  | (186         | ) |  |                      | (93   | ) |           |   | (3,371 | )            |  |   |                                |   |  |      |       |   |       |   |        |   |  |   | (3,464 | )
|Amortization of unearned compensation                                |  |             |   |  |                      |      |   |           |   |       |              |  |   | 108                             |   |  |      |       |   |       |   |        |   |  |   | 108    |  
|                                                                     |  |              |   |  |                      |       |   |           |   |        |              |  |   |                                 |   |  |      |        |   |       |   |         |   |  |   |        |  
|Balance at June 30, 2006                                             |  | 9,178        |   |  |                      | 4,589 |   |           |   | 67,058 |              |  |   |                                |   |  |      | 5,798  |   |       |   | (16,189 | ) |  |   | 61,256 |  
|                                                                     |  |              |   |  |                      |       |   |           |   |        |              |  |   |                                 |   |  |      |        |   |       |   |         |   |  |   |        |  
|(the following data is unaudited)                                    |  |              |   |  |                      |       |   |           |   |        |              |  |   |                                 |   |  |      |        |   |       |   |         |   |  |   |        |  
|Foreign currency translation                                         |  |             |   |  |                      |      |   |           |   |       |              |  |   |                                |   |  |      |       |   |       |   | (16     | ) |  |   | (16    | )
|Net income                                                           |  |             |   |  |                      |      |   |           |   |       |              |  |   |                                |   |  |      | 103    |   |       |   |        |   |  |   | 103    |  
|Change in tax rate applied to minimum pension liability              |  |             |   |  |                      |      |   |           |   |       |              |  |   |                                |   |  |      |       |   |       |   | 927     |   |  |   | 927    |  
|                                                                     |  |              |   |  |                      |       |   |           |   |        |              |  |   |                                 |   |  |      |        |   |       |   |         |   |  |   |        |  
|Comprehensive income                                                 |  |              |   |  |                      |       |   |           |   |        |              |  |   |                                 |   |  |      |        |   |       |   |         |   |  |   | 1,014  |  
|                                                                     |  |              |   |  |                      |       |   |           |   |        |              |  |   |                                 |   |  |      |        |   |       |   |         |   |  |   |        |  
|Cash dividends - $0.0625 per share                                   |  |             |   |  |                      |      |   |           |   |       |              |  |   |                                |   |  |      | (575   | ) |       |   |        |   |  |   | (575   | )
|Shares issued upon exercise of stock options                         |  | 19           |   |  |                      | 9     |   |           |   | 198    |              |  |   |                                |   |  |      |       |   |       |   |        |   |  |   | 207    |  
|Repurchases of common stock                                          |  | (2           | ) |  |                      | (1    | ) |           |   | (34    | )            |  |   |                                |   |  |      |       |   |       |   |        |   |  |   | (35    | )
|                                                                     |  |              |   |  |                      |       |   |           |   |        |              |  |   |                                 |   |  |      |        |   |       |   |         |   |  |   |        |  
|Balance at September 30, 2006                                        |  | 9,195        |   |  | $                    | 4,597 |   |           | $ | 67,222 |              |  | $ |                                |   |  | $    | 5,326  |   |       | $ | (15,278 | ) |  | $ | 61,867 |  
|                                                                     |  |              |   |  |                      |       |   |           |   |        |              |  |   |                                 |   |  |      |        |   |       |   |         |   |  |   |        |  

See accompanying Notes to Condensed Consolidated Financial Statements.



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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, 2006.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In the opinion of management, all normal recurring adjustments considered
necessary for a fair presentation of interim financial information have been included. The results of operations for the period ended September 30, 2006 are not necessarily indicative of results for the entire fiscal year.



|2. | In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair Value Measurements (SFAS 157), which defines fair value,
establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 is first effective for the Companys fiscal year ending June 30,
2008. Management is currently evaluating the impact that the adoption of this statement will have on the Companys consolidated financial position and results of operations.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans (an amendment
of FASB Statements No. 87, 88, 106, and 132R) (SFAS 158). SFAS 158 requires an employer to recognize the funded status of each of its defined pension and postretirement benefit plans as a net asset or liability in its statement of
financial position with an offsetting amount in accumulated other comprehensive income, and to recognize changes in that funded status in the year in which changes occur through comprehensive income. This requirement is effective for the
Companys June 30, 2007 year-end. The provisions of SFAS 158 are to be applied on a prospective basis; therefore, prior periods presented will not be restated. Management is currently evaluating the impact that the adoption of this
statement will have on the Companys consolidated financial position and results of operations.

Additionally, SFAS 158 requires an
employer to measure the funded status of each of its plans as of the date of its year-end statement of financial position. This provision is effective for the Companys June 30, 2008 year-end. The funded status of the Companys
pension and other postretirement benefit plans are currently measured as of March 31.

In July 2006, the FASB issued Interpretation
No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with FASB Statement No. 109, Accounting for Income
Taxes. FIN 48 provides guidance on financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. Management is currently evaluating the impact that the adoption of FIN 48 will have on the Companys consolidated financial
position and results of operations.

In September 2006, the U.S. Securities and Exchange Commission released Staff Accounting Bulletin 108
(SAB 108), which provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. SAB 108 requires registrants to quantify
misstatements using both the balance-sheet and income-statement approaches and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. SAB 108 does not change
the staffs previous guidance in SAB 99 on evaluating the materiality of misstatements. When the effect of initial adoption is determined to be material, SAB 108 allows registrants to record that effect as a cumulative-effect adjustment to
beginning-of-year retained earnings. The requirements are effective for the Companys fiscal year ending June 30, 2007. The adoption of SAB 108 had no impact on the Companys condensed consolidated financial statements.



|3. | 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 recorded a benefit of $0.3 million for the three months ended September 30, 2006, related to the net proceeds from the sale of, and reduction in
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | associated previously recorded restructuring reserves related to, assets disposed of during the first quarter of fiscal 2007, partially offset by equipment
relocation, contract termination, and other costs. These charges and benefits were primarily related to the Publisher Services segment and are classified as restructuring and other charges (benefit) in the Condensed Consolidated Statements of
Operations. The estimated total restructuring costs pursuant to this plan include (i) one-time termination benefits in the range of $1.5 million to $1.7 million, (ii) contract termination costs in the range of $0.2 million to $0.3 million,
and (iii) costs to consolidate and reorganize facilities in the range of $1.8 million to $2.1 million. All activities in connection with this plan are expected to be completed by the middle of fiscal 2007.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

At September 30, 2006 and June 30, 2006, the restructuring liability was $0.4 million and $1.5 million, respectively, primarily related to
one-time termination benefits and is included in accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheets.



|4. | On June 29, 2006 the Company entered into a joint venture agreement with Periscope, Inc., a Minneapolis based graphic services and creative agency. The new
PeriscopeCadmusTMentity (PeriscopeCadmus) will integrate Specialty Packagings global packaging
network with Periscopes design and pre-press capabilities to provide an end-to-end worldwide print management solution. Cadmus subsequently announced that PeriscopeCadmus has been selected as one of four global print managers to serve a large
U.S. based retail chain. PeriscopeCadmus has established operations in Hong Kong and will work with a number of print partners throughout Asia and other areas. PeriscopeCadmus is structured as a 50/50 arrangement between Cadmus and Periscope with
equal equity, board membership and other attributes. Accordingly, PeriscopeCadmus is accounted for by the Company under the equity method. The equity in losses of PeriscopeCadmus for the first quarter of fiscal 2007 was $0.1 million. This amount is
included in other, net in the Condensed Consolidated Statements of Operations. As of September 30, 2006, the investment in/advance to PeriscopeCadmus was approximately $0.5 million and is included in other assets in the Condensed Consolidated
Balance Sheets.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. | During the second and third quarters of fiscal 2006, the Company participated in the Pre-Filing Agreement program (PFA) with the Internal Revenue Service
(IRS) to review its third quarter fiscal 2005 transaction with Mack Printing Company (Mack transaction) to determine the amount and character of the allowable loss to be reported on its federal income tax return for the year
ended June 30, 2005. In culmination of the PFA process, the Company and the IRS executed a closing agreement on March 28, 2006 providing specific guidance for the recognition of an ordinary loss deduction to be reported by the Company on
its June 30, 2005 federal tax return. Based on the Companys resolution with the IRS and as a result of reporting the Mack transaction benefit on its June 30, 2005 federal tax return filed on March 15, 2006, the Company recorded
an $8.5 million benefit for the quarter ended March 31, 2006. This $8.5 million benefit is incremental to the $5.0 million benefit recorded in the quarter ended March 31, 2005. As a result of the resolution with the IRS, the Company
expects to realize a total net cash benefit of $37.4 million. The Company received $11.8 million in the fourth quarter of fiscal 2006 and $2.6 million in the first quarter of fiscal 2007 and expects to utilize the balance in future years as a
reduction to income taxes otherwise payable on future income earned.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Companys effective income tax rate was 33.3%
for the first quarter of fiscal 2007, compared to 34.9% for the first quarter of fiscal 2006. The Companys effective tax rate differs from the expected income tax expense calculated by application of the federal statutory rate primarily due to
(i) the impact of state income taxes, (ii) operating results from foreign operations, and (iii) the impact from certain permanent book-to-tax differences.



|6. | 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 117,175 and 241,000 for
the three months ended September 30, 2006 and 2005, respectively.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|7. | Components of net inventories at September 30, 2006 and June 30, 2006 were as follows (in thousands):
|-- | -----------------------------------------------------------------------------------------------------



|                           |  |                   |        |                  |   |       
|-------------------------- |  | ----------------- | ------ | ---------------- | - | ------
|                           |  | September 30,2006 |        | June 30,    2006
|                           |  | (unaudited)       |        |                 
|Raw materials and supplies |  | $                 | 11,662 |                  | $ | 11,801
|Work in process            |  |                   | 14,570 |                  |   | 12,267
|Finished goods             |  |                   | 2,089  |                  |   | 2,198 
|                           |  |                   |        |                  |   |       
|Inventories                |  | $                 | 28,321 |                  | $ | 26,266
|                           |  |                   |        |                  |   |       



|8. | Long-term debt at September 30, 2006 and June 30, 2006 consisted of the following (in thousands):
|-- | -------------------------------------------------------------------------------------------------



|                                                   |  |                   |         |   |                  |   |         |  
|-------------------------------------------------- |  | ----------------- | ------- | - | ---------------- | - | ------- | -
|                                                   |  | September 30,2006 |         |   | June 30,    2006 |  
|                                                   |  | (unaudited)       |         |   |                  |  
|Senior bank credit facility                        |  | $                 | 54,600  |   |                  | $ | 62,200  |  
|8.375% senior subordinated notes, due 2014         |  |                   | 125,000 |   |                  |   | 125,000 |  
|Equipment term loans                               |  |                   | 13,116  |   |                  |   | 13,740  |  
|Fair market value of interest rate swap agreements |  |                   | (537    | ) |                  |   | (1,735  | )
|                                                   |  |                   |         |   |                  |   |         |  
|Total debt                                         |  |                   | 192,179 |   |                  |   | 199,205 |  
|Less: Current maturities of long-term debt         |  |                   | 1,932   |   |                  |   | 2,555   |  
|                                                   |  |                   |         |   |                  |   |         |  
|Long-term debt                                     |  | $                 | 190,247 |   |                  | $ | 196,650 |  
|                                                   |  |                   |         |   |                  |   |         |  

The interest rate spreads for the Companys senior bank credit facility range from 2.25% to
3.00% for LIBOR loans and from 1.00% to 1.75% for prime rate loans. The commitment fee rate ranges from 0.375% to 0.625%. Applicable interest rate spreads and commitment fees paid by the Company will fluctuate, within the ranges above, based upon
the Companys performance as measured by the total leverage ratio. At September 30, 2006, the interest rates on the Companys borrowings under its senior bank credit facility ranged from 8.33% to 10.00%. These interest rates are based
on spreads of 3.00% for LIBOR loans and 1.75% 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
0.625% at September 30, 2006.

Both the senior bank credit facility and the senior subordinated notes contain a covenant that places
restrictions on the ability of the Company to pay dividends. The Companys ability to pay dividends under the senior bank credit facility is governed by the fixed charge coverage ratio. At September 30, 2006, the Companys fixed
charge coverage ratio was 1.91 to 1.0, compared to a covenant that the ratio must exceed 1.20 to 1.0; therefore, the Company had sufficient coverage to pay expected dividends. The senior subordinated notes permit dividends of up to $3.0 million per
fiscal year and a computation for a restricted payments pool out of which additional dividends may be paid. The balance of the restricted payments pool is increased based on net income, cash proceeds from the issuance of stock and cash proceeds from
the receipt of equity contributions, and is reduced based on payment of dividends or other restricted payments. The Company may continue to pay dividends up to $3.0 million per fiscal year or to the extent there is a positive balance in the
restricted payments pool in excess of the scheduled dividend. At September 30, 2006, 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 accordance with the senior bank credit facility, limitations are placed on the
Companys ability to execute acquisitions and repurchase stock based on the total leverage ratio which is computed from time to time. Based on the total leverage ratio computed as of September 30, 2006, the Company is prohibited from
executing acquisitions or repurchasing stock without consent from the lenders or until such time as the total leverage ratio declines as required in the senior bank credit facility.



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At September 30, 2006, there were approximately $54.6 million in borrowings outstanding under the
senior bank credit facility and approximately $2.6 million of standby letters of credit outstanding against which no claims had been made. Based upon the borrowing base computation included in the senior bank credit facility, the Companys
total available borrowings were limited to approximately $88.4 million. Therefore, the Companys revolving credit availability was approximately $31.2 million at September 30, 2006.

Effective October 2, 2006, the total commitment under the Companys senior bank credit facility was reduced from $100.0 million to $98.1 million
in connection with a mandatory reduction in the commitment in an amount equal to the net disposition proceeds received from the sale of the Companys Ephrata, Pennsylvania real estate as part of the equipment replacement and consolidation plan.

In September 2005, two of the Companys subsidiaries entered into two senior, unsecured term loan agreements to finance the purchase
of certain manufacturing equipment from Heidelberg related to the Companys equipment replacement and consolidation plan. Each of these loans is unconditionally guaranteed by the Company. The total outstanding amount under these amortizing,
fully-drawn term loans was approximately $13.1 million at September 30, 2006. The interest rate spreads for these senior term loans is 0.45% above six-month LIBOR. The senior term loans required the Company to pay an unused commitment fee of
0.375% with respect to the undrawn portion of the loans prior to the loans being fully drawn. At September 30, 2006, the interest rates on the Companys borrowings under these senior term loans ranged from 5.7% to 6.0%. The term for
approximately $9.3 million of the term loans is 8 years, repayable in 16 equal, consecutive, semi-annual installments payable on each November 12 and May 12 beginning November 12, 2006 and ending on November 12, 2013, with an
initial payment due and paid on July 3, 2006. The term for approximately $3.8 million of the term loans is 6 years, repayable in 12 equal, consecutive, semi-annual installments payable on each October 16 and April 16, which began
October 16, 2006, and are scheduled to end on October 16, 2011, with an initial payment due and paid on June 1, 2006.



|9. | At September 30, 2006, 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 $0.5 million liability and a $1.7 million liability at
September 30, 2006 and June 30, 2006, respectively, which is recorded in the Condensed Consolidated Balance Sheets in other liabilities with an offset in long-term debt in accordance with 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 no reduction of interest expense for the three months ended
September 30, 2006, and a reduction of $0.1 million for the three months ended September 30, 2005.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|10. | 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, 2006. 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.



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##### Table of Contents

Summarized segment data is as follows (in thousands):



|                                       |  |                   |        |                    |   |        |  |   |        
|-------------------------------------- |  | ----------------- | ------ | ------------------ | - | ------ |  | - | -------
|                                       |  | PublisherServices |        | SpecialtyPackaging |   | Total 
|Three Months Ended September 30, 2006: |  |                   |        |                    |   |        |  |   |        
|Net sales                              |  | $                 | 89,118 |                    | $ | 18,190 |  | $ | 107,308
|Operating income                       |  |                   | 4,278  |                    |   | 1,521  |  |   | 5,799  
|                                       |  |                   |       
|Three Months Ended September 30, 2005: |  |                   |        |                    |   |        |  |   |        
|Net sales                              |  | $                 | 84,660 |                    | $ | 22,557 |  | $ | 107,217
|Operating income                       |  |                   | 6,643  |                    |   | 2,433  |  |   | 9,076  

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



|                                                      |  |                                 |        |   |      |   |        |  
|----------------------------------------------------- |  | ------------------------------- | ------ | - | ---- | - | ------ | -
|                                                      |  | Three Months EndedSeptember 30, |       
|                                                      |  | 2006                            |        |   | 2005 |  
|Earnings from operations:                             |  |                                 |        |   |      |   |        |  
|Reportable segment operating income                   |  | $                               | 5,799  |   |      | $ | 9,076  |  
|Unallocated shared services and other expenses        |  |                                 | (1,346 | ) |      |   | (1,408 | )
|Restructuring and other benefit (charges)             |  |                                 | 296    |   |      |   | (735   | )
|                                                      |  |                                 |        |   |      |   |        |  
|Total operating income                                |  |                                 | 4,749  |   |      |   | 6,933  |  
|Interest expense                                      |  |                                 | (4,449 | ) |      |   | (3,493 | )
|Other, net                                            |  |                                 | (243   | ) |      |   | (83    | )
|                                                      |  |                                 |        |   |      |   |        |  
|Income from continuing operations before income taxes |  | $                               | 57     |   |      | $ | 3,357  |  
|                                                      |  |                                 |        |   |      |   |        |  



|11. | 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 months ended September 30, 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 months
ended September 30, 2006 and September 30, 2005 because no compensation is expected to be earned under the criteria of this plan at this time.



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##### Table of Contents

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.



|12. | 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 BenefitsThree Months EndedSeptember 30, |        |   | Postretirement BenefitsThree Months EndedSeptember 30, |  
|                                               |  | 2006                                            |        |   | 2005                                                   |   |        | 2006 |  |   | 2005 |  
|Service cost                                   |  | $                                               | 79     |   |                                                        | $ | 102    |      |  | $ |     |   |  | $ |   |  
|Interest cost                                  |  |                                                 | 2,123  |   |                                                        |   | 2,059  |      |  |   | 40   |   |  |   | 42 |  
|Expected return on plan assets                 |  |                                                 | (2,237 | ) |                                                        |   | (2,160 | )    |  |   |     |   |  |   |   |  
|Amortization of unrecognized transition amount |  |                                                 | (41    | ) |                                                        |   | (25    | )    |  |   |     |   |  |   |   |  
|Amortization of prior service cost             |  |                                                 | 25     |   |                                                        |   | 25     |      |  |   |     |   |  |   |   |  
|Amortization of unrecognized net losses        |  |                                                 | 3      |   |                                                        |   | 13     |      |  |   | 4    |   |  |   | 5  |  
|Recognized losses (gains)                      |  |                                                 | 212    |   |                                                        |   | 333    |      |  |   | (8   | ) |  |   | (1 | )
|Contributions to multi-employer plans          |  |                                                 | 150    |   |                                                        |   | 134    |      |  |   |     |   |  |   |   |  
|                                               |  |                                                 |        |   |                                                        |   |        |      |  |   |      |   |  |   |    |  
|Net periodic benefit cost                      |  | $                                               | 314    |   |                                                        | $ | 481    |      |  | $ | 36   |   |  | $ | 46 |  
|                                               |  |                                                 |        |   |                                                        |   |        |      |  |   |      |   |  |   |    |  



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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) provides
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 and government services markets and in the proprietary technology products known as Emerging Solutions.

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 as well as the expansion of its global network. 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 is expanding and renovating several other 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 spent approximately $58.2 million in capital expenditures in fiscal 2006 and approximately $5.9 million in the first quarter of fiscal 2007, the majority of which related to this plan. Equipment delivery delays and operational
inefficiencies from the implementation of the equipment replacement and consolidation plan adversely affected the Companys operational and financial performance in the third and fourth quarters of fiscal 2006. In particular, cost of sales was
negatively impacted by equipment integration and facility consolidation activities and additional costs were incurred as a result of off-loaded work from the affected sites to other sites to meet customers schedules. Although the equipment
integration and consolidation activities continued through the first quarter of fiscal 2007, significant progress was made toward the completion of the plan, operational efficiencies improved and off-loaded work decreased, resulting in improved
financial performance. It is expected that the equipment upgrades and the expansion of facilities will be substantially complete by the middle of fiscal 2007. Management believes that once fully implemented, the plan will enhance the Companys
overall competitiveness and create significant long-term value for its shareholders.

In fiscal 2006, the Company purchased the remaining interest in
KnowledgeWorks Global Limited (KGL) from Datamatics Technologies Limited, with whom the Company had operated a joint venture in India since fiscal 2003. KGL provides a full



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##### Table of Contents

range of content processing, content management and related services to STM, scholarly and educational publishers and other organizations on a global basis.
The Company believes KGL provides the ability to continue to grow its services to the STM and educational markets and expand its offshore outsourcing opportunities.

On June 29, 2006 the Company entered into a joint venture agreement with Periscope, Inc., a Minneapolis based graphic services and creative agency. The new PeriscopeCadmusTMentity (PeriscopeCadmus) will integrate Specialty Packagings global packaging network with Periscopes design and pre-press
capabilities to provide an end-to-end worldwide print management solution. Cadmus subsequently announced that PeriscopeCadmus has been selected as one of four global print managers to serve a large U.S. based retail chain. PeriscopeCadmus has
established operations in Hong Kong and will work with a number of print partners throughout Asia and other areas. PeriscopeCadmus is structured as a 50/50 arrangement between Cadmus and Periscope and is accounted for by the Company under the equity
method. The equity in losses of PeriscopeCadmus for the first quarter of fiscal 2007 was $0.1 million. This amount is included in other, net in the Condensed Consolidated Statements of Operations. As of September 30, 2006, the investment
in/advance to PeriscopeCadmus was approximately $0.5 million and is included in other assets in the Condensed Consolidated Balance Sheets. The Company believes this opportunity will permit it to apply its global brand management expertise on a much
larger scale as it expands the print and packaging network beyond the Caribbean Rim to mainland China, Thailand, India and Turkey.

APPLICATION OF
CRITICAL ACCOUNTING POLICIES AND ESTIMATES

As of September 30, 2006, 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, 2006. 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.

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 months ended September 30, 2006 and 2005.



|                                                     |  |                                 |   |  |       |  
|---------------------------------------------------- |  | ------------------------------- | - |  | ----- | -
|                                                     |  | Three Months EndedSeptember 30, |  
|                                                     |  | 2006                            |   |  | 2005  |  
|Net sales                                            |  | 100.0                           | % |  | 100.0 | %
|Cost of sales                                        |  | 87.0                            |   |  | 83.6  |  
|Selling and administrative expenses                  |  | 8.8                             |   |  | 9.2   |  
|Restructuring and other charges (benefit)            |  | (0.2                            | ) |  | 0.7   |  
|                                                     |  |                                 |   |  |       |  
|Operating income                                     |  | 4.4                             |   |  | 6.5   |  
|Interest expense                                     |  | 4.1                             |   |  | 3.3   |  
|Other, net                                           |  | 0.2                             |   |  | 0.1   |  
|                                                     |  |                                 |   |  |       |  
|Income from continued operations before income taxes |  | 0.1                             |   |  | 3.1   |  
|Income tax expense                                   |  |                                |   |  | 1.1   |  
|                                                     |  |                                 |   |  |       |  
|Income from continuing operations                    |  |                                |   |  | 2.0   |  
|Gain from discontinued operations                    |  | 0.1                             |   |  |      |  
|                                                     |  |                                 |   |  |       |  
|Net income                                           |  | 0.1                             | % |  | 2.0   | %
|                                                     |  |                                 |   |  |       |  

Net Sales

Net sales for the first quarter of fiscal 2007 were $107.3 million, compared to $107.2 million in the same period last year. Publisher Services segment net sales for the quarter were $89.1 million, an increase of 5.3% from $84.7 million
last year, as the Company experienced improved revenues from its content-related initiatives in all markets, continued growth in its emerging solutions offerings, and better revenue trends in its printing plants. Specialty Packaging segment net
sales for the quarter were $18.2 million, a decrease of 19.4% from $22.6 million last year, as volume returned to more normal levels compared to an exceptionally high volume in the first quarter of fiscal 2006.



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##### Table of Contents

Cost of Sales

Cost of sales increased to 87.0% of net sales for the first quarter of fiscal 2007, compared to 83.6% of net sales in the same period of fiscal 2006. The increase as a percentage of net sales was the result of higher costs from operational
inefficiencies and capacity constraints as the Publisher Services segment continues the implementation of the equipment replacement and consolidation plan as well as higher fixed costs as a percentage of net sales experienced by the Specialty
Packaging segment as a result of the decrease in net sales compared to the prior year.

Selling and Administrative Expenses

Selling and administrative expenses totaled $9.5 million, or 8.8% of net sales, for the first quarter of fiscal 2007, compared to $9.9 million, or 9.2% of net sales, for
the same period of fiscal 2006. The decrease in selling and administrative expenses was primarily attributable to lower compensation and benefits costs associated with the reduction in the number of domestic associates, and managements
continued focus on cost reduction efforts.

Restructuring and Other Charges

In the 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 recorded a benefit of $0.3 million for the three months ended September 30, 2006, related to the net proceeds from the sale of, and reduction in associated previously recorded restructuring reserves related to, assets disposed of
during the first quarter of fiscal 2007, partially offset by equipment relocation, contract termination, and other costs. The Company recorded a charge of $0.7 million related to these activities for the three months ended September 30, 2005.
These charges were primarily related to the Publisher Services segment and are classified as restructuring and other charges (benefit) in the Condensed Consolidated Statements of Operations. The estimated total restructuring costs pursuant to this
plan include (i) one-time termination benefits in the range of $1.5 million to $1.7 million, (ii) contract termination costs in the range of $0.2 million to $0.3 million, and (iii) costs to consolidate and reorganize facilities in the
range of $1.8 million to $2.1 million. All activities in connection with this plan are expected to be completed by the middle of fiscal 2007.

Operating Income

The Company reported operating income of $4.7 million for the first quarter of fiscal 2007, compared to $6.9
million for the first quarter of fiscal 2006. Operating income margin was 4.4% for the first quarter of fiscal 2007, compared to operating income margin of 6.5% for the first quarter of fiscal 2006. Included in the results for the three months ended
September 30, 2006, is a $0.3 million benefit from restructuring activities, or 0.2% of net sales. Included in the results for the three months ended September 30, 2005, are restructuring and other charges of $0.7 million, or 0.7% of net
sales. Adjusted for the impact of these items, adjusted operating income was $4.5 million, or 4.1% of net sales, and $7.7 million, or 7.2% of net sales, for the three months ended September 30, 2006 and 2005, respectively.

Publisher Services segment operating income was $4.3 million for the first quarter of fiscal 2007, compared to $6.6 million for the first quarter of fiscal 2006. The
decrease was the result of higher costs from operational inefficiencies and capacity constraints as the Publisher Services segment continues the implementation of the equipment replacement and consolidation plan. Specialty Packaging segment
operating income decreased to $1.5 million for the first quarter of fiscal 2007, compared to $2.4 million for the first quarter of fiscal 2006 as a result of exceptionally high volumes coupled with a more favorable business mix in the first quarter
of fiscal 2006.

Interest and Other Expenses

Interest expense in the first quarter of fiscal 2007 increased to $4.4 million from $3.5 million in the prior year. The increase in interest expense was due primarily to higher debt levels for the first quarter of fiscal 2007 compared to
the prior year period as well as higher interest rates. The increase in debt levels are a result of increased capital expenditures in connection with the Companys equipment replacement and consolidation plan.

Income Taxes

During the third quarter of fiscal 2005, the
Company executed a transaction related to one of its subsidiaries, Mack Printing Company. The transaction was an internal restructuring that effectively caused the Mack subsidiary to be liquidated. As a result, the Company recognized a tax benefit
of approximately $5.0 million in the third quarter of fiscal 2005. Although the Company believed the actual benefit realized could be significantly larger at that time, it recorded that amount based on applying reasonable assumptions to the range of
possible outcomes in accordance with accounting requirements.



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##### Table of Contents

During the second and third quarters of fiscal 2006, the Company participated in the Pre-Filing Agreement program
(PFA) with the Internal Revenue Service (IRS) to review the Mack transaction to determine the amount and character of the allowable loss to be reported on its federal income tax return for the year ended June 30, 2005.
In culmination of the PFA process, the Company and the IRS executed a closing agreement on March 28, 2006 providing specific guidance for the recognition of an ordinary loss deduction to be reported by the Company on its June 30, 2005
federal tax return. Based on the Companys resolution with the IRS and as a result of reporting the Mack transaction benefit on its June 30, 2005 federal tax return filed on March 15, 2006, the Company recorded an $8.5 million benefit
for the quarter ended March 31, 2006. This $8.5 million benefit is incremental to the $5.0 million benefit recorded in the quarter ended March 31, 2005. As a result of the resolution with the IRS, the Company expects to realize a total net
cash benefit of $37.4 million. The Company received $11.8 million in the fourth quarter of fiscal 2006 and $2.6 million in the first quarter of fiscal 2007 and expects to utilize the balance in future years as a reduction to income taxes otherwise
payable on future income earned.

The Companys effective income tax rate was 33.3% for the first quarter of fiscal 2007, compared to 34.9% for the
first quarter of fiscal 2006. The Companys effective tax rate differs from the expected income tax expense calculated by application of the federal statutory rate primarily due to (i) the impact of state income taxes, (ii) operating
results from foreign operations, and (iii) the impact from certain permanent book-to-tax differences.

The tax rate applied to employee benefit plan
accruals was adjusted during the first quarter of fiscal 2007 to be consistent with the rate used to determine all other deferred tax assets and liabilities, resulting in other comprehensive income of $0.9 million for the first quarter of fiscal
2007.

Discontinued Operations

In January 2002,
the Company sold its Atlanta-based Cadmus Creative Marketing division and reported a $1.2 million loss from discontinued operations in the third quarter of fiscal 2002. In connection with this sale, the Company entered into a lease guaranty and
other agreements. In March 2005, the purchaser/tenant under the lease defaulted on its lease obligations. As a result, the Company recorded an estimate of its potential obligations under the guaranty and other costs totaling $1.5 million, net of
$0.8 million in federal income taxes, for the three and nine months ended March 31, 2005. During the first quarter of fiscal 2007, the Company recorded a gain from discontinued operations of $0.01 per share as a result of the elimination of
remaining reserves in excess of final costs incurred and paid during the first quarter of fiscal 2007.

Net Income

Net income totaled $0.1 million for the first quarter of fiscal 2007, compared to $2.2 million for the first quarter of fiscal 2006. Net income for the three months ended
September 30, 2006 includes a benefit from restructuring activities of $0.2 million, net of $0.1 million in taxes, and a gain from discontinued operations of $65.0 thousand, net of $33.0 thousand in taxes. Included in results for the first
quarter of fiscal 2006 are restructuring and other charges of $0.5 million, net of $0.2 million in taxes.

Earnings Per Share

The Company reported net income of $0.01 per diluted share for the first quarter of fiscal 2007, compared to $0.23 per diluted share in the first quarter of fiscal 2006.
Included in the results for the three months ended September 30, 2006, are a benefit from restructuring activities of $0.2 million, or $0.02 per diluted share net of taxes, and a gain from discontinued operations of $65.0 thousand, or $0.01 per
diluted share net of taxes. Included in the results for the three months ended September 30, 2005, are restructuring and other charges of $0.7 million, or $0.05 per share net of taxes. Adjusted for these items, adjusted income (loss) per
diluted share was $(0.02) and $0.28 for the three months ended September 30, 2006 and 2005, respectively.



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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 included in this report certain non-GAAP financial measures. The non-GAAP financial measures
used in this report are not GAAP financial measures and should not be viewed as a substitute for any GAAP financial measure. 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.

The Company included the following non-GAAP financial measures in
this report: (1) adjusted operating income and adjusted operating income margin adjusted to exclude restructuring and other benefit of $0.3 million for the three months ended September 30, 2006, and a restructuring
and other charge of $0.7 million for the three months ended September 30, 2005, and (2) adjusted income (loss) per diluted share adjusted in the same manner and for the same items as adjusted operating income and to exclude the
gain from discontinued operations of $0.01 per diluted share for the three months ended September 30, 2006.

These non-GAAP financial measures provide
useful information to investors to assist in understanding the underlying operational performance of the Company. Specifically, the exclusion of restructuring and other charges (benefits) permits comparisons of results for on-going business
facilities under the current operating structure and the exclusion of the impact of discontinued operations permits comparisons of continuing business operations. 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 three months of fiscal 2007 totaled $12.2 million, compared to $7.3 million for the first three months of fiscal 2006. The reduction in earnings was more than
offset by year-over-year net changes in working capital accounts and other assets, which include cash provided by a $3.8 million increase in life insurance policy loans.

Investing Activities

Net cash used in investing activities was $3.6 million for the first three months of
fiscal 2007, compared to $9.2 million in the prior year. Capital expenditures for the first three months of fiscal 2007 totaled $5.9 million, compared to $8.6 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 Companys equipment replacement and consolidation plan. Proceeds from the sales of property, plant and equipment totaled $2.9 million in the first
quarter of fiscal 2007, compared to $0.1 million in the prior year. The increase is attributable to the sale of a building and equipment in connection with the Companys equipment replacement and consolidation plan. Advances to PeriscopeCadmus,
which was formed on June 29, 2006, totaled $0.5 million for the first quarter of fiscal 2007. The Company estimates that total capital expenditures for fiscal 2007 will be approximately $16.0 to $18.0 million.

Financing Activities

Net cash used in financing activities
was $8.6 million for the first three months of fiscal 2007, compared to net cash provided by financing activities of $2.5 million for the first three months of fiscal 2006. For the three months ended September 30, 2006, cash generated by
operating activities, net of cash used in investing activities was predominantly used to reduce long-term borrowings by $8.2 million. Additionally, cash used to pay $0.6 million in dividends during the first quarter of fiscal 2007 was partially
offset by proceeds of $0.2 million from the exercise of stock options. For the first quarter of fiscal 2006, an increase in total debt of $2.5 million and a $0.6 million dividend payment were partially offset by $0.6 million in proceeds from the
exercise of stock options.

Long-term debt at September 30, 2006 totaled $190.2 million, compared to $196.7 million at June 30, 2006. The balance
at September 30, 2006 was comprised of $54.6 million in borrowings under a revolving senior bank credit facility, $125.0 million of 8.375% senior subordinated notes due 2014, $13.1 million in term loan agreements (including $1.9 million in
current maturities), and ($0.5) million of fair market value of interest rate swap agreements. The balance at June 30, 2006 was comprised of $62.2 million in borrowings under the revolving senior bank credit facility, $125.0 million of 8.375%
senior subordinated notes due 2014, $13.7 million in term loan agreements (including $2.6 million in current maturities), and ($1.7) million of fair market value of interest rate swap agreements. See Notes 8 and 9 of the Notes to Condensed
Consolidated Financial Statements included in this report on Form 10-Q for further discussion.



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##### Table of Contents

At September 30, 2006, there were approximately $54.6 million in borrowings outstanding under the senior bank credit
facility and approximately $2.6 million of standby letters of credit outstanding against which no claims had been made. Based upon the borrowing base computation included in the senior bank credit facility, the Companys total available
borrowings were limited to approximately $88.4 million. Therefore, the Companys revolving credit availability was approximately $31.2 million at September 30, 2006. The senior bank credit facility expires on January 28, 2008.

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

Off Balance Sheet Items

As of September 30, 2006, there have been no material changes to the off balance sheet items disclosed in Managements Discussion
and Analysis in the Companys annual report on Form 10-K for the fiscal year ended June 30, 2006.

Obligations and Commitments

As of September 30, 2006, 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 annual report on Form 10-K for the fiscal year ended June 30, 2006.

The Company is required to make certain minimum contributions to its defined benefit pension plans. The amount of any contributions will directly depend upon future changes in investment values, rates of return, discount rates, plan
benefits and design, and changes in regulatory or legislative rules covering such plans, among other factors. The Company anticipates having to contribute $2.5 million and $5.1 million to its primary defined benefit pension plan, and $1.0 million
and $0.3 million to its other defined benefit pension plans in fiscal 2007 and the first quarter of fiscal 2008, respectively. Accrued expenses and other current liabilities include $8.9 million and $3.6 million as of September 30, 2006 and
June 30, 2006, respectively, related to these anticipated contributions.

Recently Issued Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair Value Measurements (SFAS 157), which defines
fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 is first effective for the Companys fiscal year ending June 30,
2008. Management is currently evaluating the impact that the adoption of this statement will have on the Companys consolidated financial position and results of operations.

In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans (an amendment of FASB Statements No. 87, 88, 106, and 132R) (SFAS
158). SFAS 158 requires an employer to recognize the funded status of each of its defined pension and postretirement benefit plans as a net asset or liability in its statement of financial position with an offsetting amount in accumulated
other comprehensive income, and to recognize changes in that funded status in the year in which changes occur through comprehensive income. This requirement is effective for the Companys June 30, 2007 year-end. The provisions of SFAS 158
are to be applied on a prospective basis; therefore, prior periods presented will not be restated. Management is currently evaluating the impact that the adoption of this statement will have on the Companys consolidated financial position and
results of operations.

Additionally, SFAS 158 requires an employer to measure the funded status of each of its plans as of the date of its year-end
statement of financial position. This provision is effective for the Companys June 30, 2008 year-end. The funded status of the Companys pension and other postretirement benefit plans are currently measured as of March 31.

In July 2006, the FASB issued Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, which clarifies the accounting
for uncertainty in income taxes recognized in the financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 provides guidance on financial statement recognition and measurement of a tax position taken
or expected to be taken in a tax return. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after
December 15, 2006. Management is currently evaluating the impact that the adoption of FIN 48 will have on the Companys consolidated financial position and results of operations.



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##### Table of Contents

In September 2006, the U.S. Securities and Exchange Commission released Staff Accounting Bulletin 108 (SAB
108), which provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. SAB 108 requires registrants to quantify misstatements
using both the balance-sheet and income-statement approaches and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. SAB 108 does not change the staffs
previous guidance in SAB 99 on evaluating the materiality of misstatements. When the effect of initial adoption is determined to be material, SAB 108 allows registrants to record that effect as a cumulative-effect adjustment to beginning-of-year
retained earnings. The requirements are effective for the Companys fiscal year ending June 30, 2007. The adoption of SAB 108 had no impact on the Companys condensed consolidated financial statements.

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 and government services markets, (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, (11) our ability to realize the tax benefits associated with certain transactions, and (12) our ability to implement and realize the expected benefits associated with our increased
operations in Asia and the business opportunities available to the PeriscopeCadmus joint venture. Other risk factors are detailed from time to time in our other Securities and Exchange Commission filings. The information provided in this
report is provided only as of the date of this report, and we undertake no obligation to update any forward-looking statements made herein.



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##### 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 annual report on Form 10-K for the year ended June 30, 2006. Additional information concerning the
Companys quantitative and qualitative disclosures about market risk is included in Note 9 of the Notes to Condensed Consolidated Financial Statements and under the caption Managements Discussion and Analysis  Liquidity and
Capital Resources in this report on Form 10-Q for the quarterly period ended September 30, 2006, and is incorporated herein by reference.

ITEM 4. CONTROLS AND PROCEDURES

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

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

The Companys management is also responsible
for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. No changes in the Companys internal control over financial reporting occurred during the Companys most recent fiscal quarter that have materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial reporting.



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##### Table of Contents

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

As of September 30, 2006, there have been no material changes in the risk factors faced
by the Company from those disclosed in the Companys annual report on Form 10-K for the year ended June 30, 2006.

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

The table below sets forth information with respect
to the Companys repurchases of its common stock during the three months ended September 30, 2006.



|                     |  |                                |  |                             |       |                                                                       |       |                                                                              |  
|-------------------- |  | ------------------------------ |  | --------------------------- | ----- | --------------------------------------------------------------------- | ----- | ---------------------------------------------------------------------------- | -
|Period               |  | Total Numberof SharesPurchased |  | Average PricePaid Per Share |       | Total Number of SharesPurchased as Part ofPublicly AnnouncedPrograms1 |       | Maximum Number ofShares that May Yet BePurchased Under thePlans or
Programs1
|July 1- 31, 2006     |  | 2,000                          |  | $                           | 17.48 |                                                                       | 2,000 |                                                                              | 
|August 1-31, 2006    |  |                               |  |                             |      |                                                                       |      |                                                                              | 
|September 1-30, 2006 |  |                               |  |                             |      |                                                                       |      |                                                                              | 
|                     |  |                                |  |                             |       |                                                                       |       |                                                                              |  
|Total                |  | 2,000                          |  |                             |       |                                                                       | 2,000 |                                                                              | 

---

|(1) | 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 were intended to reduce possible dilution in connection with the exercise of stock options. The Company terminated its repurchase program on July 20, 2006.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ITEM 5. OTHER INFORMATION

Wayne B. Luck has resigned as Senior Vice President and Chief Information Officer of the
Company, effective as of November 9, 2006. He is leaving to work for a non-competing company in the Richmond, Virginia area.



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##### Table of Contents

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)).                                    
|        | 
|10.8.1* |  | Form of Non-Qualified Stock Option Agreement under the 2004 Key Employee Stock Compensation Plan, 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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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.



|                                  |  |                                                  
|--------------------------------- |  | -------------------------------------------------
|CADMUS COMMUNICATIONS CORPORATION
|(Registrant)                     
|                                  | 
|Date:                             |  | November 9, 2006                                 
|                                  | 
|                                  |  | /s/ Bruce V. Thomas                              
|                                  |  | Bruce V. Thomas                                  
|                                  |  | President and Chief Executive Officer            
|                                  |  | (Principal Executive Officer)                    
|                                  | 
|Date:                             |  | November 9, 2006                                 
|                                  | 
|                                  |  | /s/ Paul K. Suijk                                
|                                  |  | Paul K. Suijk                                    
|                                  |  | Senior Vice President and Chief Financial Officer
|                                  |  | (Principal Financial and Accounting Officer)     



23