2.	Acquisition and Strategic Partnership

Acquisitions

Latrobe Specialty Metals, Inc.

On January 13, 2012, the Agreement and Plan of Merger dated June 20, 2011 pursuant to which the Company intends to acquire Latrobe Specialty Metals, Inc. ("Latrobe") was amended (as amended, the "Merger Agreement"). Pursuant to the Merger Agreement, the closing of the resulting merger (the "Merger") is subject to the satisfaction or waiver of certain conditions. The expected closing of the Merger has been delayed as a result of the regulatory process under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR"). In August 2011, the Company and Latrobe announced that each party received a request for additional information from the U.S. Federal Trade Commission ("FTC") in connection with the Merger. The request for information from the FTC, commonly referred to as a "Second Request" is part of HSR and has resulted in the need for additional time to provide the additional information requested. The parties have worked to respond expeditiously to this request and continue to work cooperatively with the FTC to obtain HSR clearance as promptly as possible. Closing of the transaction remains subject to the expiration or termination of the HSR waiting period and satisfaction of other customary closing conditions. The Company currently expects that closing of the transaction will occur during the third quarter of fiscal year 2012.

According to the terms of the Merger Agreement, the Company will issue 8.1 million shares of the Company's common stock to Latrobe's stockholders, subject to certain adjustments for working capital and other items. The Company will assume all third-party indebtedness incurred by Latrobe and will pay certain fees and expenses incurred by Latrobe in connection with the Merger or incurred prior to the Merger in connection with prior proposed securities offerings; provided, however, if the amount of debt or fees and expenses exceed certain thresholds, any excess amounts shall reduce the number of shares of Company common stock to be issued to Latrobe's stockholders.

Under the Merger Agreement, a portion of the shares to be issued as merger consideration will be placed into escrow to secure Latrobe's indemnification obligations and to account for pension funding issues of Latrobe. An indemnity escrow equal to $50 million worth of the Company common stock will be created to cover general indemnification claims. Assuming no claims are asserted, half of the indemnity escrow will be released on the first anniversary of the closing and the remaining shares will be released after 24 months. An additional 300,000 shares will be placed into a pension escrow account in connection with Latrobe's Pension Funding Issues. The shares of Company common stock that will be placed in the pension escrow account may be reduced in the event that the working capital of Latrobe exceeds a certain threshold amount. After any adjustment based on the working capital of Latrobe, any remaining pension escrow shares will be released from the pension escrow over a period of 5 years following closing based on the level of a particular fixed income index over such 5-year period.

The Company has agreed that, upon consummation of the Merger and until the Company's 2014 annual meeting of stockholders, certain of Latrobe's stockholders will designate two persons who will be appointed to the Company's Board of Directors. Certain of Latrobe's stockholders (including those that have the right to designate directors to the Company's Board of Directors) will, upon consummation of the Merger, agree that (i) during the period in which such Latrobe stockholders may appoint designees to the Company's Board of Directors (or, in the event such designees resign from the Company's Board of Directors, such shorter period) they will vote the shares of the Company's common stock in favor of the Company's nominees for directors and consistent with the recommendations of the Company's Board of Directors on other matters, and (ii) for a period of five years following the consummation of the Merger, the Latrobe stockholders will not acquire any additional shares of the Company's common stock or, with limited exceptions, sell their shares of the Company's common stock where such sale would result in a third party's ownership of more than 5% of the Company's outstanding common stock. The Company has also agreed to grant limited registration rights in favor of such Latrobe stockholders.

The Merger Agreement provides that either party may terminate the agreement in the event the Merger is not consummated by April 30, 2012, as long as the terminating party was not the cause for the consummation not occurring. If the Merger Agreement is terminated as a result of a failure to consummate the Merger by April 30, 2012, the Company shall be required to pay Latrobe a $5 million fee and will also be required to reimburse Latrobe for certain costs incurred in connection with seeking applicable antitrust approvals.

In connection with the Merger Agreement, the Company incurred approximately $2.4 million and $3.8 million of acquisition related costs during the three months and six months ended December 31, 2011, respectively.

Arwin Machining Plus, Ltd.

On December 15, 2011, the Company acquired substantially all of the assets of Arwin Machining Plus, Ltd. for a cash purchase price of $1.4 million. The assets, consisting principally of machinery and equipment will become integrated into the Canadian operations of Amega West Services, a wholly owned subsidiary of the Company. The Company believes the acquisition enhances Amega West's machining capabilities by adding the expertise and positions necessary to increase responsive to customers and to assist with the development of new directional drilling applications. The purchase price was allocated $0.7 million to machinery and equipment and $0.7 million to goodwill, all of which is expected to be deductible for tax purposes.

Amega West Services

On December 31, 2010, the Company acquired all of the members' interests in Amega West Services, LLC ("Amega West"), a Houston-based manufacturer and service provider in the directional drilling industry, for a cash purchase price of $41.6 million. In connection with this acquisition, the Company also assumed $12.4 million of Amega West's long-term debt, which was paid off in cash concurrently with closing of the purchase. Amega West is a leading manufacturer of high-precision components for measurement while drilling ("MWD") and logging while drilling ("LWD") housings, drill collars, stabilizers and other down-hole tools used for directional drilling. MWD and LWD technology is used to ensure critical data is obtained and transmitted to the surface to monitor progress of the well. The consideration paid has been allocated as follows:


Net working capital, including $4.9 million of accounts payable to Carpenter effectively settled at closing	$	6.5
Property, plant and equipment		25.9
Customer relationships		5.2
Non-compete agreements		5.4
Trademarks and tradenames		1.9
Goodwill		9.7
Deferred tax liabilities		(0.6	)
Long-term debt		(12.4	)

Total purchase price	$	41.6

Of the goodwill recorded related to the Amega West acquisition, $8.3 million is expected to be deductible for tax purposes.

The purchase agreement includes an earn-out opportunity for certain management equity sellers, designed to drive earnings growth at Amega West. According to the terms of the earn-out, the Company held back approximately $2.8 million of the cash purchase price otherwise payable to the earn-out participants, and provided the participants with the opportunity to receive up to two times the holdback amount if certain earnings targets are achieved over a four and a half year period following the acquisition. $2.2 million of the earnout is guaranteed and is therefore considered as part of the total purchase price. The earnout payments in excess of the guaranteed minimum amount, if any, will be treated as compensation related to postcombination services.

The results of operations of Amega West have been included in the Consolidated Statements of Income since the acquisition date and are reported in the Performance Engineered Products segment. The acquisition of Amega West is not considered material to the consolidated financial statements and accordingly the Company will not disclose proforma information.

Oilfield Alloys

On June 27, 2011, the Company acquired Oilfield Alloys Pte. Ltd. ("Oilfield Alloys") for a purchase price of $4.8 million which consisted of a cash purchase price of $4.1 million, net of cash acquired of $0.3 million, paid at closing. The remaining purchase price of $0.7 million was held back to satisfy the occurrence of certain indemnification obligations, if any, and will be released to the sellers on the third anniversary of the acquisition less any indemnification claims. Based in Singapore, Oilfield Alloys manufactures and distributes directional drilling equipment in the Asia-Pacific region. A distributor of several Carpenter non-magnetic products, Oilfield Alloys also has a sales location in Dubai. Oilfield Alloys will become part of Amega West Services operations. The purchase price allocation was completed in the first quarter of fiscal year 2012 and resulted in the purchase price being allocated to $1.2 million of working capital, $1.7 million of property and equipment, $1.5 million of identifiable intangible assets and $0.4 million of goodwill.

Strategic Partnership

In the second quarter of fiscal year 2011, the Company established a strategic partnership with Sandvik Materials Technology ("Sandvik") to further strengthen its leadership position in high-performance powder metal products. As part of the strategic partnership, the Company acquired a 40 percent interest in Sandvik Powdermet AB for a cash purchase price of $6.2 million. The Company has treated the acquisition of the 40 percent interest in Sandvik Powdermet AB as an equity method investment. In addition, in connection with the strategic partnership, Sandvik acquired a 40 percent interest in Carpenter Powder Products AB for a cash purchase price of $9.1 million. Sandvik's acquired interest in Carpenter Powder Products AB has been reported as a noncontrolling interest.

Carpenter Powder Products AB, a subsidiary of the Company based in Torshalla, Sweden, manufactures high-alloy powder and is currently one of Sandvik Powdermet AB's major suppliers. The strategic partnership will provide the Company with access to Sandvik Powdermet AB's market for near-net-shape powder products and will ensure Sandvik's long-term supply of high quality powder. As the name implies, near-net-shapes are produced using a manufacturing technique in which the initial production of the item is very close to the final (net) shape, resulting in lower production costs for end users of the products. The strategic partnership is expected to provide accelerated growth opportunities for both companies in the powder metal markets, particularly in the energy end-use market. The two businesses, each with current annual revenues of approximately $20 million, will continue to operate under their current respective brands, Carpenter and Sandvik.