Management's Discussion and Analysis of Financial Condition and Results of Operations may contain various forward-looking statements and includes assumptions concerning the Company's operations, future results and prospects. These forward-looking statements are based on current expectations and are subject to risk and uncertainties. In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company provides this cautionary statement identifying important economic, political and technological factors, among others, the absence or effect of which could cause the actual results or events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions. Such factors include the following: (1) the impact on business conditions in general, and on the demand for product in the aerospace and power generation industries in particular, of the global economic outlook, including the availability of capital and liquidity from banks and other providers of credit; (2) future business environment, including capital and consumer spending; (3) competitive factors, including the ability to replace business which may be lost;
(4) successful development of turbine component repair processes and/or procurement of new repair process licenses from turbine engine manufacturers and/or the Federal Aviation Administration; (5) metals and commodities price increases and the Company's ability to recover such price increases;
(6) successful development and market introduction of new products and

The Company and its subsidiaries engage in the production and sale of a variety of metalworking processes, services and products produced primarily to the specific design requirements of its customers. The processes and services include both conventional and precision forging, heat-treating, coating, welding, precision component machining and selective plating. The products include conventional and precision forged components, machined forged components, other machined metal components, remanufactured component parts for turbine engines, and selective plating solutions and equipment. The Company's operations are conducted in three business segments: (1) Forged Components Group, (2) Turbine Component Services and Repair Group, and (3) Applied Surface Concepts Group.

The Company endeavors to plan and evaluate its businesses' operations while taking into consideration certain factors including the following - (i) the projected build rate for commercial, business and military aircraft as well as the engines that power such aircraft, (ii) the projected build rate for industrial gas turbine engines, (iii) the projected maintenance, repair and overhaul schedules for commercial, business and military aircraft as well as the engines that power such aircraft, and (iv) anticipated exploration and production activities relative to oil and gas products, etc.

The primary factor that impacts the operating income of all three of the Company's business segments, in a similar manner, is net sales and related production volumes. This is due to the fact that each of the Company's segments operates within a cost structure that includes a significant fixed component. Therefore, higher net sales volumes are expected to result in greater operating income because such higher volumes allow the business segments' operations to better leverage the fixed component of their respective cost structures. Conversely, the opposite effect is expected to occur at lower net sales and related production volumes.

A. Results of Operations

Non-GAAP Financial Measures

Presented below is certain financial information based on our EBITDA and Adjusted EBITDA. References to "EBITDA" mean earnings before interest, taxes, depreciation and amortization, and references to "Adjusted EBITDA" mean EBITDA plus, as applicable for each relevant period, certain adjustments as set forth in the reconciliations of net income to EBITDA and Adjusted EBITDA.

Neither EBITDA nor Adjusted EBITDA is a measurement of financial performance under accounting principles generally accepted in the United States of America ("GAAP"). The Company presents EBITDA and Adjusted EBITDA because (i) it believes they are useful indicators for evaluating operating performance and liquidity, including the Company's ability to incur and service debt and (ii) it uses EBITDA to evaluate prospective acquisitions. Although the Company uses EBITDA and Adjusted EBITDA for the reasons noted, the use of these non-GAAP financial measures as analytical tools has limitations and, therefore, reviewers of the Company's financial information should not consider them in isolation, or as a substitute for analysis of its results of operations as reported in accordance with GAAP. Some of these limitations are:

• Neither EBITDA nor Adjusted EBITDA reflects the interest expense, or the cash requirements necessary to service interest payments, on indebtedness;

• Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and neither EBITDA nor Adjusted EBITDA reflects any cash requirements for such replacements;

• The omission of the substantial amortization expense associated with the Company's intangible assets further limits the usefulness of EBITDA and Adjusted EBITDA;

• Neither EBITDA nor Adjusted EBITDA includes the payment of taxes, which is a necessary element of operations; and

• Adjusted EBITDA excludes the cash expense the Company has incurred to acquire businesses.

Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as measures of discretionary cash available to the Company to invest in the growth of its businesses. Management compensates for these limitations by not viewing EBITDA or Adjusted EBITDA in isolation and specifically by using other GAAP measures, such as net income, net sales and operating profit, to measure operating performance. Neither EBITDA nor Adjusted EBITDA is a measurement of financial performance under GAAP, and neither should be considered as an alternative to net income or cash flow from operations determined in accordance with GAAP. The Company's calculation of EBITDA and Adjusted EBITDA may not be comparable to the calculation of similarly titled measures reported by other companies.

(Dollars in thousands)                                Three Months Ended            Six Months Ended
                                                          March  31,                   March 31,
                                                      2012           2011          2012          2011
Net income                                         $    1,724       $ 1,995          2,910      $ 3,201
Adjustments:
Depreciation and amortization expense                   1,595         1,385          3,255        2,005
Interest expense, net                                     131            33            218           31
Income tax provision                                      972         1,007          1,519        1,658


EBITDA                                                  4,422         4,420          7,902        6,895
Adjustments:
Inventory purchase accounting adjustments (1)             216           110            441          202
Acquisition transaction-related expenses (2)              105            25            229          173
Equity compensation expense (3)                           329           123            567          177
LIFO provision (4)                                        269           183            428          225


Adjusted EBITDA                                    $    5,341       $ 4,861          9,567      $ 7,672

(1) Represents accounting adjustments to inventory associated with acquisitions of businesses that were charged to cost of sales when the inventory was sold.

(2) Represents transaction-related costs comprising legal, financial and tax due diligence expenses; and valuation services costs that are required to be expensed as incurred.

(3) Represents the equity based compensation expense recognized by the Company under its 2007 Long-term Incentive Plan.

(4) Represents the increase in the reserve for inventories for which cost is determined using the last in, first out ("LIFO") method.

Six Months Ended March 31, 2012 compared with Six Months Ended March 31, 2011

Net sales in the first six months of fiscal 2012 increased 29.9% to $62.6 million, compared with $48.2 million in the comparable period in fiscal 2011. Net income in the first six months of fiscal 2012 was $2.9 million, compared with $3.2 million in the comparable period in fiscal 2011. EBITDA in the first six months of fiscal 2012 was $7.9 million, or 12.6% of net sales, compared with $6.9 million, or 14.3% of net sales, in the comparable period in fiscal 2011. Adjusted EBITDA in the first six months of fiscal 2012 was $9.6 million, or 15.3% of net sales, compared with $7.7 million, or 15.9% of net sales, in the comparable period in fiscal 2011. See "Non-GAAP Financial Measures" above for certain information regarding EBITDA and Adjusted EBITDA, including reconciliations of EBITDA and Adjusted EBITDA to net income. As discussed more fully in Note 11 to the unaudited consolidated condensed financial statements, the Company completed the purchase of the forging business and substantially all related operating assets of Quality Aluminum Forge ("QAF") and T&W Forge ("TWF") on October 28, 2011 and December 10, 2010, respectively.

Forged Components Group ("Forge Group")

The Forge Group consists of the production, heat-treatment, surface-treatment, non-destructive testing, and machining of both conventional and precision forged components in various steel, titanium and aluminum alloys utilizing a variety of processes for application principally in the aerospace and power generation industries. The Forge Group's results for the first six months of fiscal 2012 include the results of QAF from the date of its acquisition. The Forge Group's results for the first six months of fiscal 2011 include the results of TWF from the date of its acquisition.

Net sales in the first six months of fiscal 2012 increased 40.0% to $50.9 million, compared with $36.3 million in the comparable period of fiscal 2011. The Forge Group produces forged components for (i) turbine engines that power commercial, business and regional aircraft as well as various military aircraft and armored military vehicles; (ii) airframe applications for a variety of aircraft; (iii) industrial gas turbine engines for power generation units; and
(iv) other commercial applications. Net sales comparative information for the first six months of fiscal 2012 and 2011, respectively, is as follows:

    (Dollars in millions)                          Six Months Ended
                                                      March  31,            Increase
    Net Sales                                      2012          2011      (Decrease)

    Aerospace components for:
    Fixed wing aircraft                          $    24.7      $ 16.3     $       8.4
    Rotorcraft                                        14.3        12.4             1.9
    Components for power generation units              9.4         5.5             3.9
    Commercial product sales and other revenue         2.5         2.1             0.4


    Total                                        $    50.9      $ 36.3     $      14.6

The Forge Group's aerospace components have both military and commercial applications. Net sales of such components that solely have military applications were $16.5 million in the first six months of fiscal 2012, compared with $15.4 million in the comparable period in fiscal 2011. Demand for additional military helicopters and related replacement components are the primary driver of the sales demand for components for military applications.

The Forge Group's cost of goods sold increased $12.3 million to $40.5 million, or 79.6% of net sales, during the first six months of fiscal 2012, compared with $28.2 million, or 77.7% of net sales, in the comparable period in fiscal 2011. Cost of goods sold as a percentage of net sales reflected an increase in the first six months of fiscal 2012, compared to the comparable period in fiscal 2011, due to the net impact of the changes in the following components of manufacturing related expenditures:

• The material component of manufacturing costs was approximately 36.3% of net sales during the first six months of fiscal 2012, compared with 37.5% of net sales in the comparable period in fiscal 2011, due primarily to the mix of product - a higher concentration of products, with lower material content, were sold during the first six months of fiscal 2012, compared with the comparable period in fiscal 2011.

• All other manufacturing costs were approximately 43.3% of net sales during the first six months of fiscal 2012, compared with 40.2% of net sales in the comparable period in fiscal 2011. Labor costs were higher principally due to the mix of product - a higher concentration of products with higher labor content were sold during the first six months of fiscal 2012, compared with the comparable period in fiscal 2011. The Forge Group also experienced a reduction in its labor efficiency during the first six months of fiscal 2012, compared with the comparable period in fiscal 2011. The following changes in the components of the Forge Group's other manufacturing overhead expenditures during the first six months of fiscal 2012, a portion of which was due to the acquisitions of QAF and TWF, compared with the same period in fiscal 2011, also impacted cost of goods sold:

                                                      Six Months Ended March 31,
(Dollars in millions)                              2012                        2011
                                                           % of                        % of          $ Amount
                                             $             Net            $            Net           Increase
Manufacturing overhead expenditures        Amount         Sales         Amount        Sales         (Decrease)

Utilities                                      2.4           4.8            2.3          6.2                0.1
Repairs, maintenance and supplies              2.2           4.4            1.6          4.4                0.6
Depreciation                                   1.3           2.6            0.8          2.2                0.5
Tooling                                        1.5           3.0            1.1          3.1                0.4

Manufacturing costs in the first six months of fiscal 2012, compared with the same period in fiscal 2011, increased due to (i) an increase in manufacturing expenditures required to support the $14.6 million of additional product sales volume and (ii) an increase in depreciation expense, both of which were primarily attributable to the acquisitions of TWF and QAF. These higher costs were partially offset by a decrease in the cost of natural gas in the first six months of fiscal 2012, compared with the same period in fiscal 2011.

The Forge Group's operating income increased $0.6 million to $5.8 million in the first six months of fiscal 2012, compared with $5.2 million in the comparable period in fiscal 2011. The following is a comparison of operating income on both a LIFO and FIFO basis:

      (Dollars in millions)                     Six Months Ended
                                                   March  31,             Increase
      Operating Income                          2012          2011       (Decrease)

      Operating income                        $    5.8       $  5.2     $        0.6
      LIFO expense                                 0.4          0.2              0.2


      Operating income without LIFO expense   $    6.2       $  5.4     $        0.8

The Forge Group's operating income in the first six months of fiscal 2012 was favorably impacted by the increase in gross profit that resulted from the $13.3 million of additional product sales volumes that resulted from the acquisitions of TWF and QAF plus the net impact of the other cost of goods sold and selling, general and administrative expense factors noted above.

The Forge Group's backlog as of March 31, 2012 was $103.8 million, of which $84.1 million was scheduled for delivery over the next twelve months, compared with $92.2 million as of September 30, 2011, of which $74.3 million was scheduled for delivery over the next twelve months. $15.6 million of the Forge Group's backlog as of March 31, 2012 is attributable to the impact of the recently acquired QAF business. All orders are subject to modification or cancellation by the customer with limited charges. Delivery lead times for certain raw materials (e.g. aerospace grades of steel) have continued to lengthen due to increased demand and the Forge Group believes that such lead time increase may ultimately result in a fundamental shift in the ordering pattern of its customers. The Forge Group believes that a likely result of such a shift is that customers may place orders further in advance than they previously did, which may result in an increase, relative to comparable prior year periods, in the Forge Group's backlog. Accordingly, such backlog increase, to the extent it may occur, is not necessarily indicative of actual sales expected for any succeeding period.

Turbine Component Services and Repair Group ("Repair Group")

Net sales in the first six months of fiscal 2012, which consists principally of component repair services (including precision component machining and industrial coatings) for small aerospace turbine engines, decreased 19.1% to $4.0 million, compared with $5.0 million in the comparable fiscal 2011 period.

The Repair Group's cost of goods sold decreased $0.3 million to $3.8 million, or 94.1% of net sales, during the first six months of fiscal 2012, compared with $4.1 million, or 81.7% of net sales, in the comparable period in fiscal 2011. Cost of goods sold as a percentage of net sales reflected an increase in the first six months of fiscal 2012, compared to the comparable period in fiscal 2011, due principally to the Repair Group maintaining a minimum/base cost structure that has a large fixed component that is determined necessary to sustain an operation with relevant capabilities.

During the first six months of fiscal 2012, the Repair Group's selling, general and administrative expenses were $0.7 million, or 17.3% of net sales, compared with $0.7 million, or 14.6% of net sales, in the comparable fiscal 2011 period.

The Repair Group's operating income decreased $0.7 million to a loss of $0.5 million in the first six months of fiscal 2012, compared with income of $0.2 million in the comparable period in fiscal 2011. Operating income in the first six months of fiscal 2012 was negatively impacted by the significantly lower product sales volumes in relation to the large fixed component of the Repair Group's operating cost structure.

The Repair Group's backlog was $1.3 million as of March 31, 2012, of which $0.1 million was scheduled for delivery over the next twelve months, compared with $1.2 million at September 30, 2011, of which $0.4 million was scheduled for delivery over the next twelve months.

Net sales in the first six months of fiscal 2012 increased 11.6% to $7.7 million, compared with $6.9 million in the comparable fiscal 2011 period. For purposes of the following discussion, (i) product net sales consist of selective plating equipment and solutions and (ii) contract service net sales consist of customized selective plating services. Net sales comparative information for the first six months of fiscal 2012 and 2011, respectively, is as follows:

              (Dollars in millions)     Six Months Ended
                                           March  31,             Increase
              Net Sales                 2012          2011       (Decrease)

              Product                 $    3.9       $  3.6     $        0.3
              Contract service             3.7          3.2              0.5
              Other                        0.1          0.1              0.0


              Total                   $    7.7       $  6.9     $        0.8

The increase in product net sales in the first six months of fiscal 2012, compared with the same period in fiscal 2011, is attributed to an increase in net sales volumes of selective plating equipment as well as a general price increase implemented at the beginning of the second quarter of fiscal 2012. The increase in contract service net sales in the first six months of fiscal 2012, compared with the same period in fiscal 2011, is attributed to an increase in the volume of contract services provided to customers. A portion of the ASC Group's business is conducted in Europe and is denominated in local European currencies. Fluctuations in currency exchange rates during the first six months of fiscal 2012, compared with the same period in fiscal 2011, had a nominal impact on net sales.

The ASC Group's cost of goods sold increased $0.3 million to $4.4 million, or 56.5% of net sales, during the first six months of fiscal 2012, compared with $4.0 million, or 58.1% of net sales, in the comparable period in fiscal 2011. Cost of goods sold as a percentage of net sales reflected a decrease in the first six months of fiscal 2012, compared to the first six months of fiscal 2011, due principally to the following:

• The material component of cost of goods sold was approximately 20.3% of net sales during the first six months of fiscal 2012, compared with 18.5% of net sales in the comparable period in fiscal 2011, due principally to certain higher commodity prices and the mix of product - a higher concentration of products and contract services, with higher material content, were sold during the first six months of fiscal 2012, compared with the same period in fiscal 2011

• All other cost of goods sold were approximately 36.2% of net sales during the first six months of fiscal 2012, compared with 39.6% of net sales in the comparable period in fiscal 2011. The primary reason for the reduction of all other cost of goods sold as a percentage of net sales is the impact of higher sales volumes during the first six months of fiscal 2012, compared with the same period in fiscal 2011, which allowed the ASC Group to favorably leverage the fixed component of its operating cost structure.

The ASC Group's selling, general and administrative expenses were $2.6 million, or 34.3% of net sales, in the first six months of fiscal 2012, compared with $2.3 million, or 33.7% of net sales in the comparable fiscal 2011 period. The $0.3 million increase is due primarily to an increase in sales promotion efforts and the filling of an open sales position.

The ASC Group's operating income in the first six months of fiscal 2012 was $0.7 million, compared with $0.6 million in the same period in fiscal 2011. This improvement in operating income is due to the net impact of the reasons noted above.

The ASC Group's backlog as of March 31, 2012 was not material, which is consistent with the nature of its business.

Corporate Unallocated Expenses

Corporate unallocated expenses, consisting of corporate salaries and benefits, legal and professional and other expenses that are not related to and, therefore, not allocated to the business segments, were $1.6 million in the first six months of fiscal 2012, compared with $1.3 million in the same period in fiscal 2011. The $0.3 million increase is due to a $0.2 million increase in compensation and benefits expense principally related to the Company's long-term equity incentive plan and a $0.1 million increase in legal and professional expense.

Other/General

Interest expense was $0.2 million in the first six months of fiscal 2012, compared to $0.1 million in the same period in fiscal 2011. In connection with the October 2011 acquisition of the QAF business, the Company borrowed $12.4 million from its

                                  Weighted Average                 Weighted Average
                                    Interest Rate                Outstanding Balance
                                  Six Months Ended                 Six Months Ended
                                      March 31,                       March 31,
                                  2012          2011            2012              2011

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