What did you do, golf mine? :)

I was unaware at that property of ^, very nice... in fact, I'm not ever sure why that works. Time for me to hit perlman:perlop.

Update:

Ok, its like this: ^ is XOR. That means the bit returns true if and only if one of the 2 bits is true:

lc $new # lowercase the replacement
^ $1    # XOR with $1 - will increase the values by
        # the corresponding ascii value of each character
        # of $1
^ lc $1 # XOR with lc $1 - basically, it will subract the
        # ascii values of lowercase $1 - if the values were
        # lowercase to begin with, the resulting sum is 0,
        # otherwise, the increase is enough to uppercase
        # the corresponding character
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