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Dynamic Materials Corporation

Dynamic Materials Corporation

5405 Spine Road
Boulder, Colorado 80301
U.S.A.
Telephone: (303) 665-5700
Toll Free: (800) 821-2666
Fax: (303) 604-1897
Web site: http://www.dynamicmaterials.com

Public Company
Incorporated:
1971 as Explosive Fabricators Inc.
Employees: 181
Sales: $79.29 million (2005)
Stock Exchanges: NASDAQ
Ticker Symbol: BOOM
NAIC: 332112 Nonferrous Forging; 332313 Plate Work Manufacturing; 332999 All Other Miscellaneous Fabricated Metal Product Manufacturing; 333132 Oil and Gas Field Machinery and Equipment Manufacturing; 336412 Aircraft Engine and Engine Parts Manufacturing

Dynamic Materials Corporation (DMC) is a global leader in explosive metalworking. It also employs other metalworking processes, such as underwater forming, machining, and rolling. The company started out as a licensee of DuPont's technology to bond layers of dissimilar metals, then later acquired DuPont's explosive cladding operations. These materials are used to make large pressurized chemical holding tanks, autoclaves, heat exchangers, and other equipment used in the petrochemicals industry. The AMK Welding division performs specialized contract welding services for makers of aircraft engines and power generators. A little more than half of DMC's sales came from North America in 2005. In addition to its Colorado headquarters, the company has operations in Pennsylvania, France, and Sweden.

ORIGINS

The phenomenon of microfusion was observed as early as World War I, when bullets were fired into armor plates to join dissimilar metals that were not able to be welded by conventional methods. This also was observed in the remnants of bombed-out bridges in World War II.

E.I. DuPont de Nemours & Co., the chemicals giant, pioneered the practical application of explosive welding and discovered its Detaclad explosion-weld clad process in 1959. In this, a thin layer of explosive powder was ignited to join two layers of different metals by force, not heat. The metal sheets were set up with small gaps between them. The pressure of the explosion swept a layer of oxides and other contaminants from the surface of the plates so that the metals joined at a molecular level.

Denver aerospace firm Martin Marietta licensed the technology, using it to form jet engine parts. In 1965, a group of Colorado investors formed Explosive Fabricators, Inc. (EFI), which acquired Martin Marietta's explosive cladding business.

The main use of cladding was to retain or improve the properties of a high-performance metal, such as titanium, nickel, copper, or stainless steel, while keeping costs down with a cheap base metal such as carbon steel. The result was ideal for making enormous storage tanks for holding chemicals under pressure as well as heat exchangers.

EFI also had the "Dynaform" process, though this would account for only a fraction of revenues. The process involved using underwater shock waves to push a metal sheet onto a die. This resulted in extremely high tolerances due to the even diffusion of force through the water. It was used to produce precision parts for the aerospace industry: Boeing Company became a leading client, and the process was used to make nose cones for the Trident missile.

EFI was incorporated in Colorado on March 5, 1971. The company's headquarters was in Lafayette, with the explosive operations a two-hour drive away in Deer Trail in eastern Arapahoe County. EFI went public in 1976 under the NASDAQ ticker symbol "BOOM." DMC was reincorporated as a Delaware corporation on May 23, 1997.

Sales were $7.5 million in 1980. The company ended the 1980s with record annual revenues of $11 million. EFI landed a major new contract to produce ten-foot engine intake rings for Boeing Company. By this time EFI had about 100 employees. An executive told American Metal Market that the company then had a 70 percent share of the explosive cladding market.

A NEW DYNAMIC IN 1994

EFI hired a new president and chief executive in October 1993: Paul Lange. Lange, a chemical engineer by training, had previously been in charge of a division of Engelhard Corp., a precious metals supplier. EFI was renamed Dynamic Materials Corporation in December 1994. The company had added a 1,500-ton hydraulic metal press capable of producing three million pounds of force. Revenues were up to $19.5 million in 1995, when DMC had 90 employees.

DMC bought its main rival, DuPont's Detaclad operations, for $5 million in July 1996. This business, based in Pennsylvania, had been DMC's only significant U.S. rival, with annual sales of $11.2 million in 1995. The acquisition, which was the company's first ever, made DMC the largest explosive cladding operation in the world. Its sole competition came from firms in France and Japan, and the technical and financial barriers to entry were considerable. Part of the Detaclad operations included an explosive technology for making synthetic industrial diamonds.

Buying out the competition was a shrewd strategic move, raising DMC's share of the domestic market for explosion-clad metals to 95 percent. The company's income was reaching new highs, and its stock price quadrupled within 12 months. In August 1996, DMC announced its largest order to date: a contract to supply a manufacturer of mining autoclaves in Australia.

Under Lange's five years in charge, the company became more market oriented. It also made greater efforts to attract interest in its stock from the investment community. DMC was becoming more vertically integrated while keeping its newly acquired taste for acquisitions. It acquired equipment from its neighbor, Coors, to allow it to perform its own seam welding, a spokesperson told Boulder's Daily Camera.

BUILDING THE AEROSPACE SEGMENT IN 1998

DMC built up an aerospace segment in 1998, starting with the January acquisition of El Segundo, California's Spin Forge, L.L.C., which produced housings for missile motors and titanium tanks. Spin Forge had been a division of Dynamic Materials. Paul Lange stepped down in September 1998 and was replaced as CEO by Spin Forge's former vice-president, Joseph P. Allwein.

COMPANY PERSPECTIVES

Explosion-welded cladding technology is a method to weld metals that cannot be welded by conventional processes, such as titanium-steel, aluminum-steel, and aluminum-copper. It can also be used to weld compatible metals, such as stainless steels and nickel alloys to steel. The cladding metals are typically titanium, stainless steel, aluminum, copper alloys, nickel alloys, tantalum, and zirconium. The base metals are typically carbon steel, alloy steel, stainless steel and aluminum. Although the patents for the explosion-welded cladding process have expired, DMC Clad has proprietary knowledge that distinguishes it from its competitors. The entire explosion-welding process involves significant precision in all stages, and any errors can be extremely costly as they result in the discarding of the expensive raw material metals. DMC Clad's technological expertise is a significant advantage in preventing costly waste.

Two more aerospace companies were acquired in 1998: AMK Welding of Windsor, Connecticut, and Fort Collins, Colorado's Precision Machined Products, Inc. (PMP). The aerospace segment was making up a third of DMC's business, but it was growing quickly and accounted for more than half of gross profits. At the time, the Asian financial crisis was slowing down a number of capital projects that used materials from the company's explosive cladding business.

In 1999, DMC closed its plant in Louisville, Colorado, and moved the operations there to a new facility it was building in Dunbar, Pennsylvania, the site of the old Detaclad facility. The company kept its headquarters in Lafayette, Colorado, however. This left DMC with a single site for explosion weld cladding. Its operations there involved setting off a few tons of explosives inside mountain caves on a daily basis.

In June 1999 DMC announced that it was selling off the explosive cladding business for $17 million in order to focus on the aerospace industry, specifically the defense and satellite segment. The prospective buyer, Ametek Inc., backed out of the sale a few months later, however.

FRENCH CONTROL: 20002006

France's state-owned Groupe SNPE (Société Nationale de Poudres et Explosifs S.A.) had begun buying DMC shares in the spring of 1999 and acquired a majority holding in the company in June 2000. SNPE paid $5.8 million to raise its holding from 14.3 percent to 50.8 percent, and loaned another $1.2 million over five years. Groupe SNPE, a large aerospace, defense, and chemicals conglomerate, already owned the largest clad metal operation in France.

SNPE installed its own CEO but retained Allwein in a high-level executive post. Bernard Fontana, head of the U.S. subsidiary SNPE, Inc., also led DMC until Yvon Pierre Cariou, the former CEO of metal fabricator AstroCosmos Metallurgical Inc., was designated DMC's president and CEO in November 2000. The company soon relocated its headquarters from Lafayette, Colorado, to Boulder.

DMC lost $2 million on revenues of $28 million in 2000; this was accompanied by a considerable drop in share price. The petrochemical industry was showing signs of recovery, however, due to rising oil prices, and the company was logging record orders as energy firms renovated their plants with new equipment.

In 2001 DMC acquired Nobelclad Europe S.A. and its subsidiary Nitro Metall Aktiebolag from Nobel Explosifs France. The acquisition, which was financed by $4 million borrowed from SNPE, added operations in Rivesaltes, France, and Likenas, Sweden, with combined annual sales of $11 million.

In contrast to its strategy of several years prior, DMC divested a couple of its aerospace units to focus on the core explosive cladding and explosive forming businesses. The PMP unit in Fort Collins, Colorado, was sold in October 2003; Spin Forge, the California aerospace business, went in September 2004.

By this time, DMC's explosive clad business was truly booming. Sales for 2004 were up 51 percent to $54.2 million, and the stock price rose to levels not seen since the 1980s. According to the Rocky Mountain News, furious trading activity by "short sellers" who had bet against the company helped lift shares tenfold between May 2004 and May 2005. The Denver Business Journal pronounced DMC Colorado's fastest growing public company.

KEY DATES

1959:
DuPont discovers the Detaclad explosion-weld clad process.
1965:
Explosive Fabricators, Inc. (EFI) is founded.
1971:
EFI is incorporated as a Colorado corporation.
1976:
EFI goes public on the NASDAQ.
1994:
EFI is renamed Dynamic Materials Corporation (DMC).
1996:
DMC buys DuPont's Detaclad business.
1997:
DMC becomes a Delaware corporation.
1998:
AMK Welding, Spin Forge, and Precision Machined Products (PMP) are acquired to make up the Aerospace segment.
1999:
The Louisville, Colorado, operations are relocated to the old DuPont site in Dunbar, Pennsylvania.
2000:
France's state-owned Groupe SNPE acquires a majority holding in DMC.
2001:
Nobelclad Europe and Nitro Metall are acquired.
2003:
PMP is sold.
2004:
Spin Forge is sold.
2006:
SNPE sells off its majority holding in DMC.

Growth in the nickel and aluminum industries also was boosting DMC's sales, noted the Rocky Mountain News. Explosive clad products were being used more in aluminum smelting and nickel hydrometallurgy projects. DMC commanded a two-thirds share of the world's explosive cladding market; Japan's Asahi-Kasei was its only major competitor. Although North America ac-counted for more than half of DMC's $79.3 million in sales in 2005, Asia, particularly China, was an important growth market. The company had a profit of $10.4 million in 2005.

SNPE sold off its DMC shares in a public offering in the spring of 2006. One of DMC's longtime independent directors, Dean Allen, was named chairman in the subsequent reorganization of the board of directors.

PRINCIPAL SUBSIDIARIES

Nobelclad Europe S.A. (France); Nitro Metall Aktiebolag (Sweden).

PRINCIPAL DIVISIONS

AMK Welding; Explosive Metalworking Group.

PRINCIPAL COMPETITORS

Asahi-Kasei Corporation.

FURTHER READING

Bradley, Hassell, "Explosion Bonding Booms; Company Explores Cutting Edge of Cladding Technology," American Metal Market, June 1, 1990, p. 4.

Cantwell, Rebecca, "An Explosive Purchase Deal: Local Metal Bonding Company Buys Major Competitor, Detaclad; 10 New Jobs Expected," Rocky Mountain News (Denver), May 30, 1996, p. 4B.

Dowling, Mark, "Explosive Fabricators Benefits from Boeing's Airplane Boom," Denver Business Journal, December 14, 1990, p. 8.

, "Explosive Fabricators Will Get Charge Out of Minnesota Firm's Equity Stake," Denver Business Journal, July 23, 1990, p. 5.

Draper, Heather, "Dynamic Materials Rebounding; Cash Infusion, Increase in Demand Help Metals Firm Make Turnaround," Rocky Mountain News (Denver), April 20, 2001, p. 6B.

"Explosive Fabricators Raises $1.2M," American Metal Market, September 14, 1990, p. 4.

FitzGerald, Patrick, "Dynamic Materials of Lafayette, Colo., Hires New CEO," Daily Camera (Boulder), September 3, 1998.

Freeman, Diane, "Exploding Business Growth; Boulder-Based Firm Has Iron-Clad Grip on Worldwide Industry," Rocky Mountain News (Denver), September 10, 2005, p. 7C.

Greco, Matthew, "Dynamics Names Jarman," Investor Relations Business, December 9, 1996.

Griffin, Greg, "French-Owned Firm Buys Controlling Stake in Colorado's Dynamic Materials Corp.," Denver Post, June 16, 2000.

Hudson, Kris, "Dynamic Materials to Close Louisville, Colo., Plant," Daily Camera (Boulder), April 23, 1999.

Isaac, David, "An Explosive Market Has Sales Moving Up," Investor's Business Daily, March 18, 2005, p. A6.

Lewis, Al, "Dynamic Materials' Stock Explodes," Rocky Mountain News (Denver), November 17, 1996, p. 8B.

Miller, Louise Morrison, "Boulder, Colo., Firm Undergoes Stock Boom But Remains Unnoticed," Daily Camera (Boulder), January 21, 1997.

Milstead, David, "Dynamic Metals Living Up to Name," Rocky Mountain News (Denver), May 24, 2005, p. 4B.

"New Chairman for Dynamic Materials," Denver Business Journal, May 22, 2006.

Peacock, Ryan, "Dynamic Materials' Business Is 'Booming,'" Denver Business Journal, October 7, 2005.

Richardson, Glen, "Booming Business: The Most Powerful Name in Metal Fabrication Technology Is Becoming Equally As Powerful at Fabricating Revenue," Denver Business, August 1990, pp. 30+.

Romero, Christine L., "Lafayette, Colo.-Based Dynamic Materials Sells Metal Bonding Division," Daily Camera (Boulder), June 24, 1999.

Sheeler, Jim, "Colorado-Based Explosive Fabricators Blows Up Metal for Profit," Knight Ridder/Tribune Business News, September 6, 1994.

Stokes, Jeanie, "Firm Now Controls Dynamic Materials; Groupe SNPE Ups Stake in U.S. Clad-Metal Maker," Rocky Mountain News (Denver), June 16, 2000, p. 3B.

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