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Smugglers’ Foe

The dusty truck appeared no different from others idly waiting to cross into Nogales, AZ, from Mexico. At random, Border Patrol agents decided to spot-check its cargo, as happens hundreds of times each day. But rather than rummage through the contents, government officials parked the vehicle under a giant high-tech X-ray machine able to detect …

The dusty truck appeared no different from others idly waiting to cross into Nogales, AZ, from Mexico. At random, Border Patrol agents decided to spot-check its cargo, as happens hundreds of times each day. But rather than rummage through the contents, government officials parked the vehicle under a giant high-tech X-ray machine able to detect suspicious shapes and organic material-such as drugs and explosives. The scanner spied something a bit heavier than air in the truck’s tires-236 pounds of cocaine, to be exact.

For Ralph Sheridan, CEO of tiny American Science & Engineering, the Border Patrol’s cocaine haul was all in a day’s work. The Billerica, MA-based firm is a leading developer and manufacturer of highly specialized X-ray systems designed to identify materials that conventional X-rays would miss. The Nogales site is one of nine border checkpoints where AS&E’s patented “ZBackscatter” technology is helping U.S. officials fight narcotics trafficking. Scans take 30 seconds for a car; less than six minutes for a truck. The imaging is precise enough to distinguish currency from play money, which was the case recently at a Houston airport when Customs Service officials found $1 million hidden in Monopoly game boxes on a Latin America-bound plane.

In addition to drug enforcement, diligent inspection of cars, trucks, ships, and airplanes can help thwart social and economic ills such as counter-terrorism, weapons smuggling, and trade fraud. Says Sheridan, 49, a corporate turnaround specialist with tenure at three Fortune 500 companies, “We’re going after markets that are dealing with complex global problems.” He’s especially optimistic about demand for fighting trade fraud-the loss of government import duties due to undervaluation or mislabeled merchandise. “If the manifest says there are 100 television sets, we can count 100 television sets,” he explains.

When Sheridan took the helm in September 1993, AS&E had its own problems. It lost $3.3 million on sales of $11.2 million in fiscal 1994. As Sheridan recalls, “Management had been more interested in pursuing new technologies for the excitement of it, rather than developing products for the long-term.”

AS&E had been competing to provide government facilities and airports with terrorist bombing defenses. But as Michael Hutchinson, a senior investment analyst at Chicago‘s Barrington Research Associates, notes, “Unfortunately, the explosive detection industry is an event-driven business.” To support this flimsy base, Sheridan immediately tightened the firm’s focus, exiting the crowded airport security market and emphasizing contraband searches at borders and ports.

His positioning of AS&E as a safety blanket for an unpredictable world helped win it a more secure footing. Sales reached roughly $33 million in fiscal 1998 on net income of $4.7 million. The CEO expects revenues to approach $55 million in fiscal 1999, a steep growth trajectory that reflects increasing concern among U.S. and other governments about threats to their employees, citizens, and laws. At its current growth rate, Sheridan estimates, AS&E’s revenues could exceed $100 million by fiscal 2002. Much of that growth, he adds, will be internal. The company is also spending more on R&D in a drive for faster, cheaper, and better innovations. It earmarked $2.9 million, or 8.7 percent of sales, for R&D in fiscal 1998, vs. $533,000, or 3 percent of sales, in fiscal 1996. R&D could nearly double in fiscal 1999, Sheridan adds, to $5.6 million, or 10 percent of revenue.

Most of the firm’s growth is coming from overseas; international business from countries like Mexico, South Africa, Egypt, and Abu Dhabi, account for about 40 percent of sales, up from 20 percent a year ago. The U.S. government remains AS&E’s largest customer. The Department of Defense uses the firm’s technology at military bases to detect truck and car bombs, and the State Department hopes its devices will protect its staff from attacks like the deadly embassy bombings last year in Kenya and Tanzania. “There is no such thing anymore as a low-risk diplomatic posting,” says Sheridan. “Any facility could be a target.”

The former marathon runner likens the company’s growth to passing one milepost after another. If AS&E grows as expected, it would have installations throughout the developing world. At that point, Sheridan says, “we begin to look at what other things we can do with this engine that we created,” possibly expanding into pipelines, aerospace, even food processing. That’s part of Sheridan‘s enhanced image for AS&E—one that no single X-ray can capture.


 

RALPH SHERIDAN

Chief Executive

American Science & Engineering

‘My whole career has been based on thinking about how to use technology to develop new markets.’

Age: 49

Born: Cincinnati, OH

Family: Married; one son

Education: Ohio State University, B.A. Chemistry, 1973; M.B.A. 1974

Words to live by: “Fail fast. Fix it. Move on.”

Outside of the Office: Former marathoner; recreational motorcyclist.

Best Marathon Time: 3 hours, 20 minutes (Average speed: 7.6 miles per minute). Favorite Motorcycle: 1979 Triumph Bonneville 750. “Focus on the bike and keep your balance through the curves.”

About jonathan burton