Exhibit 13



















                           THERMO TERRATECH INC.

                     Consolidated Financial Statements

                                Fiscal 1998


<PAGE>


Thermo TerraTech Inc.                                1998 Financial Statements

                    Consolidated Statement of Operations


                                                      Year Ended
                                            April 4,  March 29,  March 30,
(In thousands except per share amounts)         1998       1997       1996
--------------------------------------------------------------------------
Revenues (Note 12):
  Service revenues                          $281,456   $251,384   $200,814
  Product revenues                            17,330     27,119     19,670
                                            --------   --------   --------
                                             298,786    278,503    220,484
                                            --------   --------   --------
Costs and Operating Expenses:
  Cost of service revenues                   230,376    204,724    152,451
  Cost of product revenues                    14,735     22,677     17,001
  Selling, general, and administrative
    expenses (Note 8)                         40,733     38,145     34,747
  Product and new business development
    expenses                                   1,148      1,046      1,086
  Nonrecurring costs (Note 13)                     -      7,800      4,995
                                            --------   --------   --------
                                             286,992    274,392    210,280
                                            --------   --------   --------

Operating Income                              11,794      4,111     10,204

Interest Income                                4,163      7,253      5,102
Interest Expense (includes $593,
  $2,638, and $5,610 to parent company)      (10,778)   (12,914)   (10,730)
Gain on Issuance of Stock by
  Subsidiaries (Note 10)                           -      1,475      4,127
Gain (Loss) on Sale of Businesses and
  Assets, Net (Note 3)                         2,952     (1,482)      (569)
Equity in Earnings of Unconsolidated
  Subsidiary (Note 14)                           174        865          -
Gain on Sale of Investments, Net (Note 2)          -        195        180
Other Income, Net                                209        206          -
                                            --------   --------   --------
Income (Loss) Before Provision for Income
  Taxes and Minority Interest                  8,514       (291)     8,314
Provision for Income Taxes (Note 5)           (5,146)    (1,705)    (3,644)
Minority Interest Income (Expense)               (95)     1,834     (1,223)
                                            --------   --------   --------
                 Net Income (Loss)           $ 3,273     $ (162)   $ 3,447
                                            ========   ========   ========
Earnings (Loss) per Share (Note 16):
  Basic                                     $    .18   $   (.01)  $    .20
                                            ========   ========   ========
  Diluted                                   $    .17   $   (.01)  $    .18
                                            ========   ========   ========
Weighted Average Shares (Note 16):
  Basic                                       18,700     18,090     17,420
                                            ========   ========   ========
  Diluted                                     18,978     18,090     18,264
                                            ========   ========   ========

The accompanying notes are an integral part of these consolidated financial
statements.
                                         2
<PAGE>                                   


Thermo TerraTech Inc.                                1998 Financial Statements

                         Consolidated Balance Sheet


                                                      April 4,   March 29,
(In thousands)                                            1998        1997
--------------------------------------------------------------------------

Assets
Current Assets:
  Cash and cash equivalents (includes $29,583
    and $59,781 under repurchase agreement
    with parent company)                              $ 34,711    $ 63,172
  Available-for-sale investments, at quoted market
    value (amortized cost of $2,008 and $18,380;
    Note 2)                                              2,003      18,391
  Short-term held-to-maturity investments, at
    amortized cost (quoted market value of
    $13,979 and $13,238; Note 2)                        13,939      12,971
  Accounts receivable, less allowances of
    $4,450 and $3,838                                   60,050      49,191
  Unbilled contract costs and fees                      20,547      29,053   
  Inventories                                            1,498       3,021
  Prepaid and refundable income taxes (Note 5)           6,224       7,369
  Prepaid expenses                                       3,810       3,870
                                                      --------    --------
                                                       142,782     187,038
                                                      --------    --------
Property, Plant, and Equipment, at Cost, Net            91,709      83,566
                                                      --------    --------
Long-term Held-to-maturity Investments, at
  Amortized Cost (quoted market value of
  $13,142; Note 2)                                           -      13,086
                                                      --------    --------
Other Assets                                            18,227      17,308
                                                      --------    --------
Cost in Excess of Net Assets of Acquired
  Companies (Notes 3 and 13)                           107,808      92,786
                                                      --------    --------
                                                      $360,526    $393,784
                                                      ========    ========
                                       3
<PAGE>


Thermo TerraTech Inc.                                1998 Financial Statements

                   Consolidated Balance Sheet (continued)


                                                      April 4,   March 29,
(In thousands except share amounts)                       1998        1997
--------------------------------------------------------------------------
Liabilities and Shareholders' Investment
Current Liabilities:
  Notes payable and current maturities of
    long-term obligations (includes $38,000 due
    to parent company in 1997; Note 6)                $ 27,165    $ 67,495
  Accounts payable                                      17,728      12,292
  Accrued payroll and employee benefits                 11,359      12,182
  Billings in excess of revenues earned                  1,314       4,319
  Other accrued expenses                                13,556      10,509
  Due to parent company                                  2,341       2,926
                                                      --------    --------
                                                        73,463     109,723
                                                      --------    --------
Deferred Income Taxes (Note 5)                           2,901       5,297
                                                      --------    --------
Other Deferred Items                                     1,049         893
                                                      --------    --------
Long-term Obligations (Notes 6 and 11):
  Subordinated convertible debentures (includes
    $3,000 of related-party debt)                      149,800     149,800
  Other                                                  3,344      15,386
                                                      --------    --------
                                                       153,144     165,186
                                                      --------    --------

Minority Interest                                       32,839      29,159
                                                      --------    --------
Commitments and Contingencies (Note 7)

Shareholders' Investment (Notes 4 and 9):
  Common stock, $.10 par value, 75,000,000
    shares authorized; 19,583,773 and 18,304,424
    shares issued                                        1,958       1,830
  Capital in excess of par value                        70,437      62,610
  Retained earnings                                     27,319      24,046
  Treasury stock at cost, 51,188 and 417,696
    shares                                                (484)     (3,941)
  Cumulative translation adjustment                     (2,097)     (1,026)
  Net unrealized gain (loss) on available-for-sale
    investments (Note 2)                                    (3)          7
                                                      --------    --------
                                                        97,130      83,526
                                                      --------    --------
                                                      $360,526    $393,784
                                                      ========    ========


The accompanying notes are an integral part of these consolidated financial
statements.

                                       4
<PAGE>

Thermo TerraTech Inc.                                1998 Financial Statements

                    Consolidated Statement of Cash Flows


                                                      Year Ended
                                            April 4,  March 29,  March 30,
(In thousands)                                  1998       1997       1996
--------------------------------------------------------------------------

Operating Activities:
  Net income (loss)                         $  3,273   $   (162)  $  3,447
  Adjustments to reconcile net income
    (loss) to net cash provided by
    operating activities:
      Depreciation and amortization           14,784     12,900     11,005
      Nonrecurring costs (Note 13)                 -      7,800      4,995
      (Gain) loss on sale of businesses
        and assets, net (Note 3)              (2,952)     1,482        569
      Equity in earnings of unconsolidated
        subsidiary (Note 14)                    (174)      (865)         -
      Minority interest (income) expense          95     (1,834)     1,223
      Provision for losses on accounts
        receivable                             1,141        625         85
      Other noncash items                        267        430      1,337
      Decrease in deferred income taxes       (1,583)       (43)      (648)
      Gain on issuance of stock by
        subsidiaries (Note 10)                     -     (1,475)    (4,127)
      Changes in current accounts,
        excluding the effects of
        acquisitions and dispositions:
          Accounts receivable                (11,154)    (6,818)     1,313
          Inventories and unbilled
            contract costs and fees           (3,353)    (7,784)    (5,411)
          Other current assets                 1,715        403        387
          Accounts payable                     5,507        895     (3,277)
          Current liabilities                 (1,038)     3,399     (1,826)
                                            --------   --------   --------
Net cash provided by operating activities      6,528      8,953      9,072
                                            --------   --------   --------
Investing Activities:
  Acquisitions, net of cash acquired
    (Note 3)                                 (12,746)    (5,156)   (43,824)
  Purchase of minority interest in joint
    venture (Note 3)                               -          -    (34,267)
  Purchases of available-for-sale
    investments                                    -    (38,913)   (30,864)
  Proceeds from sale and maturities of
    available-for-sale investments            16,372     29,822     37,795
  Proceeds from maturity of held-to-
    maturity investments (Note 2)             13,935          -          -
  Purchases of property, plant, and
    equipment                                (18,460)   (15,426)   (16,779)
  Proceeds from sale of businesses
    (Note 3)                                  19,722        347          -
  Issuances of notes receivable                 (569)         -       (653)
  Increase in other assets                    (1,993)      (450)    (1,090)
  Other                                        2,464      1,356        426
                                            --------   --------   --------
Net cash provided by (used in) investing
  activities                                $ 18,725   $(28,420)  $(89,256)
                                            --------   --------   --------

                                       5
<PAGE>

Thermo TerraTech Inc.                                1998 Financial Statements

              Consolidated Statement of Cash Flows (continued)


                                                      Year Ended
                                           April 4,   March 29,  March 30,
(In thousands)                                 1998        1997       1996
--------------------------------------------------------------------------

Financing Activities:
  Net proceeds from issuance of
    subordinated convertible
    debentures                             $      -    $112,398   $ 36,889
  Issuance of note payable to parent
    company (Note 6)                              -           -     35,000
  Repayment of notes payable to parent
    company (Note 6)                        (38,000)    (50,000)    (4,000)
  Proceeds from issuance of Company and
    subsidiaries' common stock (Note 10)      1,148       5,346      7,662
  Repurchase of Company and subsidiary
    common stock and subordinated
    convertible debentures                   (7,355)    (14,984)         -
  Issuance of short-term obligations          6,171         803      2,178
  Repayment of notes payable (Note 2)       (14,878)       (736)      (688)
  Dividends paid by subsidiary to
    minority shareholders                      (751)       (847)      (810)
  Other                                           -        (266)      (253)
                                           --------    --------   --------
Net cash provided by (used in)
  financing activities                      (53,665)     51,714     75,978
                                           --------    --------   --------
Exchange Rate Effect on Cash                    (49)       (257)      (420)
                                           --------    --------   --------
Increase (Decrease) in Cash and Cash
  Equivalents                               (28,461)     31,990     (4,626)
Cash and Cash Equivalents at Beginning
  of Year                                    63,172      31,182     35,808
                                           --------    --------   --------
Cash and Cash Equivalents at End of Year   $ 34,711    $ 63,172   $ 31,182
                                           ========    ========   ========

See Note 15 for supplemental cash flow information.


The accompanying notes are an integral part of these consolidated financial
statements.

                                       6
<PAGE>

Thermo TerraTech Inc.                                1998 Financial Statements

             Consolidated Statement of Shareholders' Investment


                                                    Year Ended
                                          April 4,   March 29,  March 30,
(In thousands)                                1998        1997       1996
-------------------------------------------------------------------------
Common Stock, $.10 Par Value
  Balance at beginning of year             $ 1,830     $ 1,760    $ 1,741
  Issuance of stock under employees'
    and directors' stock plans                   -          24         15
  Conversions of subordinated
    convertible debentures (Note 6)            128          46          4
                                           -------     -------    -------
  Balance at end of year                     1,958       1,830      1,760
                                           -------     -------    -------
Capital in Excess of Par Value
  Balance at beginning of year              62,610      59,419     53,559
  Activity under employees' and
    directors' stock plans                  (5,490)        264        268
  Tax benefit related to employees'
    and directors' stock plans                 655         461        585
  Conversions of subordinated
    convertible debentures (Note 6)         13,092       4,766        351
  Effect of majority-owned subsidiaries'
    equity transactions                       (430)     (2,300)     4,656
                                           -------     -------    -------
  Balance at end of year                    70,437      62,610     59,419
                                           -------     -------    -------
Retained Earnings
  Balance at beginning of year              24,046      24,474     21,343
  Net income (loss)                          3,273        (162)     3,447
  Metal Treating, Inc. transfer of cash
    to parent company (Note 3)                   -        (266)      (316)
                                           -------     -------    -------
  Balance at end of year                    27,319      24,046     24,474
                                           -------     -------    -------
Treasury Stock
  Balance at beginning of year              (3,941)       (410)      (864)
  Activity under employees' and
    directors' stock plans                   6,637         260        454
  Purchases of Company common stock         (3,180)     (3,791)         -
                                           -------     -------    -------
  Balance at end of year                   $  (484)    $(3,941)   $  (410)
                                           -------     -------    -------



                                       7
<PAGE>

Thermo TerraTech Inc.                                1998 Financial Statements

       Consolidated Statement of Shareholders' Investment (continued)


                                                     Year Ended
                                           April 4,  March 29,  March 30,
(In thousands)                                 1998       1997       1996
-------------------------------------------------------------------------
Cumulative Translation Adjustment
  Balance at beginning of year              $(1,026)   $   635    $ 1,526
  Translation adjustment                     (1,071)    (1,661)      (891)
                                            -------    ------- ----------
  Balance at end of year                     (2,097)    (1,026)       635
                                            -------    ------- ----------
Net Unrealized Gain (Loss) on Available-
  for-sale Investments
  Balance at beginning of year                    7         (8)       (88)
  Change in net unrealized gain (loss)
    on available-for-sale investments
    (Note 2)                                    (10)        15         80
                                            -------    -------    -------
  Balance at end of year                         (3)         7         (8)
                                            -------    -------    -------
Total Shareholders' Investment              $97,130    $83,526    $85,870
                                            =======    =======    =======


The accompanying notes are an integral part of these consolidated financial
statements.

                                       8
<PAGE>

Thermo TerraTech Inc.                                1998 Financial Statements

                 Notes to Consolidated Financial Statements



1.   Nature of Operations and Summary of Significant Accounting Policies


Nature of Operations
     Thermo TerraTech Inc. (the Company) provides industrial outsourcing
services and manufacturing support encompassing a broad range of
specializations, including infrastructure engineering, design and construction,
environmental compliance, laboratory testing, and metal treating.

Relationship with Thermo Electron Corporation
     The Company was incorporated on May 30, 1986, as an indirect, wholly owned
subsidiary of Thermo Electron Corporation. As of April 4, 1998, Thermo Electron
owned 15,935,435 shares of the Company's common stock, representing 82% of such
stock outstanding.

Principles of Consolidation
     The accompanying financial statements include the accounts of the Company;
its wholly owned subsidiaries; its majority-owned public subsidiaries, Thermo
Remediation Inc. and The Randers Group Incorporated; and its majority-owned,
privately held Thermo EuroTech N.V. subsidiary. All material intercompany
accounts and transactions have been eliminated. The Company accounted for its
investment in a business in which it owned 50% using the equity method. In
October 1997, the Company sold this investment (Note 3).

Presentation
     Certain amounts in fiscal 1997 and 1996 have been reclassified to conform
to the fiscal 1998 financial statement presentation.

Fiscal Year
     The Company has adopted a fiscal year ending the Saturday nearest March 31.
References to fiscal 1998, 1997, and 1996 are for the fiscal years ended April
4, 1998, March 29, 1997, and March 30, 1996, respectively. Fiscal year 1998
included 53 weeks; fiscal 1997 and 1996 each included 52 weeks.

Revenue Recognition
     For the majority of its operations, the Company recognizes revenues upon
completion of the services it renders.
     Revenues and profits on substantially all contracts are recognized using
the percentage-of-completion method. Revenues recorded under the
percentage-of-completion method were $117,464,000 in fiscal 1998, $113,481,000
in fiscal 1997, and $45,607,000 in fiscal 1996. The percentage of completion is
determined by relating either the actual costs or actual labor incurred to date
to management's estimate of total costs or total labor, respectively, to be
incurred on each contract. If a loss is indicated on any contract in process, a
provision is made currently for the entire loss. The Company's contracts
generally provide for billing of customers upon the attainment of certain
milestones specified in each contract. Revenues earned on contracts in process
in excess of billings are classified as unbilled contract costs and fees in the
accompanying balance sheet. There are no significant amounts included


                                       9
<PAGE>

1.   Nature of Operations and Summary of Significant Accounting Policies
     (continued)


in the accompanying balance sheet that are not expected to be recovered from
existing contracts at current contract values, or that are not expected to be
collected within one year, including amounts that are billed but not paid under
retainage provisions.
     Revenues from soil-remediation services are recognized as soil is
processed. The Company bills customers upon receipt of contaminated soil at its
remediation centers. Amounts billed in excess of revenues recognized are
classified as billings in excess of revenues earned in the accompanying balance
sheet.

Gain on Issuance of Stock by Subsidiaries
     At the time a subsidiary sells its stock to unrelated parties at a price in
excess of its book value, the Company's net investment in that subsidiary
increases. If at that time the subsidiary is an operating entity and not engaged
principally in research and development, the Company records the increase as a
gain (Note 10).
     If gains have been recognized on issuances of a subsidiary's stock and
shares of the subsidiary are subsequently repurchased either by the subsidiary,
the Company, or Thermo Electron, gain recognition does not occur on issuances
subsequent to the date of a repurchase until such time as shares have been
issued in an amount equivalent to the number of repurchased shares. Such
transactions are reflected as equity transactions and the net effect of these
transactions is reflected in the accompanying statement of shareholders'
investment as effect of majority-owned subsidiaries' equity transactions.

Stock-based Compensation Plans
     The Company applies Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its stock-based compensation plans (Note 4). Accordingly, no
accounting recognition is given to stock options granted at fair market value
until they are exercised. Upon exercise, net proceeds, including tax benefits
realized, are credited to equity.

Income Taxes
     The Company and Thermo Electron have a tax allocation agreement under which
the Company and certain of its subsidiaries, exclusive of foreign operations,
are included in Thermo Electron's consolidated federal and certain state income
tax returns. The agreement provides that in years in which the Company has
taxable income, it will pay to Thermo Electron amounts comparable to the taxes
the Company would have paid if it had filed separate tax returns. If Thermo
Electron's equity ownership of the Company were to drop below 80%, the Company
would be required to file its own federal income tax return.
     In accordance with Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes," the Company recognizes deferred income taxes
based on the expected future tax consequences of differences between the
financial statement basis and the tax basis of assets and liabilities calculated
using enacted tax rates in effect for the year in which the differences are
expected to be reflected in the tax return.

                                       10
<PAGE>

1.   Nature of Operations and Summary of Significant Accounting Policies
     (continued)


Earnings per Share
     During the quarter ended January 3, 1998, the Company adopted SFAS No. 128,
"Earnings per Share" (Note 16). As a result, all previously reported earnings
per share have been restated. Basic earnings per share have been computed by
dividing net income by the weighted average number of shares outstanding during
the year. Except where the result would be antidilutive, diluted earnings per
share have been computed assuming the conversion of convertible obligations and
the elimination of the related interest expense, and the exercise of stock
options and warrants, as well as their related income tax effects.

Cash and Cash Equivalents
     At fiscal year-end 1998 and 1997, $29,583,000 and $59,781,000,
respectively, of the Company's cash equivalents were invested in a repurchase
agreement with Thermo Electron. Under this agreement, the Company in effect
lends excess cash to Thermo Electron, which Thermo Electron collateralizes with
investments principally consisting of corporate notes, commercial paper, U.S.
government-agency securities, money market funds, and other marketable
securities, in the amount of at least 103% of such obligation. The Company's
funds subject to the repurchase agreement are readily convertible into cash by
the Company. The repurchase agreement earns a rate based on the 90-day
Commercial Paper Composite Rate plus 25 basis points, set at the beginning of
each quarter. At fiscal year-end 1998 and 1997, the Company's cash equivalents
also included investments in a money market fund, which have an original
maturity of three months or less. Cash equivalents are carried at cost, which
approximates fair market value.

Inventories
     Inventories are stated at the lower of cost (on an average-cost basis) or
market value and include materials, labor, and manufacturing overhead. The
components of inventories are as follows:

(In thousands)                                             1998       1997
--------------------------------------------------------------------------

Raw Materials and Supplies                               $  618     $2,483
Work in Process and Finished Goods                          880        538
                                                         ------     ------
                                                         $1,498     $3,021
                                                         ======     ======

Property, Plant, and Equipment
     The costs of additions and improvements are capitalized, while maintenance
and repairs are charged to expense as incurred. The Company provides for
depreciation and amortization primarily using the straight-line method over the
estimated useful lives of the property as follows: buildings and improvements, 5
to 40 years; machinery and equipment, 2 to 12 years; and leasehold improvements,
the shorter of the term of the lease or the life of the asset. Soil-remediation
units, which


                                       11
<PAGE>

1.   Nature of Operations and Summary of Significant Accounting Policies
     (continued)


accounted for 12% and 16% of the Company's machinery and equipment, net, at
fiscal year-end 1998 and 1997, respectively, are depreciated based on an hourly
rate that is computed by estimating total hours of operation for each unit.
Property, plant, and equipment consists of the following:

(In thousands)                                           1998         1997
--------------------------------------------------------------------------
Land                                                 $  7,743     $  7,412
Buildings                                              38,785       33,545
Machinery, Equipment, and Leasehold Improvements       95,840       91,375
                                                     --------     --------
                                                      142,368      132,332
Less: Accumulated Depreciation and Amortization        50,659       48,766
                                                     --------     --------
                                                     $ 91,709     $ 83,566
                                                     ========     ========

Other Assets
    Other assets in the accompanying balance sheet includes the costs of
acquired technology and other specifically identifiable intangible assets that
are being amortized using the straight-line method over their estimated useful
lives, ranging from 5 to 20 years. These assets were $5,212,000 and $6,150,000,
net of accumulated amortization of $5,716,000 and $4,655,000, at fiscal year-end
1998 and 1997, respectively.

Cost in Excess of Net Assets of Acquired Companies 
     The excess of cost over thefair value of net assets of acquired
companies is amortized using the straight-line method over periods not exceeding
40 years. Accumulated amortization was $13,651,000 and $10,921,000 at fiscal
year-end 1998 and 1997, respectively. The Company assesses the future useful
life of this asset whenever events or changes in circumstances indicate that the
current useful life has diminished (Note 13). The Company considers the future
undiscounted cash flows of the acquired companies in assessing the
recoverability of this asset. If impairment has occurred, any excess of carrying
value over fair value is recorded as a loss.

Foreign Currency
    All assets and liabilities of the Company's foreign subsidiaries are
translated at year-end exchange rates, and revenues and expenses are translated
at average exchange rates for the year in accordance with SFAS No. 52, "Foreign
Currency Translation." Resulting translation adjustments are reflected as a
separate component of shareholders' investment titled "Cumulative translation
adjustment." Foreign currency transaction gains and losses are included in the
accompanying statement of operations and are not material for the three years
presented.



                                       12
<PAGE>

1.  Nature of Operations and Summary of Significant Accounting Policies
    (continued)


Use of Estimates
    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

2.  Available-for-sale and Held-to-maturity Investments


    In accordance with SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," the Company's debt securities are considered
available-for-sale investments in the accompanying balance sheet and are carried
at market value, with the difference between cost and market value, net of
related tax effects, recorded currently as a component of shareholders'
investment titled "Net unrealized gain (loss) on available-for-sale
investments."
    The aggregate market value, cost basis, and gross unrealized gains and
losses of available-for-sale investments by major security type are as follows:

                                                      Gross          Gross
                      Market           Cost      Unrealized     Unrealized
(In thousands)         Value          Basis           Gains         Losses
--------------------------------------------------------------------------
1998
Corporate Bonds      $ 2,003        $ 2,008         $     -        $    (5)
                     =======        =======         =======        =======
1997
Government-agency
  Securities         $ 9,999        $ 9,998         $     1        $     -
Corporate Bonds        8,016          8,006              10              -
Other                    376            376               -              -
                     -------        -------         -------        -------
                     $18,391        $18,380         $    11        $     -
                     =======        =======         =======        =======

     Available-for-sale investments in the accompanying fiscal 1998 balance
sheet have contractual maturities of one year or less. The cost of available-
for-sale investments that were sold was based on specific identification in
determining realized gains and losses recorded in the accompanying statement of
operations. "Gain on sale of investments, net" in the accompanying statement of
operations resulted from gross realized gains of $204,000 and gross realized
losses of $9,000 in fiscal 1997, and gross realized gains in fiscal 1996
relating to the sale of available-for-sale investments.

                                       13
<PAGE>

2.   Available-for-sale and Held-to-maturity Investments (continued)


     In order to secure the Company's obligation to the former owner of a
business acquired in fiscal 1995, the Company purchased U.S. treasury bonds. In
February 1998, $13,935,000 principal amount of the U.S. treasury bonds matured
and the proceeds were used to repay, in part, the Company's zero coupon
promissory note to the seller. The remaining bonds mature in May 1998, the date
the remaining balance of the zero coupon promissory note is due. These
securities are classified as short-term held-to-maturity investments in the
accompanying fiscal 1998 balance sheet and are carried at amortized cost.

3.   Joint Venture, Acquisitions, and Dispositions


Joint Venture
     Effective April 2, 1995, the Company and Thermo Instrument Systems Inc.
dissolved an environmental services joint venture and the Company purchased the
businesses formerly operated by the joint venture from Thermo Instrument for
$34,267,000 in cash. As a result of this transaction, the Company increased its
ownership in the businesses operated by the joint venture from 51% to 100%.
     In June 1995, the Company transferred three businesses formerly operated by
the joint venture, collectively known as the Nuclear Services Group (renamed
Thermo NUtech), to Thermo Remediation in exchange for 1,583,360 shares of Thermo
Remediation common stock.

Acquisitions
     In May 1997, the Company purchased a controlling interest in The Randers
Group Incorporated, a publicly traded provider of design, engineering, project
management, and construction services for industrial clients in the
manufacturing, pharmaceutical, and chemical-processing industries. The Company
purchased 7,100,000 shares of Randers common stock from certain members of
Randers' management, and 420,000 shares from Thermo Power Corporation, an
affiliate of the Company, at a price of $0.625 per share, for an aggregate cost
of $4,700,000. Following these transactions and currently, the Company owns
approximately 53.3% of Randers' actual outstanding common stock. In addition,
Thermo Electron owns approximately 8.9% of Randers' actual outstanding common
stock.
     Subsequently, in September 1997, the Company entered into a definitive
agreement to transfer The Killam Group Inc., its wholly owned engineering and
consulting businesses, to Randers in exchange for newly issued shares of
Randers' common stock. Effective April 4, 1998, the agreement was amended to
provide that the price for these businesses would equal $70,644,407, the book
value of the transferred businesses as of April 4, 1998. The number of new
shares of Randers common stock to be issued to the Company will equal such book
value divided by $0.625, or 113,031,051 shares. Upon such issuance, the Company
and Thermo Electron would own approximately 94.8% and 1.0%, respectively, of
Randers' outstanding common stock.


                                       14
<PAGE>

3.   Joint Venture, Acquisitions, and Dispositions (continued)


     The transfer is subject to approval of the transaction by Randers'
shareholders and continued listing of Randers' common stock on the American
Stock Exchange following the transaction. However, because the Company currently
owns approximately 53.3% of Randers' outstanding common stock, approval by
Randers' shareholders is assured.
     In addition, during fiscal 1998, Thermo Remediation made three acquisitions
for an aggregate purchase price of $5,665,000 in cash and 459,613 shares of
Thermo Remediation's common stock, valued at $2,850,000. In fiscal 1998, Thermo
EuroTech made an acquisition of 70% of the outstanding shares of a business for
$4,400,000 in cash and a commitment to issue 69,200 shares of Thermo EuroTech's
common stock valued at $275,000.
     In October 1996, the Company acquired Metal Treating, Inc. from Thermo
Electron in exchange for $1,600,000 in cash. Metal Treating provides heat
treating services, including carburizing, vacuum hardening, silver and copper
brazing, and aluminum heat treating, primarily in the Milwaukee and southeastern
Wisconsin areas. Because the Company and Metal Treating were deemed for
accounting purposes to be under control of their common majority owner, Thermo
Electron, the transaction has been accounted for at historical cost in a manner
similar to a pooling-of-interests. Accordingly, historical information presented
for fiscal 1996 has been restated to include the results of Metal Treating.
     Revenues and net income as previously reported by the separate entities
prior to the acquisition and as restated for the combined Company are as
follows:

(In thousands)                                                        1996
--------------------------------------------------------------------------
Revenues:
  Previously reported                                             $217,397
  Metal Treating                                                     3,100
  Elimination                                                          (13)
                                                                  --------
                                                                  $220,484
                                                                  ========
Net Income:
  Previously reported                                             $  3,218
  Metal Treating                                                       229
                                                                  --------
                                                                  $  3,447
                                                                  ========

     In addition, during fiscal 1997, the Company, directly or through Thermo
Remediation, acquired companies for an aggregate of $3,865,000 in cash, 311,040
shares of Thermo Remediation's common stock valued at $2,006,000, and the
issuance of $1,300,000 of short- and long-term obligations.



                                       15
<PAGE>

3.   Joint Venture, Acquisitions, and Dispositions (continued)


     In December 1995, Thermo Remediation acquired Remediation Technologies,
Inc. (RETEC), a provider of integrated environmental services such as the
remediation of industrial sites contaminated with organic wastes and residues.
The purchase price of $29,672,000 consisted of $18,462,000 in cash, 227,250
shares of Thermo Remediation's common stock, and 75,750 warrants to purchase
shares of Thermo Remediation's common stock at $14.85 per share, valued in the
aggregate at $3,716,000, and approximately $7,494,000 attributable to the
conversion of outstanding RETEC stock options into Thermo Remediation stock
options of equivalent intrinsic value at the date of acquisition.
     In May 1995, the Company acquired substantially all of the assets of
Lancaster Laboratories, Inc. and its affiliate Clewmark Holdings (collectively
Lancaster Laboratories). Lancaster Laboratories, based in Lancaster,
Pennsylvania, is a provider of analytical services to the environmental, food,
and pharmaceutical industries. The purchase price for the assets was $25,329,000
in cash, including the repayment of $5,333,000 of debt.
     These acquisitions, except for Metal Treating, have been accounted for
using the purchase method of accounting, and their results have been included in
the accompanying financial statements from their respective dates of
acquisition. The aggregate cost of these acquisitions exceeded the estimated
fair value of the acquired net assets by $53,054,000, which is being amortized
over periods ranging from 20 to 40 years. Allocation of the purchase price for
these acquisitions was based on estimates of the fair value of the net assets
acquired and, for acquisitions completed in fiscal 1998, is subject to
adjustment upon finalization of the purchase price allocation. The Company has
no information that indicates the final purchase price allocation will differ
materially from the preliminary estimates.
     Based on unaudited data, the following table presents selected financial
information for the Company, RETEC, and Lancaster Laboratories on a pro forma
basis, assuming the companies had been combined since the beginning of fiscal
1996. The effect on the Company's financial statements of the acquisitions not
included in the pro forma data was not material to the Company's results of
operations.

(In thousands except per share amounts)                               1996
--------------------------------------------------------------------------
Revenues                                                          $254,276
Net Income                                                           2,340
Earnings per Share:
  Basic                                                                .13
  Diluted                                                              .12

     The pro forma results are not necessarily indicative of future operations
or the actual results that would have occurred had the acquisitions been made at
the beginning of fiscal 1996.

                                       16
<PAGE>

3.   Joint Venture, Acquisitions, and Dispositions (continued)


Dispositions
     In October 1997, Thermo Remediation sold its 50% limited-liability
interest in RETEC/TETRA L.C. to TETRA Thermal, Inc. for $8,825,000 in
cash. The Company realized a pre-tax gain of $3,012,000 on the sale.
     In addition, in October 1997, the Company sold substantially all of the
assets of its Holcroft Division, its thermal-processing equipment business,
excluding certain accounts receivable, to Holcroft L.L.C., an affiliate of
Madison Capital Partners. The sale price for the transferred assets consisted of
$10,897,000 in cash, two promissory notes for principal amounts aggregating
$2,881,000, and the assumption by Holcroft L.L.C. of certain liabilities of the
Holcroft Division. After recording a post-closing purchase price adjustment, the
Company incurred a nominal loss on the sale. This business represented the
Company's product revenues in the accompanying statement of operations and
contributed $893,000 and $1,765,000 of operating income in fiscal 1998 and 1997,
respectively.
     In fiscal 1997, Thermo EuroTech sold its J. Amerika division, which
resulted in a loss of $1,482,000. J. Amerika's revenues and operating loss
were $3,970,000 and $552,000, respectively, in fiscal 1997.
     In fiscal 1996, the Company sold to a management group the assets of a
small civil engineering design office in Williston, Vermont, that was no longer
included in the geographic expansion plans of the Company. An intangible asset
of $569,000 associated with this office was not recovered in the sale price and,
accordingly, was written off. This noncash expense is nondeductible for tax
purposes. Sales and earnings of this office were not material to the Company.

4.   Employee Benefit Plans


Stock-based Compensation Plans

Stock Option Plans
     The Company has stock-based compensation plans for its key employees,
directors, and others. Two of these plans, adopted in 1986, permit the grant of
nonqualified and incentive stock options. A third plan, adopted in fiscal 1994,
permits the grant of a variety of stock and stock-based awards as determined by
the human resources committee of the Company's Board of Directors (the Board
Committee), including restricted stock, stock options, stock bonus shares, or
performance-based shares. To date, only nonqualified stock options have been
awarded under these plans. The option recipients and the terms of options
granted under these plans are determined by the Board Committee. Generally,
options granted to date are exercisable immediately, but are subject to certain
transfer restrictions and the right of the Company to repurchase shares issued
upon exercise of the options at the exercise price, upon certain events. The
restrictions and repurchase rights generally lapse ratably over a three- to
ten-year period, depending on the term of the option, which may range from five
to 12 years. Nonqualified stock options may be granted at any price

                                       17
<PAGE>

4.   Employee Benefit Plans (continued)


determined by the Board Committee, although incentive stock options must be
granted at not less than the fair market value of the Company's stock on the
date of grant. Generally, all options have been granted at fair market value.
The Company also has a directors' stock option plan, adopted in September 1991,
that provides for the grant of stock options to outside directors pursuant to a
formula approved by the Company's shareholders. Options awarded under this plan
are exercisable six months after the date of grant and expire three to seven
years after the date of grant. In addition to the Company's stock-based
compensation plans, certain officers and key employees may also participate in
the stock-based compensation plans of Thermo Electron.

                                       18
<PAGE>

4.   Employee Benefit Plans (continued)


     A summary of the Company's stock option information is as follows:

                          1998               1997               1996
                    ----------------   -----------------  -----------------
                             Weighted           Weighted           Weighted
                     Number   Average   Number   Average  Number    Average
(Shares in               of  Exercise       of  Exercise      of   Exercise
thousands)           Shares     Price   Shares     Price  Shares      Price
---------------------------------------------------------------------------
Options Outstanding,
  Beginning of Year   2,558    $ 6.99    2,561    $ 6.13   2,559     $ 5.62

  Granted               296      7.67      288     10.10     182      11.44
  Exercised            (696)     1.36     (242)     1.16    (141)      3.09
  Forfeited            (172)     9.35      (49)     8.79     (39)      8.60
                      -----              -----             -----
Options Outstanding,
  End of Year         1,986    $ 8.87    2,558    $ 6.99   2,561     $ 6.13
                      =====    ======    =====    ======   =====     ======
Options Exercisable   1,986    $ 8.87    2,558    $ 6.99   2,558     $ 6.12
                      =====    ======    =====    ======   =====     ======
Options Available
  for Grant             327                483               730
                      =====              =====             =====

     A summary of the status of the Company's stock options at April 4, 1998, is
as follows:

                                     Options Outstanding and Exercisable
                                     Number            Weighted    Weighted
                                         of             Average     Average
                                     Shares           Remaining    Exercise
Range of Exercise Prices     (In thousands)    Contractual Life       Price
---------------------------------------------------------------------------
$ 6.00 - $ 8.14                         743           4.3 years      $ 7.66
  8.15 -  10.19                         883           6.1 years        9.07
 10.30 -  12.43                         358           5.6 years       10.84
 12.44 -  14.58                           2           0.8 years       14.58
                                      -----
$ 6.00 - $14.58                       1,986           5.3 years      $ 8.87
                                      =====
                                       19
<PAGE>

4.   Employee Benefit Plans (continued)


Employee Stock Purchase Program
     Substantially all of the Company's full-time employees are eligible to
participate in an employee stock purchase program sponsored by the Company and
Thermo Electron. Under this program, shares of the Company's and Thermo
Electron's common stock can be purchased at the end of a 12-month period at 95%
of the fair market value at the beginning of the period and the shares purchased
are subject to a six-month resale restriction. Shares are purchased through
payroll deductions of up to 10% of each participating employee's gross wages.
During fiscal 1998, 1997, and 1996, the Company issued 13,976 shares, 25,053
shares, and 44,259 shares, respectively, of its common stock under this program.

Pro Forma Stock-based Compensation Expense
     In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-based Compensation," which sets forth a fair-value
based method of recognizing stock-based compensation expense. As permitted by
SFAS No. 123, the Company has elected to continue to apply APB No. 25 to account
for its stock-based compensation plans. Had compensation cost for awards in
fiscal 1998, 1997, and 1996 under the Company's stock-based compensation plans
been determined based on the fair value at the grant dates consistent with the
method set forth under SFAS No. 123, the effect on the Company's net income
(loss) and earnings (loss) per share would have been as follows:

(In thousands except per share amounts)         1998       1997       1996
--------------------------------------------------------------------------
Net Income (Loss):
  As reported                                 $3,273     $ (162)    $3,447
  Pro forma                                    2,218       (866)     3,018

Basic Earnings (Loss) per Share:
  As reported                                    .18       (.01)       .20
  Pro forma                                      .12       (.05)       .17

Diluted Earnings (Loss) per Share:
  As reported                                    .17       (.01)       .18
  Pro forma                                      .12       (.05)       .16

     Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to April 2, 1995, the resulting pro forma compensation
expense may not be representative of the amount to be expected in future years.
Pro forma compensation expense for options granted is reflected over the vesting
period; therefore, future pro forma compensation expense may be greater as
additional options are granted.


                                       20
<PAGE>

4.   Employee Benefit Plans (continued)


     The weighted average fair value per share of options granted was $2.27,
$4.15, and $3.83 in fiscal 1998, 1997, and 1996, respectively. The fair value of
each option grant was estimated on the grant date using the Black-Scholes
option-pricing model with the following weighted-average assumptions:

                                               1998        1997       1996
--------------------------------------------------------------------------
Volatility                                      27%         29%        29%
Risk-free Interest Rate                        5.6%        6.2%       5.8%
Expected Life of Options                  3.6 years   6.1 years  4.4 years

     The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option-pricing models require the input of
highly subjective assumptions, including expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate , in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

401(k) Savings Plans
     The majority of the Company's full-time U.S. employees are eligible to
participate in 401(k) savings plans sponsored by certain subsidiaries and Thermo
Electron. Contributions to the 401(k) savings plans are made by both the
employee and the Company. Company contributions are based upon the level of
employee contributions and for certain plans are based on subsidiary profits.
For these plans, the Company contributed and charged to expense $4,541,000,
$3,847,000, and $3,278,000 in fiscal 1998, 1997, and 1996, respectively.

5.   Income Taxes


     The components of income (loss) before provision for income taxes and
minority interest are as follows:

(In thousands)                                 1998        1997       1996
--------------------------------------------------------------------------
Domestic                                    $ 8,812     $ 3,149    $10,977
Foreign                                        (298)     (3,440)    (2,663)
                                            -------     -------    -------
                                            $ 8,514     $  (291)   $ 8,314
                                            =======     =======    =======

     The Company's foreign results of operations prior to fiscal 1998 include
losses associated with its J. Amerika division, which was sold during the fourth
quarter of fiscal 1997 (Note 3).

                                       21
<PAGE>

5.   Income Taxes (continued)


     The components of the provision for income taxes are as follows:

(In thousands)                                 1998        1997       1996
--------------------------------------------------------------------------
Currently (Payable) Prepaid:
  Federal                                   $(2,688)    $(1,271)   $(1,339)
  State                                      (1,330)     (1,122)      (678)
  Foreign                                       110         234      1,120
                                            -------     -------    -------
                                             (3,908)     (2,159)      (897)
                                            -------     -------    -------
(Deferred) Prepaid, Net:
  Federal                                    (1,035)       (389)    (2,198)
  State                                        (203)        (88)      (549)
  Foreign                                         -         931          -
                                            -------     -------    -------
                                             (1,238)        454     (2,747)
                                            -------     -------    -------
                                            $(5,146)    $(1,705)   $(3,644)
                                            =======     =======    =======

     The Company and its majority-owned subsidiaries receive a tax deduction
upon exercise of nonqualified stock options by employees for the difference
between the exercise price and the market price of the underlying common stock
on the date of exercise. The provision for income taxes that is currently
payable does not reflect $928,000, $659,000, and $1,785,000 in fiscal 1998,
1997, and 1996, respectively, of such benefits of the Company and its
majority-owned subsidiaries that have been allocated to capital in excess of par
value, directly or through the effect of majority-owned subsidiaries' equity
transactions.

                                       22
<PAGE>

5.   Income Taxes (continued)


     The provision for income taxes in the accompanying statement of operations
differs from the amounts calculated by applying the statutory federal income tax
rate of 34% to income (loss) before provision for income taxes and minority
interest due to the following:

(In thousands)                                 1998       1997       1996
-------------------------------------------------------------------------
(Provision) Benefit for Income Taxes at
  Statutory Rate                            $(2,895)   $    99    $(2,827)
Differences Resulting from:
  State income taxes, net of federal tax     (1,012)      (764)      (797)
  Amortization and write-off of cost in
    excess of net assets of acquired
    companies                                  (739)    (1,344)    (2,485)
  Gain on issuance of stock by
    subsidiaries                                  -        501      1,403
  Foreign tax rate and tax law
    differential                                  8        (16)       249
  Tax-exempt investment income                    -         32        181
  Nondeductible expenses                        (64)       (62)       (51)
  Reversal of tax reserves no longer
    required                                      -          -        750
  Other, net                                   (444)      (151)       (67)
                                            -------    -------    -------
                                            $(5,146)   $(1,705)   $(3,644)
                                            =======    =======    =======

     Prepaid income taxes and deferred income taxes in the accompanying balance
sheet consist of the following:

(In thousands)                                 1998       1997
--------------------------------------------------------------
Prepaid Income Taxes:
  Accrued compensation                      $ 2,220    $ 1,410
  Reserves and accruals                       3,640      4,562
  Allowance for doubtful accounts              (137)     1,151
  Net operating loss and tax credit
    carryforward                              1,934      2,030
  Other                                           -        303
                                            -------    -------
                                              7,657      9,456
  Less: Valuation allowance                     739        276
                                            -------    -------
                                            $ 6,918    $ 9,180
                                            =======    =======

Deferred Income Taxes:
  Depreciation                              $ 2,785    $ 5,581
  Other deferred items                        1,446        611
                                            -------    -------
                                            $ 4,231    $ 6,192
                                            =======    =======

                                       23
<PAGE>

5.   Income Taxes (continued)


     Included in other assets in the accompanying fiscal 1998 balance sheet is
$2,135,000 of long-term prepaid income taxes related to foreign net operating
losses, net of long-term deferred income taxes of $1,330,000 related to timing
differences in a foreign jurisdiction. Comparable amounts in fiscal 1997 were
long-term prepaid income taxes of $1,811,000, net of long-term deferred income
taxes of $895,000.
     The valuation allowance relates to the uncertainty surrounding the
realization of the tax benefits attributable primarily to state operating loss
carryforwards. The valuation allowance increased in fiscal 1998 as a result of
certain losses that arose during the year. Of the total 1998 valuation
allowance, $126,000 will be used to reduce cost in excess of net assets of
acquired companies when any portion of the related deferred tax asset is
recognized.
     The Company has not recognized a deferred tax liability for the difference
between the book basis and tax basis of its investment in the common stock of
its domestic subsidiaries (such difference relates primarily to unremitted
earnings and gains on issuance of stock by subsidiaries) because the Company
does not expect this basis difference to become subject to tax at the parent
level. The Company believes it can implement certain tax strategies to recover
its investment in its domestic subsidiaries tax-free.
     The net operating loss carryforward primarily consists of $9,500,000 of
foreign carryforwards which may be carried forward indefinitely and $8,900,000
of state carryforwards, which substantially expire in 2002. During fiscal 1996,
the Company reversed previously established tax reserves totaling $750,000 that
were no longer required as a result of the completion of certain revenue agent
reviews.

6.   Short- and Long-term Obligations


Short-term Obligations
     The Company's Thermo EuroTech subsidiary has a line of credit, denominated
in Dutch guilders, under which approximately $6,700,000 may be borrowed at the
Dutch discount rate plus 125 basis points. At April 4, 1998, and March 29, 1997,
$6,346,000 and $2,227,000, respectively, was outstanding under this arrangement,
bearing interest at 4.02% and 5.25%, respectively.
     In addition, in fiscal 1998, Thermo EuroTech entered into a line of credit,
denominated in Irish punts, under which approximately $6,052,000 was borrowed at
April 4, 1998, bearing interest at a fixed rate of 5.75%. There are no
additional amounts available under this line of credit.


                                       24
<PAGE>

6.   Short- and Long-term Obligations (continued)


Long-term Obligations
     Long-term obligations of the Company are as follows:

(In thousands except per share amounts)                    1998       1997
--------------------------------------------------------------------------
4 5/8% Subordinated convertible debentures,
  due 2003, convertible at $15.90 per share            $111,850   $111,850
6 1/2% Subordinated convertible debentures,
  due 1997, convertible at $10.33 per share                   -     13,370
4 7/8% Subordinated convertible debentures,
  due 2000, convertible into shares of Thermo
  Remediation at $17.92 per share (includes
  $3,000 held by Thermo Electron)                        37,950     37,950
Promissory note to parent company, repaid
  June 1997 (a)                                               -     38,000
Zero coupon promissory note, face value $28,000,
  due in two installments in February and May 1998
  (Note 2)                                               13,939     26,057
6.75% Mortgage loan, payable in monthly
  installments of $9, with final payment in 2008          1,173      1,293
8.5% Mortgage loan, payable in monthly
  installments of $5, with final payment in 2003            949          -
Other                                                     2,050      1,934
                                                       --------   --------

                                                        167,911    230,454
Less: Current maturities of long-term obligations        14,767     65,268
                                                       --------   --------

                                                       $153,144   $165,186
                                                       ========   ========

(a)  Bore interest at the 90-day Commercial Paper Composite Rate plus 25 basis
     points, set at the beginning of each quarter.

     The 4 5/8% and 4 7/8% subordinated convertible debentures are guaranteed on
a subordinated basis by Thermo Electron. The Company has agreed to reimburse
Thermo Electron in the event Thermo Electron is required to make a payment under
the guarantees. During fiscal 1998 and 1997, $13,220,000 and $4,812,000
principal amount, respectively, of the 6 1/2% subordinated convertible
debentures were converted into 1,279,349 shares and 465,827 shares,
respectively, of the Company's common stock.
     The annual requirements for long-term obligations as of April 4, 1998, are
$14,767,000 in fiscal 1999; $39,008,000 in fiscal 2000; $448,000 in fiscal 2001;
$455,000 in fiscal 2002; $112,610,000 in fiscal 2003; and $623,000 in fiscal
2004 and thereafter. Total requirements of long-term obligations are
$167,911,000. See Note 11 for information pertaining to the fair value of the
Company's long-term obligations.



                                       25
<PAGE>

7.   Commitments and Contingencies


Operating Leases
     The Company leases land, office, operating facilities, and equipment under
operating leases expiring at various dates through fiscal 2008. The accompanying
statement of operations includes expenses from operating leases of $5,822,000,
$5,424,000, and $4,964,000 in fiscal 1998, 1997, and 1996, respectively. Future
minimum payments due under noncancellable operating leases at April 4, 1998, are
$5,176,000 in fiscal 1999; $3,907,000 in fiscal 2000; $2,669,000 in fiscal 2001;
$1,972,000 in fiscal 2002; $1,062,000 in fiscal 2003; and $1,122,000 in fiscal
2004 and thereafter. Total future minimum lease payments are $15,908,000. See
Note 8 for an office and manufacturing facility leased from Thermo Electron.

Contingencies
     The Company is contingently liable with respect to lawsuits and other
matters that arose in the ordinary course of business. In the opinion of
management, these contingencies will not have a material adverse effect upon the
financial position of the Company or its results of operations.

8.   Related-party Transactions


Corporate Services Agreement
     The Company and Thermo Electron have a corporate services agreement under
which Thermo Electron's corporate staff provides certain administrative
services, including certain legal advice and services, risk management, certain
employee benefit administration, tax advice and preparation of tax returns,
centralized cash management, and certain financial and other services, for which
the Company pays Thermo Electron annually an amount equal to 0.8% of the
Company's revenues in calendar 1998. In 1997 and 1996, the Company paid an
amount equal to 1.0% of the Company's revenues. Prior to January 1, 1996, the
Company paid an annual fee equal to 1.20% of the Company's revenues. The annual
fee is reviewed and adjusted annually by mutual agreement of the parties. For
these services, the Company was charged $2,845,000, $2,785,000, and $2,612,000
in fiscal 1998, 1997, and 1996, respectively. The corporate services agreement
is renewed annually but can be terminated upon 30 days' prior notice by the
Company or upon the Company's withdrawal from the Thermo Electron Corporate
Charter (the Thermo Electron Corporate Charter defines the relationship among
Thermo Electron and its majority-owned subsidiaries). Management believes that
the service fee charged by Thermo Electron is reasonable and that such fees are
representative of the expenses the Company would have incurred on a stand-alone
basis. For additional items such as employee benefit plans, insurance coverage,
and other identifiable costs, Thermo Electron charges the Company based upon
costs attributable to the Company.



                                       26
<PAGE>

8.   Related-party Transactions (continued)


Development Agreement
     The Company and Thermo Electron entered into a development agreement under
which Thermo Electron agreed to fund up to $4,000,000 of the direct and indirect
costs of the Company's development of soil-remediation centers. In exchange for
this funding, the Company granted Thermo Electron a royalty equal to
approximately 3% of net revenues from soil-remediation services performed at the
centers developed under the agreement. The royalty payments may cease if the
amounts paid by the Company yield a certain internal rate of return to Thermo
Electron on the funds advanced to the Company under the agreement. Two sites
were developed under this agreement. The Company paid royalties of $115,000,
$186,000, and $332,000 in fiscal 1998, 1997, and 1996, respectively, relating to
this agreement, which are included in selling, general, and administrative
expenses in the accompanying statement of operations.

Operating Lease
     In addition to the operating leases discussed in Note 7, the Company leases
an office and operating facility from Thermo Electron. The accompanying
statement of operations includes expenses from this operating lease of $166,000,
$106,000, and $154,000 in fiscal 1998, 1997, and 1996, respectively. The future
minimum payments due under the lease as of April 4, 1998, are $166,000 in fiscal
1999 through 2004. Total future minimum lease payments are $996,000.

Repurchase Agreement
     The Company invests excess cash in a repurchase agreement with Thermo
Electron as discussed in Note 1.

Short- and Long-term Obligations
     See Note 6 for a description of short- and long-term obligations of the
Company held by Thermo Electron.

9.   Common Stock


     At April 4, 1998, the Company had 700,500 warrants outstanding to purchase
shares of its common stock, which are exercisable at prices ranging from $10.00
to $11.34 per share and expire in fiscal 2001. The warrants were issued in
fiscal 1992 and 1993 in connection with private placements completed by three of
Thermo Remediation's soil-remediation subsidiaries.
     At April 4, 1998, the Company had reserved 10,131,347 unissued shares of
its common stock for possible issuance under stock-based compensation plans,
possible issuance upon conversion of the 4 5/8% subordinated convertible
debentures, and exercise of warrants.

10.  Transactions in Stock of Subsidiaries


     During fiscal 1997, Thermo EuroTech sold 1,105,000 shares of its common
stock in a private placement at $4.25 per share for net proceeds of $4,314,000,
resulting in a gain of $1,475,000.

                                       27
<PAGE>

10.  Transactions in Stock of Subsidiaries (continued)


     During fiscal 1996, Thermo Remediation sold 500,000 shares of its common
stock in a private placement at $13.25 per share for net proceeds of $6,625,000,
resulting in a gain of $2,742,000. During fiscal 1996, Thermo Remediation issued
227,250 shares of its common stock in connection with the acquisition of RETEC
(Note 3), resulting in a gain of $1,385,000.
     Dividends declared by Thermo Remediation were $2,504,000, $2,557,000, and
$2,491,000 in fiscal 1998, 1997, and 1996, respectively. Dividends declared by
Thermo Remediation include $1,736,000, $1,694,000, and $1,667,000 in fiscal
1998, 1997, and 1996, respectively, that were allocated to the Company and
reinvested in 254,833 shares, 194,961 shares, and 117,805 shares, respectively,
of Thermo Remediation's common stock pursuant to Thermo Remediation's Dividend
Reinvestment Plan.
     The Company's percentage ownership of its majority-owned subsidiaries at
year end was as follows:

                                              1998       1997       1996
------------------------------------------------------------------------

Thermo Remediation                             69%        69%        66%
Randers (a)                                    53%       100%       100%
Thermo EuroTech                                56%        53%        62%

(a)  Upon issuance of 113,031,051 shares of Randers common stock to the Company,
     as described in Note 3, the Company will own approximately 95% of Randers'
     outstanding common stock. Fiscal 1997 and 1996 represent the Company's
     ownership of The Killam Group prior to its transfer to Randers in fiscal
     1998.

11.  Fair Value of Financial Instruments


     The Company's financial instruments consist primarily of cash and cash
equivalents, available-for-sale and held-to-maturity investments, accounts
receivable, notes payable and current maturities of long-term obligations,
accounts payable, due to parent company, and long-term obligations. The carrying
amounts of these financial instruments, with the exception of available-for-sale
and held-to-maturity investments, and long-term obligations, approximate fair
value due to their short-term nature.
     Available-for-sale investments are carried at fair value in the
accompanying balance sheet. The fair values were determined based on quoted
market prices. See Note 2 for fair value information pertaining to these
financial instruments. Held-to-maturity investments in the accompanying balance
sheet are carried at amortized cost. The fair values are disclosed on the
accompanying balance sheet and were determined based on quoted market prices.



                                       28
<PAGE>

11.  Fair Value of Financial Instruments (continued)


     The fair value of long-term obligations was determined based on quoted
market prices and on borrowing rates available to the Company at the respective
year ends. The carrying amount and fair value of the Company's long-term
obligations are as follows:

                                    1998                     1997
                            ---------------------     ---------------------
                             Carrying        Fair      Carrying       Fair
(In thousands)                 Amount       Value        Amount      Value
---------------------------------------------------------------------------
Current Maturity of
  Subordinated Convertible
  Debentures                 $      -    $      -      $ 13,370   $ 13,771
                             ========    ========      ========   ========

Long-term Subordinated
  Convertible Debentures     $149,800    $143,416      $149,800   $132,973
Other                           3,344       3,344        15,386     15,386
                             --------    --------      --------   --------
                             $153,144    $146,760      $165,186   $148,359
                             ========    ========      ========   ========

12.  Significant Customers


     During fiscal 1998, 1997, and 1996, revenues derived from U.S. government
agencies accounted for 4%, 13%, and 10%, respectively, of the Company's total
revenues.

13.  Nonrecurring Costs


     During fiscal 1997, Thermo Remediation recorded $7,800,000 of nonrecurring
costs to write-down certain capital equipment and intangible assets, including
cost in excess of net assets of acquired companies, in response to a severe
downturn in Thermo Remediation's soil-recycling business, which resulted in the
closure of two soil-remediation sites. In addition, the Company's analysis
indicated that the future undiscounted cash flows from certain other
soil-remediation sites that will remain open would be insufficient to recover
Thermo Remediation's investment in these business units, thus requiring a
write-down of certain assets, which is included in the $7,800,000 charge. Of the
total charge, $2,206,000 is nondeductible for tax purposes.
     During fiscal 1996, the Company determined that it no longer expected to
reinvest in its thermal-processing equipment business. The Company's fiscal 1996
analysis indicated that the expected future undiscounted cash flow from this
business would be insufficient to recover the Company's investment. Accordingly,
the Company wrote off $4,995,000 of cost in

                                       29
<PAGE>

13.  Nonrecurring Costs (continued)

excess of net assets of acquired company associated with the thermal-processing
equipment business. This noncash expense is nondeductible for tax purposes. This
business was sold in fiscal 1998 (Note 3).

14.  Equity in Earnings of Unconsolidated Subsidiary


     Equity in earnings of unconsolidated subsidiary in the accompanying
statement of operations represents the Company's proportionate share of income
from a 50% investment in RETEC/TETRA L.C., acquired in December 1995 through
Thermo Remediation's acquisition of RETEC. In October 1997, Thermo Remediation
sold its 50% limited-liability interest in RETEC/TETRA to TETRA Thermal, Inc.
(Note 3). The carrying value of the unconsolidated subsidiary was $5,650,000 at
fiscal year-end 1997 and was included in other assets in the accompanying fiscal
1997 balance sheet.
     Summary financial information for RETEC/TETRA as of December 31, 1996, is
as follows:

(In thousands)                                            1996
--------------------------------------------------------------
Current Assets                                         $ 3,072
Noncurrent Assets                                       12,644
                                                       -------
  Total assets                                         $15,716
                                                       =======

Current Liabilities                                    $ 2,016
Noncurrent Liabilities                                   2,635
Members' Equity                                         11,065
                                                       -------
  Total liabilities and members' equity                $15,716
                                                       =======

(In thousands)                                            1996
--------------------------------------------------------------
Revenues                                               $12,066
Cost of Revenues                                         9,040
                                                       -------
Gross Profit                                           $ 3,026
                                                       =======
Net Income                                             $   981
                                                       =======


                                       30
<PAGE>

15.  Supplemental Cash Flow Information


     Supplemental cash flow information is as follows:

(In thousands)                               1998         1997       1996
-------------------------------------------------------------------------
Cash Paid For:
  Interest                               $ 10,363     $ 10,255   $  7,438
  Income taxes                           $  4,041     $  1,958   $  5,803

Noncash Activities:
  Fair value of assets of acquired
    companies                            $ 29,477     $ 12,996   $ 68,533
  Cash paid for acquired companies        (14,765)      (5,465)   (45,005)
  Issuance of notes payable for
    acquired company                            -       (1,300)         -
  Issuance of Company and subsidiary
    common stock, stock options, and
    warrants for acquired companies        (3,125)      (2,006)   (11,210)
                                         --------     --------   --------
      Liabilities assumed of acquired
        companies                        $ 11,587     $  4,225   $ 12,318
                                         ========     ========   ========
  Conversions of subordinated
    convertible debentures (Note 6)      $ 13,220     $  4,812   $    365

  Notes receivable received upon sale
    of business (Note 3)                 $  2,881     $      -   $      -




                                       31
<PAGE>

16.  Earnings (Loss) per Share


     Basic and diluted earnings (loss) per share were calculated as follows:

(In thousands except per share amounts)        1998       1997        1996
--------------------------------------------------------------------------
Basic
Net Income (Loss)                          $  3,273   $   (162)   $  3,447
                                           --------   --------    --------

Weighted Average Shares                      18,700     18,090      17,420
                                           --------   --------    --------

Basic Earnings (Loss) per Share            $    .18   $   (.01)   $    .20
                                           ========   ========    ========

Diluted
Net Income (Loss)                          $  3,273   $   (162)   $  3,447
Effect of Majority-owned Subsidiaries'
  Dilutive Securities                           (13)         -         (93)
                                           --------   --------    --------

Income (Loss) Available to Common
  Shareholders, as Adjusted                $  3,260   $   (162)   $  3,354
                                           --------   --------    --------

Weighted Average Shares                      18,700     18,090      17,420
Effect of Stock Options                         278          -         844
                                           --------   --------    --------

Weighted Average Shares, as Adjusted         18,978     18,090      18,264
                                           --------   --------    --------

Diluted Earnings (Loss) per Share          $    .17   $   (.01)   $    .18
                                           ========   ========    ========

     The computation of diluted earnings (loss) per share for each period
excludes the effect of assuming the exercise of certain outstanding stock
options and warrants because the effect would be antidilutive. As of April 4,
1998, there were 2,425,950 of such options and warrants outstanding, with
exercise prices ranging from $7.65 to $14.58 per share.
     In addition, the computation of diluted earnings (loss) per share for each
period excludes the effect of assuming the conversion of convertible obligations
because the effect would be antidilutive. As of April 4, 1998, the Company had
$111,850,000 principal amount of 4 5/8% subordinated convertible debentures,
convertible at $15.90 per share, that was excluded from the calculation of
diluted earnings (loss) per share.

                                       32
<PAGE>

17.  Unaudited Quarterly Information


(In thousands except per share amounts)

1998                              First      Second    Third(a)   Fourth
------------------------------------------------------------------------

Revenues                        $72,519     $81,161    $73,875   $71,231
Gross Profit                     14,568      15,485     14,001     9,621
Net Income (Loss)                 1,332       1,567      1,656    (1,282)
Earnings (Loss) per Share:
  Basic                             .08         .09        .09      (.07)
  Diluted                           .07         .08        .09      (.07)

1997                              First    Second(b)     Third  Fourth(c)
-------------------------------------------------------------------------

Revenues                        $67,618     $67,269    $75,698   $67,918
Gross Profit                     13,767      12,028     13,513    11,794
Net Income (Loss)                 1,458       1,450        902    (3,972)
Earnings (Loss) per Share:
  Basic                             .08         .08        .05      (.22)
  Diluted                           .08         .08        .05      (.22)

(a)  Reflects a pre-tax gain of $3,012,000 from Thermo Remediation's sale of its
     investment in a joint venture.
(b)  Reflects a nontaxable gain of $1,475,000 from the issuance of stock by
     subsidiary.
(c)  Reflects $7,800,000 of nonrecurring costs and a loss of $1,482,000 related
     to the sale of the Company's J. Amerika division.


                                       33
<PAGE>

Thermo TerraTech Inc.                                1998 Financial Statements

                  Report of Independent Public Accountants


To the Shareholders and Board of Directors of Thermo TerraTech Inc.:

     We have audited the accompanying consolidated balance sheet of Thermo
TerraTech Inc. (a Delaware corporation and an 82%-owned subsidiary of Thermo
Electron Corporation) and subsidiaries as of April 4, 1998, and March 29, 1997,
and the related consolidated statements of operations, shareholders' investment
and cash flows for each of the three years in the period ended April 4, 1998.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Thermo
TerraTech Inc. and subsidiaries as of April 4, 1998, and March 29, 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended April 4, 1998, in conformity with generally accepted accounting
principles.



                                              Arthur Andersen LLP



Boston, Massachusetts
May 12, 1998

                                       34
<PAGE>

Thermo TerraTech Inc.                                1998 Financial Statements

                  Management's Discussion and Analysis of
               Financial Condition and Results of Operations



     Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks,"
"estimates," and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the results
of the Company to differ materially from those indicated by such forward-looking
statements, including those detailed immediately after this Management's
Discussion and Analysis of Financial Condition and Results of Operations under
the heading "Forward-looking Statements."

Overview


     The Company provides industrial outsourcing services and manufacturing
support encompassing a broad range of specializations, including infrastructure
engineering, design and construction, environmental compliance, laboratory
testing, and metal treating.

     Environmental-liability Management - The Company's majority-owned Thermo
Remediation Inc. subsidiary is a national provider of environmental-liability
management services. Thermo Remediation offers these services and related
consulting services in five areas: industrial remediation, nuclear remediation,
waste-fluids collection and recycling, soil remediation, and
environmental-management and information technology consulting. Thermo
Remediation, through its industrial remediation businesses, provides integrated
environmental services such as remediation of industrial sites contaminated with
organic wastes and residues. In May 1997, Thermo Remediation's RETEC division
acquired TriTechnics Corporation, an environmental engineering and consulting
firm. In September 1997, Thermo Remediation's RETEC division acquired RPM
Systems, Inc., an environmental-management and information technology consulting
business. In September 1996, Thermo Remediation acquired IEM Sealand
Corporation. IEM Sealand performs cleanups of hazardous waste sites for
government and industry as a prime construction contractor and completes
predesigned remedial action contracts at sites containing hazardous, toxic, and
radioactive wastes. Through its nuclear-remediation business, Thermo Remediation
provides services to remove radioactive contaminants from sand, gravel, and
soil, as well as health physics, radiochemistry laboratory, and radiation
dosimetry services. In November 1997, Thermo Remediation acquired Benchmark
Environmental Corporation, a provider of nuclear-remediation and
waste-management services to government agencies and private industry. Thermo
Remediation's waste-fluids collection and recycling division collects, tests,
processes, and recycles used motor oil and other industrial fluids. In addition,
through its soil-remediation business, Thermo Remediation designs and operates a
network of facilities for the remediation of nonhazardous soil. The Company's
majority-owned Thermo EuroTech N.V.

                                       35
<PAGE>

Thermo TerraTech Inc.                                1998 Financial Statements

                  Management's Discussion and Analysis of
               Financial Condition and Results of Operations



Overview (continued)


subsidiary, located in the Netherlands, specializes in converting "off-spec" and
contaminated petroleum fluids into usable oil products. Thermo EuroTech also
provides in-plant waste management and recycling services through its
Ireland-based Green Sunrise Holdings Ltd. subsidiary, acquired in February 1998.

     Engineering and Design - In May 1997, the Company purchased a controlling
interest in The Randers Group Incorporated, a provider of engineering, project
management, and construction services for industrial clients in the
manufacturing, pharmaceutical, and chemical-processing industries. Subsequently,
in September 1997, the Company transferred The Killam Group Inc., its wholly
owned engineering and consulting businesses, to Randers in exchange for the
right to receive newly issued shares of Randers' common stock. Randers' Killam
Associates, Inc. subsidiary provides environmental consulting and engineering
services and specializes in wastewater treatment and water resources management.
Randers' BACKillam subsidiary provides both private- and public-sector clients
with a range of consulting services that address transportation planning and
design. In November 1996, the Company acquired Carlan Consulting Group, Inc., a
provider of transportation and environmental consulting and professional
engineering and architectural services, and subsequently transferred it to
Randers. The Company's Normandeau Associates Inc. subsidiary provides consulting
services that address natural resource management issues.

     Laboratory Testing - The Company's wholly owned Thermo Analytical Inc.
subsidiary operates analytical laboratories that provide environmental-,
pharmaceutical-, and food-testing services, primarily to commercial clients
throughout the U.S.

     Metal Treating - The Company performs metallurgical processing services
using thermal-treatment equipment at locations in California, Minnesota, and
Wisconsin. The Company also designed, manufactured, and installed advanced
custom-engineered, thermal-processing systems through its equipment division
located in Michigan, until the sale of this business in October 1997 (Note 3).

                                       36
<PAGE>

Overview (continued)


     The Company's revenues were as follows:

(In thousands)                               1998        1997         1996
--------------------------------------------------------------------------
Environmental-liability Management       $142,432    $126,810     $ 77,032
Engineering and Design                     84,567      74,831       74,045
Laboratory Testing                         37,485      35,431       35,476
Metal Treating                             36,617      44,339       35,762
Intercompany Sales Eliminations            (2,315)     (2,908)      (1,831)
                                         --------    --------     --------
                                         $298,786    $278,503     $220,484
                                         ========    ========     ========

     The Company has acquired a number of businesses in the last three years.
The Company does not presently intend to actively seek to make additional
acquisitions in the near future, and expects instead to concentrate its
resources on strengthening its core business. The Company may, however, acquire
one or more additional businesses if they are presented to the Company on terms
the Company believes to be attractive.

Results of Operations


Fiscal 1998 Compared With Fiscal 1997
     Total revenues increased 7% to $298.8 million in fiscal 1998 from $278.5
million in fiscal 1997. Revenues from environmental-liability management
services increased 12% to $142.4 million in fiscal 1998 from $126.8 million in
fiscal 1997. Revenues at Thermo Remediation increased to $128.4 million in
fiscal 1998 from $114.8 million in fiscal 1997, primarily due to the inclusion
of $20.1 million of revenues from acquired businesses and, to a lesser extent,
increased revenues from construction, consulting, and engineering services at
RETEC. These increases were offset in part by an $11.1 million decrease in
revenues resulting from a decline in the number of contracts in process at IEM
Sealand. Revenues from soil-remediation services decreased $3.5 million,
resulting from the closure of two sites, as well as heavy rains, which
unfavorably affected operations at certain west coast sites and, to a lesser
extent, competitive pricing pressures. Revenues from Thermo EuroTech increased
17% to $14.0 million, primarily due to increased revenues relating to contracts
to process oil-based muds and perform soil-remediation services overseas and the
inclusion of $1.2 million of revenues from Green Sunrise, acquired in February
1998, offset in part by a decrease in revenues as a result of the sale of its J.
Amerika division in the fourth quarter of fiscal 1997. Revenues from engineering
and design services increased to $84.6 million in fiscal 1998 from $74.8 million
in fiscal 1997. The inclusion of an aggregate of $15.0 million of revenues from
Carlan and Randers, acquired in November 1996 and May 1997, respectively,

                                       37
<PAGE>

Fiscal 1998 Compared With Fiscal 1997 (continued)
was offset in part by a decrease in revenues due to the completion of two major
contracts in fiscal 1997. Revenues from laboratory-testing services, excluding
radiochemistry laboratory services included in environmental-liability
management services, increased to $37.5 million in fiscal 1998 from $35.4
million in fiscal 1997 due to higher demand. Metal-treating revenues decreased
to $36.6 million in fiscal 1998 from $44.3 million in fiscal 1997, primarily due
to the sale of the Company's thermal-processing equipment business in October
1997 (Note 3), offset in part by an increase in demand for the Company's
metallurgical-processing services in fiscal 1998.
     The gross profit margin remained constant at 18% in fiscal 1998 and 1997.
The gross profit margin for laboratory-testing services increased in fiscal 1998
due to lower margins in fiscal 1997 as a result of costs incurred related to
efforts to eliminate redundant capabilities at regional laboratories. Gross
profit margins from environmental-liability management services decreased in
fiscal 1998 primarily due to losses on certain remedial-construction contracts
at IEM Sealand as a result of poorly bid and executed contracts, and an increase
in lower-margin revenues at RETEC, offset in part by increased margins at Thermo
EuroTech due to a shift to higher-margin contracts in fiscal 1998.
     Selling, general, and administrative expenses as a percentage of revenues
remained constant at 14% in fiscal 1998 and 1997.
     During fiscal 1997, the Company recorded $7.8 million of nonrecurring costs
to write down certain capital equipment and intangible assets, including cost in
excess of net assets of acquired companies. The write-down was in response to a
severe downturn in the Company's soil-recycling business, which resulted in the
closure of two soil-remediation sites. In addition, the Company's analysis
indicated that the future undiscounted cash flows from certain other soil-
remediation sites that remained open would be insufficient to recover the
Company's investment in these business units, thus requiring a write-down of
certain assets, which is included in the $7.8 million charge.
     Interest income decreased to $4.2 million in fiscal 1998 from $7.3 million
in fiscal 1997 as a result of lower average investment balances following the
repayment of a $38.0 million promissory note to Thermo Electron, the repurchase
of Company and subsidiary common stock, as well as cash expended for
acquisitions. These decreases were offset in part by cash received from the sale
of the Company's thermal-processing equipment business and Thermo Remediation's
interest in a joint venture (Note 3). Interest expense decreased to $10.8
million in fiscal 1998 from $12.9 million in fiscal 1997, primarily due to the
repayment of a promissory note to Thermo Electron and the conversion of the
Company's 6 1/2% subordinated convertible debentures during fiscal 1998.
     The Company has adopted a strategy of spinning out certain of its
businesses into separate subsidiaries and having these subsidiaries sell a
minority interest to outside investors. The Company believes that this strategy
provides additional motivation and incentives for the management

                                       38
<PAGE>

Fiscal 1998 Compared With Fiscal 1997 (continued) 
of the subsidiary through the establishment of subsidiary-level stock 
option incentive programs, as well as capital to support the subsidiaries'
growth. As a result of the issuance of common stock by Thermo EuroTech 
in fiscal 1997, the Company recorded a gain of $1.5 million. This gain
represents an increase in the Company's proportionate share of the 
subsidiary's equity and is classified as gain on issuance of stock by 
subsidiaries in the accompanying statement of operations. The size and timing
of these transactions are dependent on market and other conditions that are
beyond the Company's control. In addition, in October 1995, the Financial
Accounting Standards Board (FASB) issued an exposure draft of a Proposed
Statement of Financial Accounting Standards, "Consolidated Financial Statements:
Policy and Procedures" (the Proposed Statement). The Proposed Statement would
establish new rules for how consolidated financial statements should be
prepared. If the Proposed Statement is adopted, there would be significant
changes in the way the Company records certain transactions of its controlled
subsidiaries. Among those changes, any sale of the stock of a subsidiary that
does not result in a loss of control would be accounted for as a transaction in
equity of the consolidated entity with no gain or loss being recorded. The
exposure draft addresses the consolidation issues in two parts: consolidation
procedures, which includes proposed rule changes affecting the Company's ability
to recognize gains on issuances of subsidiary stock, and consolidation policy,
which does not address accounting for such gains. During 1997, the FASB decided
to focus its efforts on the consolidation policy part of the exposure draft and
to consider resuming discussion on consolidation procedures after completion of
the efforts on consolidation policy. The timing and content of any final
statement are uncertain.
     Equity in earnings of unconsolidated subsidiary represents Thermo
Remediation's proportionate share of income from a joint venture. "Gain on sale
of businesses and assets, net" in fiscal 1998 primarily resulted from Thermo
Remediation's sale of its interest in this joint venture (Note 3). "Loss on sale
of businesses and assets, net" in fiscal 1997 represents a loss on the sale of
Thermo EuroTech's J. Amerika division (Note 3).
     The effective tax rates in fiscal 1998 and 1997 exceeded the statutory
federal income tax rate primarily due to the nondeductible amortization of cost
in excess of net assets of acquired companies and the impact of state income
taxes. The effective tax rate in fiscal 1997 was reduced by the effect of a
nontaxable gain on issuance of stock by subsidiary.
     The Company recorded minority interest expense of $0.1 million in fiscal
1998, compared with minority interest income of $1.8 million in fiscal 1997,
primarily due to higher earnings from the Company's majority-owned subsidiaries
and the inclusion of minority interest expense associated with Randers (Note 3).
     The Company is currently assessing the potential impact of the year 2000 on
the processing of date-sensitive information by the Company's computerized
information systems as well as products purchased by the


                                       39
<PAGE>

Fiscal 1998 Compared With Fiscal 1997 (continued)
Company. The Company believes that its internal information systems are either
year 2000 compliant or will be so prior to the year 2000 without incurring
material costs. There can be no assurance, however, that the Company will not
experience unexpected costs and delays in achieving year 2000 compliance for its
internal information systems, which could result in a material adverse effect on
the Company's future results of operations.
     The Company is presently assessing whether its key suppliers are adequately
addressing the year 2000 issue and the effect this might have on the Company.
The Company has not completed its analysis and is unable to conclude at this
time that the year 2000 problem as it relates to products purchased from key
suppliers is not reasonably likely to have a material adverse effect on the
Company's future results of operations.

Fiscal 1997 Compared With Fiscal 1996
     Total revenues increased 26% to $278.5 million in fiscal 1997 from $220.5
million in fiscal 1996. Revenues from environmental-liability management
services increased to $126.8 million in fiscal 1997 from $77.0 million in fiscal
1996. Revenues at Thermo Remediation increased to $114.8 million in fiscal 1997
from $67.0 million in fiscal 1996, primarily due to the inclusion of $50.0
million of revenues from RETEC and IEM Sealand, acquired in December 1995 and
September 1996, respectively. Revenues from soil-remediation services decreased
21% due to a severe downturn in this business, which resulted in a decline in
the volume of soil processed due to overcapacity in the industry and competitive
pricing pressures. Revenues from engineering and design services remained
relatively unchanged at $74.8 million in fiscal 1997 and $74.0 million in fiscal
1996. The inclusion of $2.6 million of revenues from Carlan, acquired in
November 1996, was offset by lower revenues from federal government contracts.
Revenues from laboratory-testing services, excluding radiochemistry laboratory
services included in environmental-liability management services, were $35.4
million in fiscal 1997 and $35.5 million in fiscal 1996. Metal-treating revenues
increased to $44.3 million in fiscal 1997 from $35.8 million in fiscal 1996,
primarily due to an increase in demand for thermal- processing equipment at
existing businesses.
     The gross profit margin decreased to 18% in fiscal 1997 from 23% in fiscal
1996, primarily due to a decrease in gross profit margins from
environmental-liability management services. The decline was due to lower
margins on soil processed resulting from competitive pricing pressures, lower
volumes of soil processed at the Company's traditionally higher-margin
soil-remediation centers and, to a lesser extent, the inclusion of lower-margin
revenues from RETEC and IEM Sealand. The decline in the Company's gross profit
margin was also a result of a decrease in gross profit margins from
laboratory-testing and engineering and design services due to costs incurred
related to efforts to eliminate redundant capabilities at regional offices and
increased competitive pricing pressures in the engineering and design services
business. These decreases were offset in part by higher gross profit margins
from

                                       40
<PAGE>

Fiscal 1997 Compared With Fiscal 1996 (continued) 
metal-treating products and services as a result of an increase in revenues.
     Selling, general, and administrative expenses as a percentage of revenues
decreased to 14% in fiscal 1997 from 16% in fiscal 1996, primarily due to lower
expenses as a percentage of revenues at acquired companies, lower expenses in
fiscal 1997 at Thermo EuroTech due to the settlement of several contract
disputes which caused higher expenses in fiscal 1996, and a decline in expenses
due to the consolidation of administrative functions within the
laboratory-testing services business.
     During fiscal 1997, the Company recorded $7.8 million of nonrecurring costs
to write-down certain capital equipment and intangible assets, including cost in
excess of net assets of acquired companies, due to the reasons described in the
results of operations for fiscal 1998. Nonrecurring costs in fiscal 1996
represents the write-off of $5.0 million of cost in excess of net assets of
acquired company related to the Company's thermal-processing equipment business.
     Interest income increased to $7.3 million in fiscal 1997 from $5.1 million
in fiscal 1996, primarily as a result of interest income earned on invested
proceeds from the Company's issuance of 4 5/8% subordinated convertible
debentures in May 1996. Interest expense increased to $12.9 million in fiscal
1997 from $10.7 million in fiscal 1996, primarily due to the Company's issuance
of 4 5/8% subordinated convertible debentures and Thermo Remediation's issuance
of 4 7/8% subordinated convertible debentures in May 1995, offset in part by the
repayment of promissory notes to Thermo Electron with proceeds from the
Company's issuance of the 4 5/8% subordinated convertible debentures.
     As a result of the issuance of common stock by subsidiaries, the Company
recorded gains of $1.5 million and $4.1 million in fiscal 1997 and 1996,
respectively.
     During fiscal 1997 and 1996, Thermo EuroTech's J. Amerika division incurred
operating losses as a result of intense competition in the removal and
installation of underground storage tank and wastewater treatment businesses.
During fiscal 1997, the Company sold this business unit and incurred a loss of
$1.5 million on the sale. J. Amerika's revenues and operating loss were $4.0
million and $0.6 million, respectively, in fiscal 1997. During fiscal 1996, the
Company sold the assets of an engineering office and wrote off an intangible
asset of $0.6 million in connection with the sale (Note 3).
     Equity in earnings of unconsolidated subsidiary in fiscal 1997 represents
RETEC's proportionate share of income from a joint venture (Notes 3 and 14).
     The effective tax rate in fiscal 1997 exceeded the statutory federal income
tax rate primarily due to the nondeductible amortization and write-off of cost
in excess of net assets of acquired companies and the impact of state income
taxes, offset in part by the nontaxable gain on issuance of stock by subsidiary.
The effective tax rate in fiscal 1996 exceeded the statutory federal income tax
rate, primarily due to the nondeductible write-off of cost in excess of net
assets of acquired company and the loss on sale of assets, offset in part by the
nontaxable


                                       41
<PAGE>

Fiscal 1997 Compared With Fiscal 1996 (continued)
gains on issuance of stock by subsidiaries and the reversal of previously
established tax reserves of $0.8 million that were no longer required due to the
completion of certain revenue agent reviews.
     The Company recorded minority interest income of $1.8 million in fiscal
1997, compared with minority interest expense of $1.2 million in fiscal 1996,
due to losses incurred by the Company's majority-owned subsidiaries.

Liquidity and Capital Resources


     Consolidated working capital was $69.3 million at April 4, 1998, compared
with $77.3 million at March 29, 1997. Cash, cash equivalents, and
available-for-sale investments were $36.7 million at April 4, 1998, compared
with $81.6 million at March 29, 1997. Of the $36.7 million balance at April 4,
1998, $21.8 million was held by the Company's majority-owned subsidiaries, and
the remainder was held by the Company and its wholly owned subsidiaries. In
addition, at April 4, 1998, the Company had $13.9 million of short-term
held-to-maturity investments, compared with $26.1 million of short- and
long-term held-to-maturity investments at March 29, 1997. During fiscal 1998,
$6.5 million of cash was provided by operating activities. The Company funded an
increase of $11.2 million in accounts receivable during fiscal 1998, primarily
due to delays in the pursuit of collections at certain business units of Thermo
Remediation and, to a lesser extent, higher revenues at certain business units.
Thermo Remediation expects to address this matter by increasing collection
efforts over the next several quarters. In addition, accounts receivable
increased in the engineering and design group primarily as a result of the
timing of cash collections at Killam Associates. This use of cash was offset in
part by a $5.5 million increase in accounts payable due to the timing of
payments.
     Excluding available-for-sale and held-to-maturity investments activity, the
Company's investing activities in fiscal 1998 primarily consisted of
acquisitions and capital additions, as well as the sale of two businesses.
During fiscal 1998, the Company and its subsidiaries made several acquisitions
for an aggregate of $12.7 million in cash, net of cash acquired, and the
issuance of shares of subsidiaries' common stock valued at $3.1 million. The
Company expended $18.5 million for purchases of property, plant, and equipment
in fiscal 1998. The Company expects to spend approximately $16.0 million for
property, plant, and equipment in fiscal 1999.
     In October 1997, Thermo Remediation sold its 50% limited-liability interest
in RETEC/TETRA L.C. for $8.8 million in cash and the Company sold substantially
all of the assets of its Holcroft Division, excluding certain accounts
receivable, for a total purchase price of $10.9 million in cash and $2.9 million
of notes, plus the assumption by the purchaser of the Holcroft Division of
certain liabilities (Note 3).
     In fiscal 1998, the Company's financing activities used cash of $53.7
million. This use of cash primarily resulted from the repayment of a $38.0
million promissory note to Thermo Electron, the repayment of a


                                       42
<PAGE>

Liquidity and Capital Resources (continued)


$13.9 million note payable (Note 2), and the repurchase of Company and
subsidiary common stock and subordinated convertible debentures. The Board of
Directors of the Company authorized the repurchase of up to $10.0 million of its
own securities. The Board of Directors of Thermo Remediation, through a series
of actions commencing in September 1996, authorized the repurchase, through
various dates ending in July 1998, of up to $15.0 million of its own securities.
Through April 4, 1998, the Company and Thermo Remediation had expended $10.0
million and $11.4 million, respectively, under these authorizations, of which
$3.3 million and $3.1 million, respectively, were expended in fiscal 1998. Any
such purchases are funded from working capital.
     The Company expects to have positive cash flow from its existing
operations. Although the Company does not presently intend to actively seek to
acquire additional businesses in the near future, it may acquire one or more
complimentary businesses if they are presented to the Company on terms the
Company believes to be attractive. Such acquisitions may require significant
amounts of cash. The Company expects that it will finance any such acquisitions
through a combination of internal funds, additional debt or equity financing
from the capital markets, or short-term borrowings from Thermo Electron,
although it has no agreement with Thermo Electron to ensure that funds will be
available on acceptable terms or at all. The Company believes that its existing
resources are sufficient to meet the capital requirements of its existing
businesses for the foreseeable future.

                                       43
<PAGE>

Thermo TerraTech Inc.                                1998 Financial Statements

                         Forward-looking Statements


          In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company wishes to caution
readers that the following important factors, among others, in some cases have
affected, and in the future could affect, the Company's actual
results and could cause its actual results in fiscal 1999 and beyond to differ
materially from those expressed in any forward-looking statements
made by, or on behalf of, the Company.

        Dependence on Environmental Regulation. Federal, state, and local
environmental laws govern each of the markets in which the Company
conducts business, as well as many of the Company's operations. The
markets for many of the Company's services, including industrial-
remediation services, nuclear-remediation services, hazardous waste-
remedial construction services, soil-remediation services, waste-fluids
recycling services, engineering and design services, and laboratory
services, and the standards governing most aspects of the construction and
operation of the Company's facilities, were directly or indirectly created
by, and are dependent on, the existence and enforcement of those laws. There
can be no assurance that these laws and regulations will not change in the
future, requiring new technologies or stricter standards with which the Company
must comply. In addition, there can be no assurance that these laws and
regulations will not be made more lenient in the future, thereby reducing the
size of the markets addressed by the Company. Any such change
in such federal, state, and local environmental laws and regulations may
have a material adverse effect on the Company's business.
          Responsibility for establishing and enforcing certain federal
policies, such as the federal underground storage tank policy, has been
delegated to the states, which are not only required to establish
regulatory programs, but also are permitted to mandate more stringent
requirements than are otherwise required by federal law. Recently, certain
states have adopted a "risk-based" approach to prioritizing site cleanups
and setting cleanup standards, which attempts to balance the costs of
remediation against the potential harm to human health and the environment from
leaving sites unremediated. There can be no assurance that additional
states will not adopt these policies or that these policies will not reduce
the size of the potential market addressed by the Company.

         Potential Environmental and Regulatory Liability. The Company's
operations are subject to comprehensive laws and regulations related to
the protection of the environment. Among other things, these laws and
regulations impose requirements to control air, soil, and water pollution,
and regulate health, safety, zoning, land use, and the handling and
transportation of hazardous and nonhazardous materials. Such laws and
regulations also impose liability for remediation and cleanup of
environmental contamination, both on-site and off-site, resulting from
past and present operations. These requirements may also be imposed as
conditions to operating permits or licenses that are subject to renewal,
modification, or revocation. Existing laws and regulations, and new laws
and regulations, may require the Company to modify, supplement, replace,
or curtail its operating methods, facilities, or equipment at costs which

                                       44
<PAGE>

may be substantial without any corresponding increase in revenue. The
Company is also potentially subject to monetary fines, penalties,
remediation, cleanup or stop orders, injunctions, or orders to cease or
suspend certain of its practices. The outcome of any proceedings and
associated costs and expenses could have a material adverse impact on the
Company's business. In addition, the Company is subject to numerous laws and
regulations related to the protection of human health and safety. Such laws and
regulations may pose liability on the Company for exposure of its
employees to radiation or other hazardous contamination or failure to isolate
and remove radioactive or other hazardous contaminants from soil.
          The Company endeavors to operate its business to minimize its
exposure to environmental and other regulatory liabilities. Although no
claims giving rise to such liabilities have been asserted by the Company's
customers or employees to date, there can be no assurance that such claims
cannot or will not be asserted against the Company.

         Uncertainty of Funding. Remediation compliance requirements and
attendant costs are often beyond the financial capabilities of individuals
and small companies. To address this problem, some states have established
tax-supported trust funds to assist in the financing of compliance and
site remediation. As a consequence, in many of the states in which the
Company markets its soil remediation services, the majority, and in some cases
virtually all, of the soil remediated by the Company is paid for by
large companies and/or these state trust funds. Any substantial decrease in
this funding could have a material adverse effect on the Company's business
and financial performance. Many states have realized that the number of sites
requiring remediation and the costs of compliance are
substantially higher than were originally estimated. As a result, several
states have relaxed enforcement activities and others have reduced
compliance requirements in order to reduce the costs of cleanup. These
factors have already resulted in lower levels of cleanup activity in some
states and have had a material adverse effect on the Company's business.
Continued de-emphasis on enforcement activities and/or further reductions in
compliance requirements will have an even more severe adverse effect on
the Company's business.
           The Company depends on funding from the federal and state
governments, and their agencies and instrumentalities, for compensation for
its services. For example, Thermo Remediation's nuclear-remediation business
provides a large portion of its services directly or indirectly to the U.S.
Department of Energy (DOE) and the Company's engineering and design businesses
perform significant amounts of services for state and
municipal governments. Thermo NUtech has experienced a decrease in its
radiochemistry laboratory work as a result of ongoing reductions in
spending at the DOE as well as a shift in DOE spending from investigative
work to cleanup work. Continued declines in spending by DOE and other
governmental agencies could have a material adverse effect on the
Company's business.

         Competition. The markets for many of the Company's services are
regional and are characterized by intense competition from numerous local
competitors. Some of the Company's competitors have greater technical and

                                       45
<PAGE>

financial resources than those of the Company. As a result, they may be able
to adapt more quickly to new or emerging technologies and changes in customer
requirements, or to devote greater resources to the promotion and sale of their
services than the Company. Competition could increase if new
companies enter the market or its existing competitors expand their
service lines. There can be no assurance that the Company's current
technology, technology under development, or ability to develop new
technologies will be sufficient to enable it to compete effectively with
its competitors.

          Seasonal Influences. A majority of the Company's businesses
experience seasonal fluctuations. A majority of the Company's
soil-remediation sites, as well as the Company's fluids-recycling sites,
experience declines in severe weather conditions. Site remediation work
and certain environmental-testing services, such as the services provided
by Lancaster Laboratories, RETEC, Randers, IEM Sealand, and Thermo NUtech,
may decline in winter months as a result of severe weather conditions. In
Europe, Thermo EuroTech may experience a decline in the feedstock delivered
to its facilities during winter months, due to frozen waterways.

        Possible Obsolescence Due to Technological Change. Technological
developments are expected to continue at a rapid pace in the environmental
services industry. The Company's technologies could be rendered obsolete
or uneconomical by technological advances by one or more companies that
address the Company's markets or by future entrants into the industry.
There can be no assurance that the Company would have the resources to, or
otherwise would be successful in, developing responses to technological
advances by others.

       Dependence of Thermo EuroTech on Availability of Waste Oil Supplies.
   Thermo EuroTech's North Refinery facility has historically received a
 large percentage of its oil feedstock from the former Soviet Union. North
 Refinery no longer receives any oil from that nation, due to political and
 economic changes that have made the transportation of waste oil difficult. To
 overcome this loss of supply, North Refinery has taken steps to replace and
 diversify its feedstock suppliers. No assurance can be given, however, that
 North Refinery will not experience future disruptions in deliveries. Any such
 disruptions could have a material adverse effect on the Company's
 results of operations.

       Potential Professional Liability. The Company's business exposes it to
 potential liability for the negligent performance of its services, and the
 Company could face substantial liability to clients and third parties for
 damages resulting from faulty designs or other professional services.
 The Company currently maintains professional errors and omissions
 insurance, but there can be no assurance that this insurance will provide
 sufficient coverage in the event of a claim, that the Company will be able
 to maintain such coverage on acceptable terms, if at all, or that a
 professional liability claim would not result in a material adverse effect on
 the Company's business, financial condition, and results of operations.


                                       46
<PAGE>

       Dependence on Sales to Government Entities. A significant portion of
the Company's revenues is derived from municipalities, state governments,
and government utility authorities. Any decreases in purchases by these
entities, including, without limitation, decreases resulting from shifts
in priorities or overall budgeting limitations, could have a material adverse
effect on the Company's business, financial condition, and results
of operations. In addition, most of the Company's contracts require the
Company to perform specific services for a fixed fee. Contracts with
governmental entities often permit the purchaser to cancel the agreement
at any time. A significant overrun in the Company's expenses or
cancellation of a significant contract could also result in a material
adverse effect on the Company's business, financial condition, and results of
operations. The Company's contracts with governmental entities are also
subject to other risks, including contract suspensions; protests by
disappointed bidders of contract awards, which can result in the
re-opening of the bidding process; and changes in government policies or
regulations.

       Risks Associated with Acquisition Strategy. The Company's strategy
includes the acquisition of businesses that complement or augment the
Company's existing services. The Company does not presently intend to
actively seek to make additional acquisitions in the near future, and expects
instead to concentrate its resources on strengthening its core
businesses. The Company may, however, acquire one or more additional
businesses if they are presented to the Company on terms the Company
believes to be attractive.
      Promising acquisitions are difficult to identify and complete for a
number of reasons, including competition among prospective buyers and the
need for regulatory approvals. Any acquisitions completed by the Company
may be made at substantial premiums over the fair value of the net assets
of the acquired companies. There can be no assurance that the Company will
be able to complete future acquisitions or that the Company will be able
to successfully integrate any acquired businesses. In order to finance
such acquisitions, it may be necessary for the Company to raise additional
funds through public or private financings. Any equity or debt financing,
if available at all, may be on terms that are not favorable to the Company
and, in the case of equity financing, may result in dilution to the
Company's shareholders.

     Risks Associated with Spin-out of Subsidiaries. The Company has adopted a
strategy of spinning out certain of its businesses into separate subsidiaries
and having these subsidiaries sell a minority interest to outside investors. As
a result of the sale of stock by subsidiaries, the issuance of stock by
subsidiaries upon conversion of convertible debentures and similar transactions,
the Company records gains that represent the increase in the Company's net
investment in the subsidiaries. These gains have represented a substantial
portion of the net income reported by the Company in certain periods. The size
and timing of these transactions are dependent on market and other conditions
that are beyond the Company's control. Accordingly, there can be no assurance
that the Company will be able to generate gains from such transactions in the
future.

                                       47
<PAGE>

     In addition, in October 1995, the Financial Accounting Standards Board
(FASB) issued an exposure draft of a Proposed Statement of Financial Accounting
Standards, "Consolidated Financial Statements: Policy and Procedures" (the
Proposed Statement). The Proposed Statement would establish new rules for how
consolidated financial statements should be prepared. If the Proposed Statement
is adopted, there would be significant changes in the way the Company records
certain transactions of its controlled subsidiaries. Among those changes, any
sale of the stock of a subsidiary that does not result in a loss of control
would be accounted for as a transaction in equity of the consolidated entity
with no gain or loss being recorded. The exposure draft addresses the
consolidation issues in two parts: consolidation procedures, which includes
proposed rule changes affecting the Company's ability to recognize gains on
issuances of subsidiary stock, and consolidation policy, which does not address
accounting for such gains. During 1997, the FASB decided to focus its efforts on
the consolidation policy part of the exposure draft and to consider resuming
discussion on consolidation procedures after completion of the efforts on
consolidation policy. The timing and content of any final statement are
uncertain.

     No Assurance of Development and Commercialization of Technology Under
Development. The Company is currently engaged in the development of several
technologies that may ultimately be commercialized to provide services to
customers. There are a number of technological challenges that the Company must
successfully address to complete any of its development efforts. Technology
development involves a high degree of risk, and returns to investors are
dependent upon successful development and commercialization of such technology.
There can be no assurance that any of the technologies currently being developed
by the Company, or those to be developed in the future by the Company, will be
technologically feasible or accepted by the marketplace, or that any such
development will be completed in any particular timeframe. 
Potential Impact of Year 2000 on Processing Date-sensitive Information.
The Company is currently assessing the potential impact of the year 2000 on the
processing of date-sensitive information by the Company's computerized 
information systems as well as products purchased by the Company. The Company 
believes that its internal information systems are either year 2000 compliant 
or will be so prior to the year 2000 without incurring material costs. There 
can be no assurance, however, that the Company will not experience unexpected 
costs and delays in achieving year 2000 compliance for its internal information 
systems, which could result in a material adverse effect on the Company's future
results of operations. The Company is presently assessing whether its key 
suppliers are adequately addressing the year 2000 issue and the effect this 
might have on the Company. The Company has not completed its analysis and is 
unable to conclude at this time that the year 2000 problem as it relates to 
products purchased from key suppliers is not reasonably likely to have a 
material adverse effect on the Company's future results of operations.

                                       48
<PAGE>

Thermo TerraTech Inc.                                1998 Financial Statements

                       Selected Financial Information

(In thousands except
per share amounts)     1998(a)     1997(b)     1996(c)     1995(d)    1994(e)
-----------------------------------------------------------------------------

Statement of Operations
  Data:
Revenues              $298,786    $278,503    $220,484   $136,985   $112,865
Income (Loss) Before
  Cumulative Effect
  of Change in
  Accounting
  Principle              3,273        (162)      3,447      4,476      3,507
Net Income (Loss)        3,273        (162)      3,447      4,476      4,007
Basic and Diluted
  Earnings (Loss) per
  Share Before
  Cumulative Effect
  of Change in
  Accounting
  Principle                .18        (.01)        .20        .26        .21
Earnings (Loss) per
  Share:
    Basic                  .18        (.01)        .20        .26        .24
    Diluted                .17        (.01)        .18        .26        .24

Balance Sheet Data:
Working Capital       $ 69,319    $ 77,315    $ 66,008   $ 63,459    $50,310
Total Assets           360,526     393,784     333,656    273,298    157,161
Long-term Obligations  153,144     165,186     155,384     96,851     18,732
Shareholders'
  Investment            97,130      83,526      85,870     77,217     62,239
--------------------
(a) Reflects a pre-tax gain of $3.0 million from Thermo Remediation's sale of
    its investment in a joint venture.
(b) Reflects $7.8 million of nonrecurring costs and a loss $1.5 million relating
    to the sale of the Company's J. Amerika division. Also reflects the issuance
    of $115.0 million principal amount of 4 7/8% subordinated convertible
    debentures, and a gain on issuance of stock by subsidiary of $1.5 million.
(c) Reflects the acquisition of Lancaster Laboratories in May 1995, the purchase
    of the businesses formerly operated by the environmental services joint
    venture from Thermo Instrument, and the issuance of a $35.0 million
    promissory note to Thermo Electron to fund the purchase. Reflects Thermo
    Remediation's acquisition of RETEC in December 1995,
    the issuance of $38.0 million principal amount of 4 7/8% subordinated
    convertible debentures by Thermo Remediation, and a gain on issuance of
    stock by subsidiaries of $4.1 million. Also reflects the write-off of
    goodwill of $5.0 million and a loss on the sale of assets of $0.6 million.
(d) Reflects the acquisitions of RMC Environmental Services, Inc. in August 1994
    and Killam Associates in February 1995, and the issuance of $53.0 million of
    long-term promissory notes to Thermo Electron. Also reflects Thermo
    EuroTech's acquisition of North Refinery in March 1995.
(e) Reflects the adoption of Statement of Financial Accounting Standards
    No. 109, "Accounting for Income Taxes."

                                       49
<PAGE>

Thermo TerraTech Inc.                                1998 Financial Statements




Common Stock Market Information
     The Company's common stock is traded on the American Stock Exchange under
the symbol TTT. The following table sets forth the high and low sales prices of
the Company's common stock for fiscal 1998 and 1997, as reported in the
consolidated transaction reporting system.


                                        1998                   1997
                              --------------------   ----------------------
Quarter                          High        Low      High          Low
---------------------------------------------------------------------------
First                         $11 1/8       $8 1/8   $14 3/8      $11 3/4
Second                         12 1/16       9 7/8    12 3/8       10 1/4
Third                           9 15/16      8        10 7/8        9 3/16
Fourth                          8 3/16       6 5/8     9 7/8        8 3/4

     As of May 29, 1998, the Company had 955 holders of record of its common
stock. This does not include holdings in street or nominee names. The closing
market price on the American Stock Exchange for the Company's common stock on
May 29, 1998, was $4 3/4 per share.
     Common stock of Thermo Remediation Inc. and The Randers Group Incorporated,
the Company's majority-owned public subsidiaries, are traded on the American
Stock Exchange (symbol THN) and the American Stock Exchange's Emerging Company
Marketplace (symbol RGI), respectively.

Shareholder Services
     Shareholders of Thermo TerraTech Inc. who desire information about the
Company are invited to contact John N. Hatsopoulos, Chief Financial Officer,
Thermo TerraTech Inc., 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts
02254-9046, (781) 622-1111. A mailing list is maintained to enable shareholders
whose stock is held in street name, and other interested individuals, to receive
quarterly reports, annual reports, and press releases as quickly as possible.
Distribution of printed quarterly reports is limited to the second quarter only.
All material will be available from Thermo Electron's Internet site
(http://www.thermo.com/subsid/ttt1.html).

Stock Transfer Agent
     American Stock Transfer & Trust Company is the stock transfer agent and
maintains shareholder activity records. The agent will respond to questions on
issuance of stock certificates, change of ownership, lost stock certificates,
and change of address. For these and similar matters, please direct inquiries
to:

     American Stock Transfer & Trust Company
     Shareholder Services Department
     40 Wall Street, 46th Floor
     New York, New York 10005
     (718) 921-8200

                                       50
<PAGE>

Dividend Policy
     The Company has never paid cash dividends and does not expect to pay cash
dividends in the foreseeable future because its policy has been to use earnings
to finance expansion and growth. Payment of dividends will rest within the
discretion of the Company's Board of Directors and will depend upon, among other
factors, the Company's earnings, capital requirements, and financial condition.

Form 10-K Report
     A copy of the Annual Report on Form 10-K for the fiscal year ended April 4,
1998, as filed with the Securities and Exchange Commission, may be obtained at
no charge by writing to John N. Hatsopoulos, Chief Financial Officer, Thermo
TerraTech Inc., 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts
02254-9046.

Annual Meeting
     The annual meeting of shareholders will be held on Tuesday, September
15, 1998, at 3:00 p.m. at Thermo Electron Corporation, 81 Wyman Street,
Waltham, Massachusetts.

                                       51