Exhibit 13












                             ThermoQuest Corporation

                        Consolidated Financial Statements

                                       1999


<PAGE>
<TABLE>
<CAPTION>
ThermoQuest Corporation                                                         1999 Financial Statements

                        Consolidated Statement of Income

<S>                                                                              <C>       <C>        <C>
(In thousands except per share amounts)                                          1999      1998       1997
--------------------------------------------------------------------------- ---------- ---------- --------

Revenues (Notes 7 and 11)                                                   $ 431,827  $ 433,684  $438,863
                                                                            ---------  ---------  --------

Cost and Operating Expenses:
 Cost of revenues                                                             226,385    225,357   229,960
 Selling, general, and administrative expenses (Note 7)                       103,648    107,445   107,770
 Research and development expenses                                             29,006     31,464    28,152
 Restructuring costs (Note 9)                                                    (326)     4,600         -
 Gain on sale of property                                                      (1,604)    (1,275)        -
                                                                            ---------  ---------  --------

                                                                              357,109    367,591   365,882
                                                                            ---------  ---------  --------

Operating Income                                                               74,718     66,093    72,981

Interest Income (includes $186 and $679 from related parties in                 7,245      6,204    10,121
 1998 and 1997)
Interest Expense (includes $3,126 to related parties in 1997; Note 2)          (5,074)    (6,634)  (10,081)
                                                                            ---------  ---------  --------

Income Before Provision for Income Taxes and Extraordinary Item                76,889     65,663    73,021
Provision for Income Taxes (Note 4)                                            31,140     27,578    31,216
                                                                            ---------  ---------  --------

Income Before Extraordinary Item                                               45,749     38,085    41,805
Extraordinary Item, Net of Provision for Income Taxes of $172 (Note 5)              -        293         -
                                                                            ---------  ---------  --------

Net Income                                                                  $  45,749  $  38,378  $ 41,805
                                                                            =========  =========  ========

Earnings per Share (Note 12)
 Basic                                                                      $     .90  $     .75  $    .83
                                                                            =========  =========  ========

 Diluted                                                                    $     .87  $     .72  $    .80
                                                                            =========  =========  ========

Weighted Average Shares (Note 12)
 Basic                                                                         50,633     51,270    50,120
                                                                            =========  =========  ========

 Diluted                                                                       54,695     56,041    55,891
                                                                            =========  =========  ========












</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.

                                       2
<PAGE>
<TABLE>
<CAPTION>
ThermoQuest Corporation                                                         1999 Financial Statements

                           Consolidated Balance Sheet

<S>                                                                                        <C>       <C>
(In thousands)                                                                             1999      1998
------------------------------------------------------------------------------------- ---------- ---------

Assets
Current Assets:
 Cash and cash equivalents (includes $97,073 under repurchase agreements              $  33,562  $ 132,439
   with affiliated company in 1998)
 Advance to affiliate                                                                   124,683          -
 Accounts receivable, less allowances of $3,959 and $4,065                              113,574    108,409
 Inventories                                                                             66,279     70,612
 Deferred tax asset (Note 4)                                                             12,183     13,005
 Other current assets                                                                     2,226      2,591
                                                                                      ---------  ---------

                                                                                        352,507    327,056
                                                                                      ---------  ---------

Property, Plant, and Equipment, at Cost, Net (Note 9)                                    59,219     63,463
                                                                                      ---------  ---------

Patents and Other Assets                                                                  3,272      3,041
                                                                                      ---------  ---------

Cost in Excess of Net Assets of Acquired Companies (Notes 2 and 4)                      237,825    249,682
                                                                                      ---------  ---------

                                                                                      $ 652,823  $ 643,242
                                                                                      =========  =========

                                       3
<PAGE>

ThermoQuest Corporation                                                         1999 Financial Statements

                     Consolidated Balance Sheet (continued)

(In thousands except share amounts)                                                        1999      1998
------------------------------------------------------------------------------------- ---------- ---------

Liabilities and Shareholders' Investment
Current Liabilities:
 Short-term obligations and current maturities of long-term obligations
   (includes $300 of related-party debt in 1999; Note 5)                              $  67,237  $  12,074
 Accounts payable                                                                        25,073     27,024
 Accrued payroll and employee benefits                                                   16,843     17,361
 Accrued income taxes (includes $7,800 and $11,000 due to parent company)                25,310     23,009
 Accrued installation and warranty expenses                                               9,621      9,623
 Deferred revenue                                                                        14,457     10,785
 Customer deposits                                                                        4,242      6,227
 Other accrued expenses (Notes 2 and 9)                                                  16,114     18,448
 Due to parent company and affiliated companies                                           2,943      2,487
                                                                                      ---------  ---------

                                                                                        181,840    127,038
                                                                                      ---------  ---------

Deferred Income Taxes (Note 4)                                                            5,774      8,370
                                                                                      ---------  ---------

Accrued Pension and Other Deferred Items (Note 3)                                        14,499     16,629
                                                                                      ---------  ---------

Long-term Obligations (includes $300 of related-party debt in 1998; Note 5)               4,966     74,204
                                                                                      ---------  ---------

Commitments and Contingencies (Note 6)

Shareholders' Investment (Notes 3 and 8):
 Common stock, $.01 par value, 100,000,000 shares authorized; 51,546,906                    515        515
   and 51,520,004 shares issued
 Capital in excess of par value                                                         309,357    309,009
 Retained earnings                                                                      162,356    116,607
 Treasury stock at cost, 1,149,199 and 550,342 shares                                   (12,329)    (5,300)
 Deferred compensation                                                                      (54)         -
 Accumulated other comprehensive items                                                  (14,101)    (3,830)
                                                                                      ---------  ---------

                                                                                        445,744    417,001
                                                                                      ---------  ---------

                                                                                      $ 652,823  $ 643,242
                                                                                      =========  =========










</TABLE>

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


                                       4
<PAGE>
<TABLE>
<CAPTION>
ThermoQuest Corporation                                                         1999 Financial Statements

                      Consolidated Statement of Cash Flows

<S>                                                                            <C>         <C>         <C>
(In thousands)                                                                 1999        1998        1997
------------------------------------------------------------------------- ---------- ----------- ---------

Operating Activities
 Net income                                                               $  45,749  $   38,378  $  41,805
 Adjustments to reconcile net income to net cash provided by
   operating activities:
     Depreciation and amortization                                           15,144      15,496     14,807
     Noncash restructuring costs (Note 9)                                         -         940          -
     Gain on sale of property                                                (1,604)     (1,275)         -
     Provision for losses on accounts receivable                                687         825        549
     Extraordinary item (Note 5)                                                  -        (465)         -
     Other noncash expenses                                                     423         484        614
     Increase (decrease) in deferred income taxes                            (1,774)        867      2,098
     Changes in current accounts, excluding the effects of acquisitions:
       Accounts receivable                                                   (9,490)     (8,187)   (11,805)
       Inventories                                                              984        (609)     1,111
       Other current assets                                                     259        (348)    (1,425)
       Accounts payable                                                        (894)      2,191        842
       Due to parent company and affiliated companies                         1,289      (2,711)      (536)
       Other current liabilities                                              4,580       1,599      3,758
     Other                                                                     (151)          -        (52)
                                                                          ---------  ----------  ----------

        Net cash provided by operating activities                            55,202      47,185     51,766
                                                                          ---------  ----------  ---------

Investing Activities
 Acquisitions, net of cash acquired (Note 2)                                 (2,368)     (1,342)  (154,304)
 Refund from parent company for acquisitions (Note 2)                             -       5,953          -
 Advances to affiliate, net                                                (125,049)          -          -
 Proceeds from maturities of available-for-sale investments                       -           -      7,250
 Purchases of property, plant, and equipment                                 (5,650)     (7,076)    (6,261)
 Proceeds from sale of property, plant, and equipment                         1,737       3,383      2,624
 Other                                                                            -           -        175
                                                                          ---------  ----------  ---------

        Net cash provided by (used in) investing activities                (131,330)        918   (150,516)
                                                                          ---------  ----------  ---------

Financing Activities
 Net proceeds from issuance of Company common stock (Note 8)                    172         411     25,050
 Purchases of Company securities (Note 5)                                   (13,646)    (12,416)         -
 Increase (decrease) in short-term obligations                               (6,223)      3,699     (7,926)
 Repayment of long-term obligations                                          (1,274)     (1,103)    (2,791)
 Other                                                                         (207)        568      1,469
                                                                          ---------  ----------  ---------

        Net cash provided by (used in) financing activities               $ (21,178) $   (8,841) $  15,802
                                                                          ---------  ----------  ---------



                                       5
<PAGE>


ThermoQuest Corporation                                                         1999 Financial Statements

                Consolidated Statement of Cash Flows (continued)

(In thousands)                                                                 1999        1998        1997
------------------------------------------------------------------------- ---------- ----------- ---------

Exchange Rate Effect on Cash                                              $  (1,571) $    1,279  $    (132)
                                                                          ---------  ----------  ---------

Increase (Decrease) in Cash and Cash Equivalents                            (98,877)     40,541    (83,080)
Cash and Cash Equivalents at Beginning of Year                              132,439      91,898    174,978
                                                                          ---------  ----------  ---------

Cash and Cash Equivalents at End of Year                                  $  33,562  $  132,439  $  91,898
                                                                          =========  ==========  =========

Cash Paid For
 Interest                                                                 $   4,851  $    6,454  $   9,851
 Income taxes                                                             $  30,828  $   23,570  $  25,207

Noncash Activities
 Fair value of assets of acquired companies                               $   3,030  $    1,342  $ 184,659
 Cash paid for acquired companies                                            (2,400)     (1,342)  (160,411)
 Stock issued to parent company for acquired companies                            -           -        (16)
 Adjustment of purchase price due from parent company for                         -           -      3,498
   acquired companies                                                     ---------  ----------  ---------

     Liabilities assumed of acquired companies                            $     630  $        -  $  27,730
                                                                          =========  ==========  =========

 Conversions of convertible debentures                                    $       -  $    5,000  $  15,659
                                                                          =========  ==========  =========


























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


                                       6
<PAGE>

ThermoQuest Corporation                                                         1999 Financial Statements

               Consolidated Statement of Comprehensive Income and Shareholders' Investment

(In thousands)                                                                   1999     1998        1997
--------------------------------------------------------------------------- ---------- --------- ---------

Comprehensive Income
Net Income                                                                  $  45,749  $ 38,378  $ 41,805
                                                                            ---------  --------  --------
Other Comprehensive Items, Net:
 Foreign currency translation adjustment                                      (10,271)    7,007   (11,644)
 Unrealized loss on available-for-sale investments, net of                          -         -       (14)
  reclassification adjustment                                               ---------  --------  --------


                                                                              (10,271)    7,007   (11,658)
                                                                            ---------  --------  --------

                                                                            $  35,478  $ 45,385  $ 30,147
                                                                            =========  ========  ========

Shareholders' Investment
Common Stock, $.01 Par Value:
 Balance at beginning of year                                               $     515  $    512  $    485
 Net proceeds from issuance of Company common stock (Note 8)                        -         -        18
 Conversions of convertible debentures                                              -         3         9
                                                                            ---------  --------  --------

 Balance at end of year                                                           515       515       512
                                                                            ---------  --------  --------

Capital in Excess of Par Value:
 Balance at beginning of year                                                 309,009   302,881   261,921
 Net proceeds from issuance of Company common stock (Note 8)                        -         -    24,818
 Conversions of convertible debentures                                              -     4,942    15,414
 Stock issued to parent company for acquired companies (Note 2)                     -         -        16
 Issuance of stock under employees' and directors' stock plans                    247       414       220
 Tax benefit related to employees' and directors' stock plans (Note 4)            101       772       492
                                                                            ---------  --------  --------

 Balance at end of year                                                       309,357   309,009   302,881
                                                                            ---------  --------  --------

Retained Earnings:
 Balance at beginning of year                                                 116,607    78,229    39,787
 Net income                                                                    45,749    38,378    41,805
 Deemed distribution to parent company for acquired companies (Note 2)              -         -    (3,363)
                                                                            ---------  --------  --------

 Balance at end of year                                                       162,356   116,607    78,229
                                                                            ---------  --------  --------

Treasury Stock:
 Balance at beginning of year                                                  (5,300)       (6)        -
 Purchases of Company common stock                                             (7,030)   (5,291)        -
 Activity under employees' and directors' stock plans                               1        (3)       (6)
                                                                            ---------  --------  --------

 Balance at end of year                                                     $ (12,329) $ (5,300) $     (6)
                                                                            ---------  --------  --------



                                       7
<PAGE>

ThermoQuest Corporation                                                         1999 Financial Statements

         Consolidated Statement of Comprehensive Income and Shareholders' Investment (continued)

(In thousands)                                                                   1999     1998        1997
--------------------------------------------------------------------------- ---------- --------- ---------

Deferred Compensation (Note 3):
 Balance at beginning of year                                               $       -  $      -  $      -
 Issuance of restricted stock under employees' stock plans                        (77)        -         -
 Amortization of deferred compensation                                             23         -         -
                                                                            ---------  --------  --------

 Balance at end of year                                                           (54)        -         -
                                                                            ---------  --------  --------

Accumulated Other Comprehensive Items:
 Balance at beginning of year                                                  (3,830)  (10,837)      821
 Other comprehensive items, net                                               (10,271)    7,007   (11,658)
                                                                            ---------  --------  --------

 Balance at end of year                                                       (14,101)   (3,830)  (10,837)
                                                                            ---------  --------  --------

                                                                            $ 445,744  $417,001  $370,779
                                                                            =========  ========  ========


































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


                                       8
<PAGE>

ThermoQuest Corporation                                                         1999 Financial Statements

                   Notes to Consolidated Financial Statements

1.    Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations
      ThermoQuest Corporation (the Company) consists of businesses that are
reported in two segments: Analytical Instruments and Scientific Equipment.
Businesses within the Analytical Instruments segment develop, manufacture, sell,
and service mass spectrometers, liquid chromatographs, gas chromatographs, and
multi-instrument combinations of these products, which are used in the
quantitative and qualitative analysis of chemical compounds at ultratrace levels
of detection, as well as advanced software for use with these instruments and
consumables for the chromatography industry. Businesses included in the
Scientific Equipment segment develop, manufacture, sell, and service scientific
equipment for the preparation and preservation of chemical samples. The
Company's products are used primarily by the pharmaceutical, biotechnology,
environmental, and industrial marketplaces.

Relationship With Thermo Instrument Systems Inc. and Thermo Electron Corporation
      The Company was incorporated in June 1995 as a wholly owned subsidiary of
Thermo Instrument Systems Inc. As of January 1, 2000, Thermo Instrument owned
45,521,405 shares of the Company's common stock, representing 90% of such stock
outstanding. Thermo Instrument is an 88%-owned subsidiary of Thermo Electron
Corporation. As of January 1, 2000, Thermo Electron owned 159,880 shares of the
Company's common stock, representing 0.32% of such stock outstanding.
      In January 2000, Thermo Electron announced a proposed reorganization
involving certain of Thermo Electron's subsidiaries, including the Company. As
part of the reorganization, Thermo Instrument will acquire the publicly held
shares of the Company (Note 14).

Principles of Consolidation
      The accompanying financial statements include the accounts of the Company
and its wholly owned subsidiaries. All material intercompany accounts and
transactions have been eliminated.

Fiscal Year
      The Company has adopted a fiscal year ending the Saturday nearest December
31. References to 1999, 1998, and 1997 are for the fiscal years ended January 1,
2000, January 2, 1999, and January 3, 1998, respectively. Fiscal years 1999 and
1998 each included 52 weeks; fiscal 1997 included 53 weeks.

Revenue Recognition
      The Company recognizes product revenues upon shipment of its products and
recognizes service contract revenues ratably over the term of the contract. The
Company provides a reserve for its estimate of warranty and installation costs
at the time of shipment. Deferred revenue in the accompanying balance sheet
consists primarily of unearned revenue on service contracts. Substantially all
of the deferred revenue included in the accompanying 1999 balance sheet will be
recognized within one year.

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 3). 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 shareholders' investment.

Income Taxes
      The Company and Thermo Instrument have a tax allocation agreement under
which both the Company and Thermo Instrument 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 Instrument's and Thermo Electron's
combined equity ownership of the Company were to drop below 80%, the Company
would be required to file its own federal income tax return.


                                       9
<PAGE>

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

      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.

Earnings per Share
      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
effect would be antidilutive, diluted earnings per share have been computed
assuming the conversion of the Company's convertible obligations and the
elimination of the related interest expense, and the exercise of stock options,
as well as their related income tax effects.

Cash and Cash Equivalents
      The Company, along with other European-based subsidiaries of Thermo
Electron, participates in a notional pool arrangement with Barclays Bank. Under
this arrangement, Barclays notionally combines the positive and negative cash
balances held by the participants to calculate the net interest yield/expense
for the group. The benefit derived from this arrangement is then allocated based
on balances attributable to the respective participants. The Company has access
to a $243,000 line of credit under this arrangement. Thermo Electron guarantees
all of the obligations of each participant in this arrangement. At year-end 1999
and 1998, the Company had cash balances under this arrangement of $13,272,000
and $3,520,000, respectively.
      The Company, along with other European-based subsidiaries of Thermo
Electron, participates in a cash management arrangement in the Netherlands with
a wholly owned subsidiary of Thermo Electron. Under this arrangement,
participants' balances are pooled for interest calculation purposes. Interest
under this arrangement is based on Euro market rates. The Company has access to
a $684,000 line of credit under this arrangement. Thermo Electron guarantees all
of the obligations of each participant in this arrangement. At year-end 1999,
the Company had $382,000 invested under this arrangement.
      At year-end 1998, $96,906,000 of the Company's cash equivalents was
invested in a repurchase agreement with Thermo Electron. Under this agreement,
the Company in effect lent excess cash to Thermo Electron, which Thermo Electron
collateralized with investments principally consisting of corporate notes, U.S.
government-agency securities, commercial paper, 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 were readily convertible
into cash by the Company. The repurchase agreement earned a rate based on the
90-day Commercial Paper Composite Rate plus 25 basis points, set at the
beginning of each quarter. Effective June 1999, the Company adopted a new cash
management arrangement with Thermo Electron, described below, that replaces the
repurchase agreement. At year-end 1998, $167,000 of the Company's cash
equivalents was invested in a similar arrangement in the Netherlands.
      At year-end 1999 and 1998, the Company's cash equivalents also included
investments in commercial paper and short-term certificates of deposit held by
the Company's foreign operations, which have an original maturity of three
months or less. Cash equivalents are carried at cost, which approximates market
value.

Advance to Affiliate
      Effective June 1999, the Company and Thermo Electron commenced use of a
new domestic cash management arrangement. Under the new arrangement, amounts
advanced to Thermo Electron by the Company for domestic cash management purposes
bear interest at the 30-day Dealer Commercial Paper Rate plus 50 basis points,
set at the beginning of each month. Thermo Electron is contractually required to
maintain cash, cash equivalents, and/or immediately available bank lines of
credit equal to at least 50% of all funds invested under this cash management
arrangement by all Thermo Electron subsidiaries other than wholly owned
subsidiaries. The Company has the contractual right to withdraw its funds
invested in the cash management arrangement upon 30 days' prior notice.
</TABLE>


                                       10
<PAGE>

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

      In addition, certain of the Company's European-based subsidiaries
participate in new cash management arrangements with a wholly owned subsidiary
of Thermo Electron. The Company has access to a $4,110,000 line of credit under
one of these arrangements. Interest under this arrangement is based on Euro
market rates. The other terms of these arrangements are similar to the domestic
cash management arrangement.

Inventories
      Inventories are stated at the lower of cost (on a first-in, first-out or
weighted average basis) or market value and include materials, labor, and
manufacturing overhead. The components of inventories are as follows:
<TABLE>
<CAPTION>
<S>                                                                                         <C>      <C>
(In thousands)                                                                              1999     1998
---------------------------------------------------------------------------------------- -------- --------

Raw Materials and Supplies                                                               $26,405   $20,872
Work in Process                                                                            7,980    15,344
Finished Goods                                                                            31,894    34,396
                                                                                         -------   -------

                                                                                         $66,279   $70,612
                                                                                         =======   =======
      The Company periodically reviews its quantities of inventories on hand and
compares these amounts to expected usage of each particular product or product
line. The Company records as a charge to cost of revenues any amounts required
to reduce the carrying value of inventories to net realizable value.

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 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, 1 to 12 years; and leasehold improvements, the
shorter of the term of the lease or the life of the asset. Property, plant, and
equipment consists of the following:

(In thousands)                                                                              1999     1998
---------------------------------------------------------------------------------------- -------- --------

Land                                                                                     $16,507   $16,929
Buildings                                                                                 37,081    38,946
Machinery, Equipment, and Leasehold Improvements                                          38,564    34,756
                                                                                         -------   -------

                                                                                          92,152    90,631
Less:  Accumulated Depreciation and Amortization                                          32,933    27,168
                                                                                         -------   -------

                                                                                         $59,219   $63,463
                                                                                         =======   =======
Patents and Other Assets
      Patents and other assets in the accompanying balance sheet includes
intangibles associated with a product line acquired in 1998 (Note 2) and the
costs of acquired patents, technology, and software. Such assets are amortized
using the straight-line method over their estimated useful lives, which range
from 5 to 15 years. These assets were $2,468,000 and $2,026,000, net of
accumulated amortization of $7,952,000 and $7,490,000, at year-end 1999 and
1998, respectively. Patents and other assets in the accompanying balance sheet
also includes deferred debt costs of $305,000 and $703,000, net of accumulated
amortization of $2,174,000 and $1,807,000, at year-end 1999 and 1998,
respectively. Deferred debt costs are amortized through the maturities of the
related debt in 2000 and 2004.



                                       11
<PAGE>

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

Cost in Excess of Net Assets of Acquired Companies
      The excess of cost over the fair value of net assets of acquired companies
is amortized using the straight-line method principally over 40 years.
Accumulated amortization was $41,795,000 and $34,922,000 at year-end 1999 and
1998, 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. Such events or circumstances generally would include the
occurrence of operating losses or a significant decline in earnings associated
with the acquired business or asset. The Company considers the future
undiscounted cash flows of the acquired companies in assessing the
recoverability of this asset. The Company assesses cash flows before interest
charges and, when impairment is indicated, writes the asset down to fair value.
If quoted market values are not available, the Company estimates fair value by
calculating the present value of future cash flows. 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 in the
"Accumulated other comprehensive items" component of shareholders' investment.
Foreign currency transaction gains and losses are included in the accompanying
statement of income and are not material for the three years presented.

Comprehensive Income
      Comprehensive income combines net income and "Other comprehensive items,"
which represents certain amounts that are reported as components of
shareholders' investment in the accompanying balance sheet, including foreign
currency translation adjustments and unrealized net of tax losses on
available-for-sale investments. At year-end 1999 and 1998, the balance of
accumulated other comprehensive items represents the Company's cumulative
translation adjustment.

Forward Contracts
      The Company uses short-term forward foreign exchange contracts to manage
certain exposures to foreign currencies. The Company enters into forward foreign
exchange contracts to hedge firm purchase and sale commitments denominated in
currencies other than its subsidiaries' local currencies. These contracts
principally hedge transactions denominated in U.S. dollars and German marks. The
purpose of the Company's foreign currency hedging activities is to protect the
Company's local currency cash flows related to these commitments from
fluctuations in foreign exchange rates. Gains and losses arising from forward
foreign exchange contracts are recognized as offsets to gains and losses
resulting from the transactions being hedged. The Company does not enter into
speculative foreign currency agreements.

Recent Accounting Pronouncements
      In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial Statements."
SAB 101 includes requirements for when shipments may be recorded as revenue when
the terms of the sale include customer acceptance provisions or an obligation of
the seller to install the product. In such instances, SAB 101 generally requires
that revenue recognition occur upon customer acceptance and/or at completion of
installation. SAB 101 requires that companies conform their revenue recognition
practices to the requirements therein during the first quarter of calendar 2000
through recording a cumulative net of tax effect of the change in accounting.
The Company has not completed the analysis to determine the effect that SAB 101
will have on its financial statements.
      Effective in 2001, the Company will be required to adopt SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The Company has
not completed the analysis to assess the effect of the new pronouncement on its
financial statements.


                                       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.    Acquisitions

      In August 1999, the Company's Analytical Instruments segment acquired
Thru-Put Systems, Inc. for $2,400,000 in cash. In January 1998, the Company's
Analytical Instruments segment acquired a line of freeze dryers from Edwards
High Vacuum International for $1,342,000 in cash. These acquisitions have been
accounted for using the purchase method of accounting and their results have
been included in the accompanying financial statements from the respective dates
of acquisition.
      In March 1997, Thermo Instrument acquired Life Sciences International PLC,
a London Stock Exchange-listed company. In July 1997, the Company agreed to
acquire three business units within Life Sciences' Laboratory Products Group, as
well as Life Sciences' Hypersil operation, from Thermo Instrument. The
Laboratory Products businesses, which constitute the Scientific Equipment
segment, manufacture scientific equipment for the preparation and preservation
of chemical samples. Hypersil, which is included in the Analytical Instruments
segment, manufactures columns used in high-performance liquid chromatography.
The aggregate purchase price for these businesses consisted of: (i) $103,795,000
in cash (net of an adjustment to the purchase price discussed below), (ii) 1,000
shares of the Company's common stock valued at $15,750, and (iii) the assumption
of $53,134,000 of debt payable to Thermo Instrument. The purchase price
represents the sum of the net tangible book value of the Laboratory Products
businesses and Hypersil as of June 28, 1997, plus a percentage of Thermo
Instrument's total cost in excess of net assets acquired associated with its
acquisition of Life Sciences, based on the aggregate 1996 revenues of the
Laboratory Products businesses and Hypersil relative to Life Sciences' 1996
consolidated revenues. The Company believes that this allocation methodology is
reasonable and in accordance with the guidance provided by SAB 55 (Topic 1:B).
The cash portion of the purchase price, including the repayment of debt to
Thermo Instrument, was paid in September 1997 together with interest calculated
at the 90-day Commercial Paper Composite Rate plus 25 basis points, set at the
beginning of each quarter, from June 28, 1997. In December 1997, the Company was
notified by Thermo Instrument that it would receive an adjustment to the
purchase price of $3,498,000 in connection with its acquisition of the
Laboratory Products businesses and Hypersil based on Thermo Instrument's final
determination of the net tangible book value of the acquired businesses and a
final calculation of Thermo Instrument's total cost in excess of net assets
acquired associated with its acquisition of Life Sciences. The Company received
the adjustment to the purchase price in April 1998.
      Because the Company, the Laboratory Products businesses, and Hypersil were
deemed for accounting purposes to be under control of their common majority
owner, Thermo Instrument, the transaction has been accounted for in a manner
similar to a pooling of interests. Accordingly, the accompanying financial
statements include the results of the Laboratory Products businesses and
Hypersil from March 12, 1997, the date these businesses were acquired by Thermo
Instrument, and the shares issued to Thermo Instrument have been deemed
outstanding from that date. The purchase price included $3,363,000 for the
increase in the net book value from the date the businesses were acquired by
Thermo Instrument to June 28, 1997. This amount was recorded as a deemed
distribution from retained earnings, reflecting payment by the Company to Thermo
Instrument for the earnings of the transferred businesses from the date of the
acquisition by Thermo Instrument until the date of transfer to the Company.
      The aggregate cost of these acquisitions exceeded the estimated fair value
of the acquired net assets by $132,061,000, which is being amortized principally
over 40 years. Allocation of the purchase price for these acquisitions was based
on estimates of the fair value of the net assets acquired.

</TABLE>
                                       13
<PAGE>

2.    Acquisitions (continued)

      The assets and liabilities were recorded at their estimated fair values as
follows:
<TABLE>
<CAPTION>
<S>                                                                  <C>            <C>          <C>
                                                                     Laboratory
                                                                       Products                  Thru-Put
(In thousands)                                                       Businesses     Hypersil      Systems
----------------------------------------------------  ------------ ------------ ------------ ------------

Purchase Price                                                         $150,444     $  6,501     $  2,400
                                                                       --------     --------     --------

Allocation to:
 Current assets                                                          49,431        1,668          372
 Long-lived assets                                                       22,239            -        1,116
 Current liabilities                                                    (24,176)           -         (459)
 Deferred income taxes and other deferred items                          (3,117)           -          (74)
 Long-term obligations                                                     (437)           -          (97)
 Cost in excess of net assets acquired                                  106,504        4,833        1,542

        In March 1996, Thermo Instrument acquired a substantial portion of the
businesses constituting the Scientific Instruments Division of Fisons plc (the
Fisons businesses), a wholly owned subsidiary of Rhone-Poulenc Rorer Inc. (RPR).
In September 1996, the Company acquired CE Instruments and MassLab Instruments,
which were formerly part of Fisons, from Thermo Instrument. In December 1997,
Thermo Instrument and RPR negotiated a post-closing adjustment under the terms
of the purchase agreement for the Fisons acquisition pertaining to the
determination of the net assets of the Fisons businesses at the date of
acquisition. This negotiation resulted in a refund to Thermo Instrument that
included interest from the date of acquisition. The Company received a refund
totaling $2,714,000 from Thermo Instrument in April 1998, which represented the
Company's share of the refund received by Thermo Instrument. The Company
recorded $2,183,000 of the refund as a reduction of cost in excess of net assets
of acquired companies. Of the remainder, $272,000 represented payment for
uncollected accounts receivable acquired by the Company that were guaranteed by
RPR, and $259,000 represented interest income on the refund from the date of
acquisition.
        In connection with its acquisitions, the Company has undertaken
restructuring activities at the acquired businesses. The Company's restructuring
activities, which were accounted for in accordance with Emerging Issues Task
Force Pronouncement (EITF) 95-3, primarily have included reductions in staffing
levels and the abandonment of excess facilities. In connection with these
restructuring activities, as part of the cost of the acquisitions, the Company
established reserves as detailed below, primarily for severance and excess
facilities. In accordance with EITF 95-3, the Company finalizes its
restructuring plans no later than one year from the respective dates of the
acquisitions. Accrued acquisition expenses are included in other accrued
expenses in the accompanying 1998 balance sheet.

</TABLE>
                                       14
<PAGE>

2.    Acquisitions (continued)

      A summary of the changes in accrued acquisition expenses for acquisitions
completed before and during 1997 is as follows:
<TABLE>
<CAPTION>
<S>                                    <C>          <C>                 <C>      <C>                 <C>
                                                 1997 Acquisition
                                  -------------------------------------------
                                        Laboratory Products Businesses
                                  -------------------------------------------
                                                    Abandonment
                                                      of Excess                     Pre-1997
(In thousands)                         Severance     Facilities         Other    Acquisition         Total
--------------------------------- -------------- -------------- ------------- -------------- -------------

Balance at December 28, 1996           $      -       $      -       $     -       $    357       $    357
 Reserves established                       705            120           146              -            971
 Usage                                     (518)             -           (76)          (195)          (789)
 Decrease due to finalization
   of restructuring plans,
   recorded as a decrease to
   cost in excess of net
   assets of acquired companies               -              -             -           (114)          (114)
 Currency translation                         -              -             -            (48)           (48)
                                       --------       --------       -------       --------       --------

Balance at January 3, 1998                  187            120            70              -            377
 Reserves established                       120            211             -              -            331
 Usage                                     (292)             -           (70)             -           (362)
 Decrease due to finalization
   of restructuring plans,
   recorded as a decrease to
   cost in excess of net
   assets of acquired companies             (15)             -             -              -            (15)
                                       --------       --------       -------       --------       --------

Balance at January 2, 1999                    -            331             -              -            331
 Usage                                        -           (320)            -              -           (320)
 Currency translation                         -            (11)            -              -            (11)
                                       --------       --------       -------       --------       --------

Balance at January 1, 2000             $      -       $      -       $     -       $      -       $      -
                                       ========       ========       =======       ========       ========

      The principal acquisition expenses for the 1997 acquisition were severance
for 25 employees across all functions and abandoned facilities. The amounts
established for abandoned facilities represent a lease obligation for a sales
and service office in the U.K. The amounts captioned "other" in 1997 primarily
represent relocation costs. The Company finalized its restructuring plans for
the 1997 acquisition in 1998.
</TABLE>
                                       15
<PAGE>

2.    Acquisitions (continued)

      Based on unaudited data, the following table presents selected financial
information of the Company, the Laboratory Products businesses, and Hypersil on
a pro forma basis, assuming the companies had been combined since the beginning
of 1997. The effect of the acquisitions not included in the pro forma data was
not material to the Company's results of operations.
<TABLE>
<CAPTION>
<S>                                                                                               <C>
(In thousands except per share amounts)                                                              1997
-------------------------------------------------------------------------- ----------------- -------------

Revenues                                                                                          $462,166
Net Income                                                                                          36,427
Earnings per Share:
 Basic                                                                                                 .73
 Diluted                                                                                               .70

      The pro forma results are not necessarily indicative of future operations
or the actual results that would have occurred had the acquisition of the
Laboratory Products businesses and Hypersil been made at the beginning of 1997.

3.    Employee Benefit Plans

Stock-based Compensation Plans

Stock Option Plans
      The Company has stock-based compensation plans for its key employees,
directors, and others. These plans permit 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. The option
recipients and the terms of options granted under the plans are determined by
the Board Committee. Generally, options granted 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 one- to ten-year period, depending on the term of the option,
which generally ranges from three to twelve years. Nonqualified stock options
may be granted at any price 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. To date, all options have been
granted at fair market value. The Company also has a directors' stock option
plan that provides for the grant of stock options to outside directors pursuant
to a formula approved by the Company's shareholders. Options granted under this
plan have the same general terms as options granted under the stock-based
compensation plans described above, except that the restrictions and repurchase
rights generally lapse ratably over a four-year period and the option term is
five years. 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 and Thermo Instrument. Participation in these plans is
accounted for in accordance with APB No. 25.
      In November 1998, the Company's employees, excluding its officers and
directors, were offered the opportunity to exchange previously granted options
to purchase shares of Company common stock for an amount of options equal to
half of the number of options previously held, exercisable at a price equal to
the fair market value at the time of the exchange offer. Holders of options to
acquire 643,000 shares at a weighted average exercise price of $16.24 per share
elected to participate in this exchange and, as a result, received options to
purchase 321,000 shares of Company common stock at $10.51 per share, which are
included in the 1998 grants in the table below. The other terms of the new
options are the same as the exchanged options except that the holders could not
sell shares purchased pursuant to such new options for six months from the
exchange date. The options exchanged were canceled by the Company.
</TABLE>
                                       16
<PAGE>

3.    Employee Benefit Plans (continued)

      In February 1999, the Company awarded 7,400 shares of restricted Company
common stock to certain key employees. The shares had an aggregate value of
$77,000 and vest three years from the date of award, assuming continued
employment, with certain exceptions. The Company has recorded the fair value of
the restricted stock as deferred compensation in the accompanying balance sheet
and is amortizing such amount over the vesting period.
      A summary of the Company's stock option activity is as follows:
<TABLE>
<CAPTION>
<S>                                             <C>       <C>        <C>      <C>        <C>      <C>

                                                       1999                1998                 1997
                                               -------------------  ------------------  ------------------
                                                          Weighted            Weighted            Weighted
                                                           Average             Average             Average
                                                          Exercise            Exercise            Exercise
                                                             Price               Price               Price
                                                 Number              Number               Number
                                                     of                  of                   of
(Shares in thousands)                            Shares              Shares               Shares
---------------------------------------------- --------- ---------- -------- ---------- --------- ---------

Options Outstanding, Beginning of Year            2,950     $12.32     3,047    $14.21     2,330     $13.12
 Granted                                            351      11.51       970      9.83       873      16.90
 Exercised                                           (1)     11.32       (32)    13.00       (16)     13.30
 Forfeited                                         (168)     12.25      (392)    14.36      (140)     13.02
 Canceled due to exchange                             -          -      (643)    16.24         -          -
                                                  -----                -----              ------

Options Outstanding, End of Year                  3,132     $12.23     2,950    $12.32     3,047     $14.21
                                                  =====     ======     =====    ======    ======     ======

Options Exercisable                               3,132     $12.23     2,950    $12.32     3,047     $14.21
                                                  =====     ======     =====    ======    ======     ======

Options Available for Grant                       1,244                1,427                 862
                                                  =====                =====              ======
</TABLE>

      A summary of the status of the Company's stock options at January 1, 2000,
is as follows:
<TABLE>
<CAPTION>
<S>                                                   <C>             <C>                         <C>
                                                              Options Outstanding and Exercisable
                                                      -----------------------------------------------------
Range of Exercise Prices                                    Number            Weighted            Weighted
                                                                of             Average             Average
                                                            Shares           Remaining            Exercise
                                                     (In thousands)   Contractual Life               Price
------------------------------------------------ ------------------ ------------------- -------------------

$  9.44 -  $11.38                                              948           4.2 years               $ 9.84
  11.39 -   13.33                                            1,865           7.3 years                12.90
  13.34 -   15.28                                               93           1.3 years                14.99
  15.29 -   17.23                                              226           5.7 years                16.59
                                                            ------

$  9.44 -  $17.23                                            3,132           6.1 years               $12.23
                                                            ======

Employee Stock Purchase Program
      Substantially all of the Company's full-time U.S. employees are eligible
to participate in an employee stock purchase program sponsored by the Company
and Thermo Electron. Prior to November 1, 1997, the program was sponsored by
Thermo Instrument and Thermo Electron. Under this program, shares of the
Company's and Thermo Electron's common stock may be purchased at 85% of the
lower of the fair market value at the beginning or end of the period, and the
shares purchased are subject to a one-year resale restriction. Prior to the 1998
program year, the applicable shares of common stock could be purchased at the
end of a 12-month period at 95% of the fair market value

                                       17
<PAGE>

3.    Employee Benefit Plans (continued)

at the beginning of the period, and the shares purchased were 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 1999, the Company
issued 18,700 shares 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 granted
under the Company's and its affiliates' 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 and
earnings per share would have been as follows:

(In thousands except per share amounts)                                         1999       1998      1997
-------------------------------------------------------------------------- ---------- ---------- ---------

Net Income:
 As reported                                                                 $45,749    $38,378    $41,805
 Pro forma                                                                    43,490     36,483     40,703
Basic Earnings per Share:
 As reported                                                                     .90        .75        .83
 Pro forma                                                                       .86        .71        .81
Diluted Earnings per Share:
 As reported                                                                     .87        .72        .80
 Pro forma                                                                       .83        .69        .78

      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.
      The weighted average fair value per share of options granted was $4.08,
$2.78, and $5.75 in 1999, 1998, and 1997, 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:

                                                                                1999       1998      1997
-------------------------------------------------------------------------- ---------- ---------- ---------

Volatility                                                                       30%        29%       28%
Risk-free Interest Rate                                                         5.8%       4.4%      5.7%
Expected Life of Options                                                   4.5 years  3.6 years 4.7 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.


                                       18
<PAGE>

3.    Employee Benefit Plans (continued)

401(k) Savings Plans
      Substantially all of the Company's full-time U.S. employees are eligible
to participate in 401(k) savings plans sponsored by the several of the Company's
subsidiaries. Prior to 1998, one of the Company's subsidiaries participated in a
401(k) savings plan sponsored by 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. For these
plans, the Company contributed and charged to expense $1,456,000, $1,790,000,
and $1,301,000 in 1999, 1998, and 1997, respectively.

Defined Benefit Pension Plan
      The Company's Bremen, Germany, subsidiary has a defined benefit pension
plan covering substantially all of its full-time employees. Benefits are based
on a percentage of eligible earnings for each year of service in excess of ten
years. The Company's funding policy is to make contributions within a range
required by applicable regulations. Net periodic benefit costs include the
following components:

(In thousands)                                                                1999        1998       1997
----------------------------------------------------------------------- ----------- ----------- ----------

Service Cost                                                              $    223    $    208    $    235
Interest Cost on Benefit Obligation                                            905       1,012         954
Expected Return on Plan Assets                                                (284)       (279)       (167)
Amortization of Unrecognized Gain                                              (23)        (50)        (67)
Amortization of Initial Unrecognized Obligation                                 41          43          44
                                                                          --------    --------    --------

                                                                          $    862    $    934    $    999
                                                                          ========    ========    ========



</TABLE>
                                       19
<PAGE>


3.    Employee Benefit Plans (continued)

      The Company's defined benefit plan activity is as follows:
<TABLE>
<CAPTION>
<S>                                                                                      <C>        <C>
(In thousands)                                                                           1999       1998
---------------------------------------------------------------------------------- ----------- ----------

Change in Benefit Obligation:
 Benefit obligation, beginning of year                                               $ 15,198    $ 13,369
 Service cost                                                                             223         208
 Interest cost                                                                            905       1,012
 Benefits paid                                                                           (482)       (498)
 Actuarial loss                                                                           314          61
 Currency translation                                                                  (2,200)      1,046
                                                                                     --------    --------

 Benefit obligation, end of year                                                       13,958      15,198
                                                                                     --------    --------

Change in Plan Assets:
 Fair value of plan assets, beginning of year                                           5,714       4,969
 Company contributions                                                                    186         186
 Actual return on plan assets                                                             239         287
 Benefits paid                                                                           (120)       (120)
 Currency translation                                                                    (793)        392
                                                                                      -------    --------

 Fair value of plan assets, end of year                                                 5,226       5,714
                                                                                      -------    --------

Funded Status                                                                          (8,732)     (9,484)
Unrecognized Net Gain                                                                  (1,497)     (2,126)
Unrecognized Initial Obligation                                                           155         226
                                                                                     --------    --------

Accrued Benefit Costs                                                                $(10,074)   $(11,384)
                                                                                     ========    ========
</TABLE>
      The weighted average actuarial assumptions used to determine the net
periodic benefit costs were:
<TABLE>
<CAPTION>
<S>                                                                             <C>        <C>       <C>

                                                                                1999       1998      1997
-------------------------------------------------------------------------- ---------- ---------- ---------

Discount Rate                                                                   6.5%       7.5%      7.5%
Rate of Increase in Salary Levels                                               3.0%       3.5%      3.5%
Expected Long-term Rate of Return on Plan Assets                                6.0%       6.0%      6.0%

Deferred Compensation Plan
      The Company's Italian subsidiary has an unfunded state mandated deferred
compensation plan, the cost of which the Company accrues based on a fixed
percentage of each employee's salary, adjusted for inflation. Benefits are paid
at the time an employee leaves the employ of the Company. The Company's expense
related to this plan was $263,000, $440,000, and $381,000 in 1999, 1998 and
1997, respectively. The Company's liability for this plan is included in accrued
pension and other deferred items in the accompanying balance sheet.


                                       20
<PAGE>

4.    Income Taxes

      The components of income before provision for income taxes and
extraordinary item are as follows:

(In thousands)                                                                     1999      1998    1997
------------------------------------------------------------------------------- -------- --------- -------

Domestic                                                                        $48,493  $ 42,495  $52,240
Foreign                                                                          28,396    23,168   20,781
                                                                                -------  --------  -------

                                                                                $76,889  $ 65,663  $73,021
                                                                                =======  ========  =======

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

(In thousands)                                                                     1999      1998    1997
------------------------------------------------------------------------------- -------- --------- -------

Currently Payable:
 Federal                                                                        $16,812  $ 14,564  $17,653
 State                                                                            3,669     2,446    3,640
 Foreign                                                                         12,084     9,672    9,434
                                                                                -------  --------  -------

                                                                                 32,565    26,682   30,727
                                                                                -------  --------  -------

Net Deferred (Prepaid):
 Federal                                                                         (1,165)      823      574
 State                                                                             (260)       73      122
 Foreign                                                                              -         -     (207)
                                                                                -------  --------  -------

                                                                                 (1,425)      896      489
                                                                                -------  --------  -------

                                                                                $31,140  $ 27,578  $31,216
                                                                                =======  ========  =======

      The provision for income taxes that is currently payable does not reflect
$927,000 and $1,099,000 of tax benefits used to reduce cost in excess of net
assets of acquired companies in 1998 and 1997, respectively. In addition, the
Company receives 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 $101,000, $772,000, and
$492,000 of such benefits that have been allocated to capital in excess of par
value in 1999, 1998, and 1997, respectively.


                                       21
<PAGE>

4.    Income Taxes (continued)

      The provision for income taxes in the accompanying statement of income
differs from the provision calculated by applying the statutory federal income
tax rate of 35% to income before provision for income taxes and extraordinary
item due to the following:

(In thousands)                                                                     1999      1998    1997
------------------------------------------------------------------------------- -------- --------- -------

Provision for Income Taxes at Statutory Rate                                    $26,911  $ 22,982  $25,557
Increases (Decreases) Resulting From:
 State income taxes, net of federal tax                                           2,216     1,637    2,445
 Foreign tax rate and tax law differential                                        1,613     1,563    1,954
 Nondeductible amortization of cost in excess of net assets of
   acquired companies                                                             1,932     1,815    1,715
 Tax benefit of foreign sales corporation                                        (1,283)     (805)    (984)
 Research and development tax credit claim from prior years                        (491)        -        -
 Other, net                                                                         242       386      529
                                                                                -------  --------  -------

                                                                                $31,140  $ 27,578  $31,216
                                                                                =======  ========  =======

      Deferred tax asset and deferred income taxes in the accompanying balance
sheet consist of the following:

(In thousands)                                                                               1999    1998
---------------------------------------------------------------------------------------- --------- -------

Deferred Tax Asset:
 Foreign tax loss carryforwards                                                          $    343  $11,146
 Inventory basis difference                                                                 5,997    4,324
 Reserves and accruals                                                                      3,411    6,164
 Accrued compensation                                                                       2,775    2,517
                                                                                         --------  -------

                                                                                           12,526   24,151
 Less:  Valuation allowance                                                                   343   11,146
                                                                                         --------  -------

                                                                                         $ 12,183  $13,005
                                                                                         ========  =======
Deferred Income Taxes:
 Depreciation                                                                            $  5,774  $ 8,370
                                                                                         ========  =======

      The valuation allowance relates to uncertainty surrounding the realization
of foreign net operating losses, which is dependent on the future income of
certain foreign subsidiaries of the Company. The Company believes that it is
more likely than not that these deferred tax assets will not be realized. As of
January 1, 2000, the Company had $942,000 of foreign tax loss carryforwards,
which expire from 2000 through 2005. The decrease in the valuation allowance in
1999 results from the utilization and expiration of acquired foreign net
operating losses. Any tax benefit resulting from use of acquired loss
carryforwards is recorded as a reduction of cost in excess of net assets of
acquired companies.
      A provision has not been made for U.S. or additional foreign taxes on
$80,960,000 of undistributed earnings of foreign subsidiaries that could be
subject to taxation if remitted to the U.S. because the Company plans to keep
these amounts permanently reinvested overseas.

                                       22
<PAGE>

5.    Short- and Long-term Obligations

Short-term Obligations
      Short-term obligations and current maturities of long-term obligations in
the accompanying balance sheet includes $4,900,000 and $10,890,000 at year-end
1999 and 1998, respectively, of short-term bank borrowings and amounts borrowed
under lines of credit at the Company's foreign subsidiaries. The weighted
average interest rate for these borrowings was 0.95% and 2.18% at year-end 1999
and 1998, respectively. Unused lines of credit were $26,290,000 at year-end
1999.

Long-term Obligations

(In thousands except per share amounts)                                                    1999      1998
------------------------------------------------------------------------------------- ---------- ---------

5% Subordinated Convertible Debentures, Due August 2000, Convertible at                 $61,031    $67,931
 $16.50 per Share
10.23% Mortgage Loan Secured by Property With a Net Book Value of                         6,187      7,319
 $14,601, Payable in Monthly Installments With Final Payments in 2004
Other                                                                                        85        138
                                                                                        -------    -------

                                                                                         67,303     75,388
Less:  Current Maturities of Long-term Obligations                                       62,337      1,184
                                                                                        -------    -------

                                                                                        $ 4,966    $74,204
                                                                                        =======    =======

      The subordinated convertible debentures are guaranteed on a subordinated
basis by Thermo Electron. Thermo Instrument has agreed to reimburse Thermo
Electron in the event Thermo Electron is required to make a payment under the
guarantee.
      During 1999, the Company repurchased $6,900,000 principal amount of its 5%
subordinated convertible debentures for $6,718,000 in cash, resulting in a
nominal gain. During 1998, the Company repurchased $7,660,000 principal amount
of its 5% subordinated convertible debentures for $7,125,000 in cash, resulting
in an extraordinary gain of $293,000, net of taxes of $172,000. In addition,
during 1998, $5,000,000 principal amount of the 5% subordinated convertible
debentures were converted into common stock of the Company.
      The annual requirements of long-term obligations as of January 1, 2000,
are $62,337,000 in 2000; $1,422,000 in 2001; $1,538,000 in 2002; $1,702,000 in
2003; $304,000 in 2004. Total future requirements of long-term obligations are
$67,303,000.
      See Note 10 for the fair value information pertaining to the Company's
long-term obligations.

6.    Commitments and Contingencies

Commitments
      The Company leases portions of its office and operating facilities under
various operating lease arrangements. The accompanying statement of income
includes expenses from operating leases of $5,358,000, $5,204,000, and
$4,608,000 in 1999, 1998, and 1997, respectively. Future minimum payments due
under noncancelable operating leases at January 1, 2000, are $3,151,000 in 2000;
$2,371,000 in 2001; $1,405,000 in 2002; $853,000 in 2003; $587,000 in 2004; and
$1,978,000 in 2005 and thereafter. Total future minimum lease payments are
$10,345,000.

                                       23
<PAGE>

6.    Commitments and Contingencies (continued)

Contingencies
      On January 23, 1997, the Company's Finnigan Corporation subsidiary filed
complaints against Bruker-Franzen Analytik GmbH and its U.S. affiliate, and
Hewlett-Packard Company, for alleged violation of two U.S. patents owned by
Finnigan. The patents pertain to methods used in ion-trap mass spectrometers.
The complaint was filed in the U.S. District Court for the District of
Massachusetts. Finnigan has asked for damages to compensate for the
infringement, and for injunctions against further infringement.
      The District Court action was stayed pending completion of a parallel
investigation by the United States International Trade Commission (ITC). In
April 1998, the ITC determined that the defendants did not engage in unfair
practices in U.S. import trade with respect to the Finnigan patents, and that
the Finnigan patents are invalid and/or not infringed. Finnigan appealed the
ITC's determination with respect to one of its patents to the United States
Court of Appeals for the Federal Circuit (CAFC). The CAFC issued its decision in
June 1999 affirming the ITC's determination of noninfringement but reversing the
ITC's determination of invalidity.
      Bruker presented counterclaims in the ITC investigation. The counterclaims
were removed to the District Court in Massachusetts and also stayed. These
claims allege that the Finnigan patents are invalid and unenforceable and are
not infringed by the mass spectrometers manufactured by Bruker. They also allege
that Finnigan has violated U.S. and Massachusetts antitrust laws and engaged in
unfair competition by attempting to maintain a monopoly position and restrain
trade through enforcement of allegedly fraudulently obtained patents. Bruker has
asked for judgment consistent with its counterclaims, and for three times the
antitrust damages (including attorneys' fees) it has sustained.
      The stays on both cases in the District Court in Massachusetts have been
lifted and the cases are proceeding in the District Court.
      In February 1999, Finnigan filed complaints against Bruker-Franzen
Analytik GmbH and Hewlett-Packard GmbH, in District Court in Dusseldorf,
Germany, for violation of four German patents owned by Finnigan. The patents
pertain to methods used in ion-trap mass spectrometers. Bruker and
Hewlett-Packard have challenged the validity of these patents in Federal Patent
Court in Munich. Bruker has filed a complaint against Finnigan in District Court
in Dusseldorf for alleged violation of two German patents owned by Bruker.
      There can be no assurance as to the outcome of these matters or that an
unfavorable resolution would not have a material adverse effect on the Company's
future results of operations and financial position.

7.    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. The Company paid an amount equal to 0.8% and 1.0% of the
Company's revenues in 1998 and 1997, respectively. For these services, the
Company was charged $3,455,000, $3,469,000, and $4,389,000 in 1999, 1998, and
1997, respectively. The fee is reviewed and adjusted annually by mutual
agreement of the parties. 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.



                                       24
<PAGE>

7.    Related-party Transactions (continued)

Other Related-party Transactions
      The Company purchases and sells products in the ordinary course of
business with other companies affiliated with Thermo Instrument. Purchases of
products from such affiliated companies totaled $9,554,000, $10,256,000, and
$23,791,000 in 1999, 1998, and 1997, respectively. Sales of products to such
affiliated companies totaled $2,951,000, $5,521,000, and $7,090,000 in 1999,
1998, and 1997, respectively.

Cash Management
      The Company invests excess cash in arrangements with Thermo Electron as
discussed in Note 1.

8.    Common Stock

Sale of Common Stock
      In March 1997, the Company sold 1,768,500 shares of its common stock at
$15.00 per share for net proceeds of $24,836,000.

Reserved Shares
      At January 1, 2000, the Company had reserved 8,223,347 unissued shares of
its common stock for possible issuance under stock-based compensation plans and
for issuance upon possible conversion of the Company's subordinated convertible
debentures.

9.     Restructuring Costs

      During 1998, the Company recorded restructuring costs of $4,600,000. The
restructuring costs, which were accounted for in accordance with EITF 94-3,
consisted of $3,660,000 related to severance costs for approximately 85
employees across all functions and an asset write-down of $940,000 related to
the closure and anticipated sale of a facility. During 1999 and 1998, the
Company terminated 36 employees and 49 employees, respectively. In addition,
during 1999 the Company settled certain severance matters for less than what had
been accrued and, as a result, reversed $326,000 of previously recorded
restructuring costs. Accrued restructuring costs are included in other accrued
expenses in the accompanying balance sheet. The Company recorded charges for its
restructuring plan as follows:
</TABLE>
<TABLE>
<CAPTION>
<S>                                                              <C>             <C>                <C>
                                                                  Analytical     Scientific
                                                                 Instruments      Equipment
(In thousands)                                                       Segment        Segment         Total
------------------------------------------------- ------------ -------------- -------------- -------------

Balance at January 3, 1998                                          $      -       $      -       $      -
 Costs incurred in 1998 (a)                                            3,630             30          3,660
 Usage                                                                (1,980)           (30)        (2,010)
 Currency translation                                                    (16)             -            (16)
                                                                    --------       --------       --------

Balance at January 2, 1999                                             1,634              -          1,634
 Reversal of reserve                                                    (326)             -           (326)
 Usage                                                                (1,063)             -         (1,063)
 Currency translation                                                   (178)             -           (178)
                                                                    --------       --------       --------

Balance at January 1, 2000                                          $     67       $      -       $     67
                                                                    ========       ========       ========

(a) Excludes noncash asset write-down of $940,000 in the Analytical Instruments segment.


                                       25
<PAGE>

10.   Fair Value of Financial Instruments

      The Company's financial instruments consist primarily of cash and cash
equivalents, advance to affiliate, accounts receivable, short-term obligations
and current maturities of long-term obligations, accounts payable, due to parent
company and affiliated companies, long-term obligations, and forward foreign
exchange contracts. The carrying amounts of these financial instruments, with
the exception of current maturity of subordinated convertible debentures,
long-term obligations, and forward exchange contracts, approximate fair value
due to their short-term nature.
      The carrying amount and fair value of the Company's current maturity of
subordinated convertible debentures, long-term obligations, and
off-balance-sheet financial instruments are as follows:
</TABLE>
<TABLE>
<CAPTION>
<S>                                                             <C>            <C>     <C>         <C>

                                                                        1999                   1998
                                                               ---------------------  ---------------------
                                                                Carrying        Fair   Carrying       Fair
(In thousands)                                                    Amount       Value     Amount      Value
-------------------------------------------------------------- ---------- ----------- ---------- ----------

Current Maturity of Subordinated Convertible                     $61,031    $ 59,115    $     -    $     -
                                                                 =======    ========    =======    =======
Debentures

Long-term Obligations:
 Subordinated convertible debentures                             $     -    $      -    $67,931    $67,340
 Other                                                             4,966       6,553      6,273      8,749
                                                                 -------    --------    -------    -------

                                                                 $ 4,966    $  6,553    $74,204    $76,089
                                                                 =======    ========    =======    =======

Off-balance-sheet Financial Instruments:
 Forward exchange contracts payable                                         $      3               $    19

      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 notional amounts of forward exchange contracts totaled $60,000 and
$752,000 at year-end 1999 and 1998, respectively. The fair value of such
contracts is the estimated amount that the Company would pay or receive upon
termination of the contract, taking into account the change in foreign exchange
rates.

11.   Business Segment and Geographical Information

      The Company organizes and manages its businesses by individual functional
operating entity. The Company's businesses are reported in two segments:
Analytical Instruments and Scientific Equipment. In classifying operational
entities into a particular segment, the Company aggregates businesses with
similar economic characteristics, products and services, production processes,
customers, and methods of distribution.
      Businesses within the Analytical Instruments segment develop, manufacture,
sell, and service mass spectrometers, liquid chromatographs, gas chromatographs,
and multi-instrument combinations of these products, which are used in the
quantitative and qualitative analysis of chemical compounds at ultratrace levels
of detection, as well as advanced software for use with these instruments and
consumables for the chromatography industry. Businesses included in the
Scientific Equipment segment, acquired from Thermo Instrument effective March
12, 1997 (Note 2), develop, manufacture, sell, and service scientific equipment
for the preparation and preservation of chemical samples.
</TABLE>


                                       26
<PAGE>

11.   Business Segment and Geographical Information (continued)

<TABLE>
<CAPTION>
<S>                                                                              <C>        <C>      <C>
(In thousands)                                                                   1999       1998     1997
--------------------------------------------------------------------------- ---------- ---------- ---------

Business Segment Information
Revenues:
 Analytical Instruments                                                     $ 296,675  $ 300,820  $315,668
 Scientific Equipment                                                         135,152    132,864   123,195
                                                                            ---------  ---------  --------

                                                                            $ 431,827  $ 433,684  $438,863
                                                                            =========  =========  ========

Income Before Provision for Income Taxes and Extraordinary Item:
 Analytical Instruments (a)                                                 $  54,726  $  46,110  $ 59,680
 Scientific Equipment (b)                                                      25,238     25,376    19,511
 Corporate (c)                                                                 (5,246)    (5,393)   (6,210)
                                                                            ---------  ---------  --------

 Total operating income                                                        74,718     66,093    72,981
 Interest income (expense), net                                                 2,171       (430)       40
                                                                            ---------  ---------  --------

                                                                            $  76,889  $  65,663  $ 73,021
                                                                            =========  =========  ========

Total Assets:
 Analytical Instruments                                                     $ 366,642  $ 368,167  $342,796
 Scientific Equipment                                                         161,740    165,427   174,514
 Corporate (d)                                                                124,441    109,648    78,316
                                                                            ---------  ---------  --------

                                                                            $ 652,823  $ 643,242  $595,626
                                                                            =========  =========  ========

Depreciation and Amortization:
 Analytical Instruments                                                     $   9,522  $   9,937  $ 10,374
 Scientific Equipment                                                           5,622      5,559     4,433
                                                                            ---------  ---------  --------

                                                                            $  15,144  $  15,496  $ 14,807
                                                                            =========  =========  ========

Capital Expenditures:
 Analytical Instruments                                                     $   3,847  $   4,691  $  4,771
 Scientific Equipment                                                           1,803      2,385     1,490
                                                                            ---------  ---------  --------

                                                                            $   5,650  $   7,076  $  6,261
                                                                            =========  =========  ========



                                       27
<PAGE>

11.   Business Segment and Geographical Information (continued)

(In thousands)                                                                 1999        1998       1997
------------------------------------------------------------------------- ---------- ----------- ---------

Geographical Information
Revenues (e):
 United States                                                            $ 286,265  $  285,110  $ 289,836
 Germany                                                                     56,636      60,980     64,116
 England                                                                     57,249      56,425     60,609
 Other                                                                      129,659     121,247    122,535
 Transfers among geographical areas (f)                                     (97,982)    (90,078)   (98,233)
                                                                          ---------  ----------  ---------

                                                                          $ 431,827  $  433,684  $ 438,863
                                                                          =========  ==========  =========

Long-lived Assets (g):
 United States                                                            $  42,952  $   45,296  $  49,063
 Italy                                                                        5,959       6,780      6,519
 Other                                                                       10,345      11,387     11,269
                                                                          ---------  ----------  ---------

                                                                          $  59,256  $   63,463  $  66,851
                                                                          =========  ==========  =========

Export Revenues Included in United States Revenues Above (h)              $  93,866  $   93,512  $ 108,764
                                                                          =========  ==========  =========

(a) Reflects the reversal of previously recorded restructuring costs of $0.3
    million in 1999 and restructuring costs of $4.6 million in 1998.
(b) Reflects restructuring costs of $30,000 in 1998.
(c) Primarily general and administrative expenses.
(d) Primarily cash, cash equivalents, and advance to affiliate.
(e) Revenues are attributed to countries based on selling location.
(f) Transfers among geographical areas are accounted for at prices that are
    representative of transactions with unaffiliated parties.
(g) Includes property, plant, and equipment, net, and other long-term tangible assets.
(h) In general, export revenues are denominated in U.S. dollars.


                                       28
<PAGE>

12.   Earnings per Share

      Basic and diluted earnings per share were calculated as follows:

(In thousands except per share amounts)                                        1999       1998       1997
------------------------------------------------------------------------- ---------- ----------- ---------

Basic
Net Income                                                                   $45,749    $38,378    $41,805
                                                                             -------    -------    -------

Weighted Average Shares                                                       50,633     51,270     50,120
                                                                             -------    -------    -------

Basic Earnings per Share                                                     $   .90    $   .75    $   .83
                                                                             =======    =======    =======

Diluted
Net Income                                                                   $45,749    $38,378    $41,805
Effect of Convertible Obligations                                              1,942      2,248      2,691
                                                                             -------    -------    -------

Income Available to Common Shareholders, as Adjusted                         $47,691    $40,626    $44,496
                                                                             -------    -------    -------

Weighted Average Shares                                                       50,633     51,270     50,120
Effect of:
 Convertible obligations                                                       3,990      4,619      5,529
 Stock options                                                                    72        152        242
                                                                             -------    -------    -------

Weighted Average Shares, as Adjusted                                          54,695     56,041     55,891
                                                                             -------    -------    -------

Diluted Earnings per Share                                                   $   .87    $   .72    $   .80
                                                                             =======    =======    =======

      Options to purchase 2,196,000, 1,640,000, and 37,000 shares of common
stock were not included in the computation of diluted earnings per share for
1999, 1998, and 1997, respectively, because their effect would have been
antidilutive due to the options' exercise prices exceeding the average market
price for the common stock.
      An extraordinary gain recorded by the Company increased basic earnings per
share by $.01 in 1998 (Note 5).
</TABLE>


                                       29
<PAGE>


13.   Unaudited Quarterly Information
<TABLE>
<CAPTION>

(In thousands except per share amounts)
<S>                                                                   <C>       <C>     <C>          <C>

1999                                                                  First     Second  Third (a)    Fourth
---------------------------------------------------------------- ----------- ---------- ---------- ---------

Revenues                                                          $105,619    $107,853   $107,930   $110,425
Gross Profit                                                        50,708      51,465     50,213     53,056
Net Income                                                          10,821      10,228     11,299     13,401
Earnings per Share:
 Basic                                                                 .21         .20        .22        .27
 Diluted                                                               .21         .20        .22        .26

1998                                                                  First     Second  Third (b)  Fourth (c)
---------------------------------------------------------------- ----------- ---------- ---------- ---------

Revenues                                                          $108,118    $ 98,123   $105,003   $122,440
Gross Profit                                                        52,745      48,079     49,203     58,300
Income Before Extraordinary Item                                    11,310       8,581      6,494     11,700
Net Income                                                          11,310       8,581      6,494     11,993
Earnings per Share:
 Basic                                                                 .22         .17        .13        .23
 Diluted                                                               .21         .16        .13        .23

(a) Reflects the reversal of previously established restructuring reserves of $0.3 million.
(b) Reflects restructuring costs of $4.6 million.
(c)Reflects an extraordinary gain of $0.3 million, net of taxes.

14.   Subsequent Event

      On January 31, 2000, the Company announced that its parent company, Thermo
Instrument, will acquire the publicly held shares of the Company for $17.00 per
share in cash. This action is part of a major reorganization plan under which
Thermo Electron will spin in, spin off, and sell various businesses to focus
solely on its core measurement and detection instruments business. Thermo
Instrument currently owns approximately 90.3% of the outstanding shares of the
Company's common stock. Because Thermo Instrument's ownership is more than 90%,
it expects to acquire the minority interest through a "short-form" merger in
Delaware. The proposed short-form merger of the Company will require Securities
and Exchange Commission clearance of necessary filings; it will not require
approval by the Company's Board of Directors or shareholders. Immediately upon
completion of the proposed short-form merger, the Company's 5% subordinated
convertible debentures due August 15, 2000, will become convertible into the
same consideration that the minority holders of the Company's common stock
receive in the merger, or $17.00 per share in cash. Holders of the debentures
will therefore have the right, immediately upon completion of the merger, to
convert their debentures at the existing conversion price ($16.50 per share)
into $17.00 per share in cash, instead of into the actual shares of the
Company's common stock that they would have received if they converted prior to
the proposed merger. The Company does not intend to call the debentures prior to
the merger.
      On March 6, 2000, Thermo Instrument filed with the Securities and Exchange
Commission the materials necessary to take the Company private through a
short-form merger. Thermo Instrument expects to complete this transaction by the
end of the second quarter of 2000.


                                       30
<PAGE>


ThermoQuest Corporation                                                         1999 Financial Statements

                    Report of Independent Public Accountants

To the Shareholders and Board of Directors of ThermoQuest Corporation:

      We have audited the accompanying consolidated balance sheet of ThermoQuest
Corporation (a Delaware corporation and 90%-owned subsidiary of Thermo
Instrument Systems Inc.) and subsidiaries as of January 1, 2000, and January 2,
1999, and the related consolidated statements of income, cash flows, and
comprehensive income and shareholders' investment for each of the three years in
the period ended January 1, 2000. 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 ThermoQuest
Corporation and subsidiaries as of January 1, 2000, and January 2, 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended January 1, 2000, in conformity with generally accepted
accounting principles.



                                             Arthur Andersen LLP



Boston, Massachusetts
February 15, 2000 (except with respect to the matter
discussed in Note 14, as to which the date is March 6, 2000)



                                       31
<PAGE>

ThermoQuest Corporation                                                         1999 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's businesses are reported in two segments: Analytical
Instruments and Scientific Equipment. Businesses within the Analytical
Instruments segment develop, manufacture, sell, and service mass spectrometers,
liquid chromatographs, gas chromatographs, and multi-instrument combinations of
these products, which are used in the quantitative and qualitative analysis of
chemical compounds at ultratrace levels of detection. Businesses within this
segment also supply a range of advanced software for use with these instruments,
as well as consumables for the chromatography industry.
      Businesses included in the Scientific Equipment segment develop,
manufacture, sell, and service scientific equipment for the preparation and
preservation of chemical samples. The Company's products are used primarily by
pharmaceutical companies for drug research, testing, and quality control; by
biotechnology researchers to study proteins and other biological samples to gain
knowledge about diseases and possible treatments; by environmental laboratories
for testing water, air, and soil samples for compliance with environmental
regulations; by chemical companies for research and quality control; by
manufacturers for testing in certain industrial applications, such as the
manufacture of silicon chips, and for quality control; by food and beverage
companies for quality control and to test for product contamination; and in
forensic applications.
      The Company sells its products worldwide. Although the Company seeks to
charge its customers in the same currency as its operating costs, the Company's
financial performance and competitive position can be affected by currency
exchange rate fluctuations. Where appropriate, the Company uses forward
contracts to reduce its exposure to currency fluctuations.

Results of Operations

1999 Compared With 1998
      Revenues decreased to $431.8 million in 1999 from $433.7 million in 1998.
Revenues from the Analytical Instruments segment decreased $4.1 million to
$296.7 million in 1999. The decrease resulted primarily from a $5.8 million
decline in revenues in Asia, principally due to lower shipments to Japan in the
fourth quarter of 1999, compared with the fourth quarter of 1998. In addition,
revenues in this segment decreased $3.2 million due to lower demand for the
Company's Fourier-transform mass spectrometers and $4.3 million due to the
unfavorable effects of currency translation as a result of the weakening of the
U.S. dollar relative to foreign currencies in countries in which the Company
operates. These decreases were offset in part by increased sales of other mass
spectrometers in North America and Europe and the inclusion of $1.1 million of
revenues from an acquisition in the third quarter of 1999. Revenues from the
Scientific Equipment segment increased to $135.2 million in 1999 from $132.9
million in 1998, primarily due to an increase in revenues from customers in the
U.S. in this segment's Forma Scientific product line. The unfavorable effects of
currency translation decreased revenues in the Scientific Equipment segment by
$0.6 million.
      The gross profit margin remained unchanged at 48% in 1999 and 1998.
      Selling, general, and administrative expenses as a percentage of revenues
was 24% in 1999 and 25% in 1998. Selling, general, and administrative expenses
decreased to $103.6 million in 1999 from $107.4 million in 1998,


                                       32
<PAGE>


1999 Compared With 1998 (continued)
primarily due to higher costs in the Analytical Instruments segment in the
fourth quarter of 1998 as a result of increased commissioned sales through
dealers.
      Research and development expenses decreased to $29.0 million in 1999 from
$31.5 million in 1998, primarily due to lower spending in the Analytical
Instruments segment as a result of the completed development of certain new
products.
      In 1999, the Company reversed $0.3 million of previously recorded
restructuring costs that were not required (Note 9). In 1998, the Company
recorded restructuring costs of $4.6 million related to severance costs for
approximately 85 employees and the closure of a facility.
      In 1999 and 1998, the Company's Analytical Instruments segment recorded
gains of $1.6 million and $1.3 million, respectively, primarily relating to the
sale of real estate in California.
      Interest income increased to $7.2 million in 1999 from $6.2 million in
1998, primarily due to higher invested balances. Interest expense decreased to
$5.1 million in 1999 from $6.6 million in 1998, primarily due to the repurchases
of a portion of the Company's 5% subordinated convertible debentures.
      The effective tax rate was 40% in 1999, compared with 42% in 1998. The
effective tax rate exceeded the statutory federal income tax rate in both
periods primarily due to the effect of state income taxes, foreign tax rate and
tax law differentials, and nondeductible amortization of cost in excess of net
assets of acquired companies. The effective tax rate decreased in 1999 due in
part to the favorable resolution of a Company claim for prior-year research and
development tax credits.
      During 1998, the Company recorded an extraordinary gain, net of tax, of
$0.3 million related to the early extinguishment of debt (Note 5).
      The Company is involved in patent infringement proceedings relating to its
ion-trap mass spectrometers (Note 6).

1998 Compared With 1997
      Revenues decreased to $433.7 million in 1998 from $438.9 million in 1997.
Revenues from the Analytical Instruments segment decreased $14.8 million to
$300.8 million in 1998. This decrease resulted primarily from a $7.8 million
decline in revenues from customers in Asia due to the unstable economic
conditions there, heightened competition in two of its product lines, and a
decrease in revenues of $3.9 million due to the strengthening in value of the
U.S. dollar relative to foreign currencies in countries in which the Company
operates. The acquisition of Hypersil from Thermo Instrument Systems Inc.,
effective March 12, 1997, added revenues of $1.2 million in 1998. Revenues from
the Scientific Equipment segment increased $9.7 million to $132.9 million in
1998 from $123.2 million in 1997, primarily due to the inclusion for the full
period of 1998 of the businesses that comprise this segment. These businesses
were formerly part of the Laboratory Products Group of Life Sciences
International PLC and were acquired from Thermo Instrument, effective March 12,
1997. The acquisition of these businesses added revenues of $22.2 million in
1998. This increase was offset in part by a change in distribution channels of
an affiliated company, which began selling its products directly to third
parties and is no longer using the Company's sales offices. Such sales had low
margins due to the Company's sole role as distributor. To a lesser extent, the
increase in Scientific Equipment segment revenues was offset by a $2.0 million
decline in revenues from customers in Asia due to the unstable economic
conditions there.
      The gross profit margin remained unchanged at 48% in 1998 and 1997. The
gross profit margin for the Analytical Instruments segment decreased slightly in
1998, primarily due to heightened competition in two of its product lines. The
gross profit margin for the Scientific Equipment segment increased in 1998,
primarily due to improved manufacturing efficiencies and, to a lesser extent,
the inclusion in 1997 of an adjustment to expense of $1.0 million relating to
the sale of inventories revalued on the date the Laboratory Products businesses
were acquired.


                                       33
<PAGE>

1998 Compared With 1997 (continued)
      Selling, general, and administrative expenses as a percentage of revenues
remained unchanged at 25% in 1998 and 1997. Selling, general, and administrative
expenses decreased slightly to $107.4 million in 1998 from $107.8 million in
1997, primarily due to the implementation of cost-control measures in the
Analytical Instruments segment, offset in part by the inclusion of expenses from
the Scientific Equipment segment for the full period in 1998.
      Research and development expenses increased to $31.5 million in 1998 from
$28.2 million in 1997, primarily due to higher spending within the Analytical
Instruments segment and the inclusion of expenses from the Scientific Equipment
segment for the full period in 1998.
      In the third quarter of 1998, the Company recorded restructuring costs of
$4.6 million related to severance costs for approximately 85 employees and the
closure of a facility (Note 9).
      In 1998, the Company recorded gains of $1.3 million, primarily relating to
the sale of real estate in California and two sales and services office
buildings in England.
      Interest income decreased to $6.2 million in 1998 from $10.1 million in
1997, primarily due to a reduction in cash as a result of the acquisition of the
Laboratory Products businesses and Hypersil from Thermo Instrument in September
1997 (Note 2). Interest expense decreased to $6.6 million in 1998 from $10.1
million in 1997, primarily due to the repayment to Thermo Instrument in
September 1997 of debt assumed in connection with the acquisition of the
Laboratory Products businesses (Note 2) and, to a lesser extent, the conversion
of a portion of the Company's 5% subordinated convertible debentures into common
stock of the Company.
      The effective tax rate was 42% in 1998 and 43% in 1997. The effective tax
rate exceeded the statutory federal income tax rate in both periods primarily
due to the effect of state income taxes, foreign tax rate and tax law
differentials, and nondeductible amortization of cost in excess of net assets of
acquired companies.
      During 1998, the Company recorded an extraordinary gain, net of tax, of
$0.3 million related to the early extinguishment of debt (Note 5).

Liquidity and Capital Resources

      Consolidated working capital was $170.7 million at January 1, 2000,
compared with $200.0 million at January 2, 1999. Included in working capital are
cash and cash equivalents of $33.6 million at January 1, 2000, compared with
$132.4 million at January 2, 1999. In addition, as of January 1, 2000, the
Company had $124.7 million invested in an advance to affiliate. Prior to the use
of new cash management arrangements between the Company and Thermo Electron
Corporation, which became effective in June 1999, such amounts were included in
cash and cash equivalents. At January 1, 2000, $30.0 million of the Company's
cash and cash equivalents was held by its foreign subsidiaries. While this cash
can be used outside of the United States, including for acquisitions,
repatriation of this cash into the United States would be subject to foreign
withholding taxes and could also be subject to a U.S. tax. Also reflected in
working capital is $61.0 million principal amount of 5% subordinated convertible
debentures due August 2000.
      Cash provided by operating activities was $55.2 million in 1999. An
increase in accounts receivable used cash of $9.5 million, primarily due to the
majority of fourth quarter shipments by one of the Company's factories being
made in December 1999 as a result of delays caused by the implementation of a
new management information system. An increase in other current liabilities
provided cash of $4.6 million, primarily due to an increase in deferred revenue
and accrued income taxes, offset in part by a reduction in customer deposits.
      During 1999, the Company's primary investing activities, excluding advance
to affiliate activity, included an acquisition and the purchase of property,
plant, and equipment. The Company expended $2.4 million for an acquisition and
$5.7 million for purchases of property, plant, and equipment. In addition, the
Company received $1.7 million in proceeds from the sale of property, plant, and
equipment, primarily relating to the sale of real estate in California. During
2000, the Company plans to make capital expenditures of approximately $7.5
million.

                                       34
<PAGE>

Liquidity and Capital Resources (continued)

      The Company's financing activities used $21.2 million of cash in 1999. The
Company used $13.6 million of cash to purchase Company securities pursuant to
authorizations by the Company's Board of Directors. The Company does not expect
to expend any additional amounts on purchases of its securities as a result of
Thermo Instrument's plan to purchase the publicly held shares of the Company
(Note 14). During 1999, the Company used $7.5 million of cash for the repayment
of short- and long-term obligations.
      In January 2000, the Company acquired H.D. Technologies Limited of
Manchester, United Kingdom, for approximately $4.8 million. H.D. Technologies
develops mass spectrometry products, particularly those employing time-of-flight
and novel ion-trap technologies.
      The Company has an underfunded defined benefit pension plan covering
employees of its manufacturing subsidiary in Bremen, Germany. The Company's
policy is to fund the plan at a level within the range required by applicable
regulations. As of January 1, 2000, the accrued benefit costs for this plan were
$10.1 million (Note 3). In addition, as of January 1, 2000, the Company has a
deferred compensation plan with an unfunded liability of $2.9 million (Note 3).
As of January 1, 2000, the Company's foreign subsidiaries had available
short-term credit facilities of $26.3 million.
      Although the Company expects to have positive cash flow from its existing
operations, the Company anticipates it will require significant amounts of cash
for any acquisition of complementary businesses. The Company expects that it
will finance acquisitions through a combination of internal funds, and/or
short-term borrowings from Thermo Instrument or Thermo Electron, although there
is no agreement with these companies 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.

Market Risk

      The Company is exposed to market risk from changes in foreign currency
exchange rates, interest rates, and equity prices, which could affect its future
results of operations and financial condition. The Company manages its exposure
to these risks through its regular operating and financing activities.
Additionally, the Company uses short-term forward contracts to manage certain
exposures to foreign currencies. The Company enters into forward foreign
exchange contracts to hedge firm purchase and sale commitments denominated in
currencies other than its subsidiaries' local currencies. The Company does not
engage in extensive foreign currency hedging activities; however, the purpose of
the Company's foreign currency hedging activities is to protect the Company's
local currency cash flows related to these commitments from fluctuations in
foreign exchange rates. The Company's forward foreign exchange contracts
principally hedge transactions denominated in U.S. dollars and German marks.
Gains and losses arising from forward contracts are recognized as offsets to
gains and losses resulting from the transactions being hedged. The Company does
not enter into speculative foreign currency agreements.

Foreign Currency Exchange Rates
      The Company generally views its investment in its foreign subsidiaries
with a functional currency other than the Company's reporting currency as
long-term. The Company's investment in foreign subsidiaries is sensitive to
fluctuations in foreign currency exchange rates. The functional currencies of
the Company's foreign subsidiaries are principally denominated in British pounds
sterling, German marks, Japanese yen, Italian lira, and French francs. The
effect of a change in foreign exchange rates on the Company's net investment in
its foreign subsidiaries is reflected in the "Accumulated other comprehensive
items" component of shareholders' investment. A 10% depreciation in year-end
1999 and 1998 functional currencies, relative to the U.S. dollar, would result
in a reduction of the Company's shareholders' investment of $13.8 million and
$13.1 million, respectively.


                                       35
<PAGE>



Market Risk (continued)

Interest Rates
      The Company's long-term obligations are sensitive to changes in interest
rates. Interest rate changes would result in a change in the fair value of these
financial instruments due to the difference between the market interest rate and
the rate at the date of issuance of the financial instruments. A 10% decrease in
year-end 1999 and 1998 market interest rates would result in a negative impact
of $1.6 million and $4.0 million, respectively, on the fair value of the
Company's long-term obligations.
      The Company's cash, cash equivalents, advance to affiliate and notes
payable are sensitive to changes in interest rates. Interest rate changes would
result in a change in interest income and interest expense due to the difference
between the current interest rates on cash, cash equivalents, advance to
affiliate and notes payable and the variable rate that these financial
instruments may adjust to in the future. A 10% decrease in year-end 1999 and
1998 interest rates would result in a negative impact of $0.6 million and $0.4
million, respectively, on the Company's net income.

Equity Prices
      The Company's subordinated convertible debentures are sensitive to
fluctuations in the price of Company common stock into which the debentures are
convertible. Changes in equity prices would result in changes in the fair value
of the Company's subordinated convertible debentures due to the difference
between the current market price and the market price at the date of issuance of
the debentures. A 10% increase in the year-end 1999 and 1998 market equity
prices would result in a negative impact of $1.3 million and $3.7 million,
respectively, on the fair value of the Company's subordinated convertible
debentures.

Year 2000

      As of the date of this report, the Company has completed its year 2000
initiatives, which included: (i) testing and upgrading significant information
technology systems and facilities; (ii) testing and developing upgrades, where
necessary, for the Company's current products and certain discontinued products;
(iii) assessing the year 2000 readiness of its key suppliers, vendors, and
customers; and (iv) developing contingency plans.
      As a result of completing these initiatives, the Company believes that all
of its material information technology systems and critical non-information
technology systems are year 2000 compliant. The Company believes that all of the
material products that it currently manufactures and sells are year 2000
compliant or are not date sensitive. In addition, the Company is not aware of
any significant supplier or vendor that has experienced material disruption due
to year 2000 issues. The Company has also developed a contingency plan to allow
its primary business operations to continue despite disruptions due to year 2000
problems, if any, that might yet arise in the future. The costs incurred to date
by the Company in connection with the year 2000 issue have not been material.
      While the Company to date has been successful in minimizing negative
consequences arising from year 2000 issues, there can be no assurance that in
the future the Company's business operations or financial condition may not be
impacted by year 2000 problems, such as increased warranty claims, vendor and
supplier disruptions, or litigation relating to year 2000 issues.


                                       36
<PAGE>


ThermoQuest Corporation                                                         1999 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 2000 and beyond to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company.

      Competition, Technological Change, and Industry Acceptance. The Company
encounters, and expects to continue to encounter, intense competition in the
sale of its current and future products. Some of the Company's competitors and
potential competitors have greater resources, manufacturing and marketing
capabilities, research and development staff, and production facilities than
those of the Company. No assurance can be given that the Company's competitors
will not develop products that will be superior to the Company's products. The
market for the Company's products is characterized by rapid and significant
technological change and evolving industry standards. New product introductions
responsive to these factors require significant planning, design, development,
and testing at the technological, product, and manufacturing process levels, and
may render existing products and technologies uncompetitive or obsolete. In
addition, industry acceptance of new technologies developed by the Company may
be slow to develop due to, among other things, existing regulations written
specifically for older technologies and general unfamiliarity of users with new
technologies.

      Risks Associated With Intellectual Property. The Company holds many
patents relating to various aspects of its products, including significant
patents relating to ion-trap mass spectrometers, discussed below. In addition,
the Company believes that proprietary technical know-how is critical to many of
its products. Proprietary rights relating to the Company's products are
protected from unauthorized use by third parties only to the extent that they
are covered by valid and enforceable patents or are maintained in confidence as
trade secrets. There can be no assurance that any patents now or hereafter owned
by the Company will afford protection against competitors and, in the absence of
patent protection, the Company may be vulnerable to competitors who attempt to
copy the Company's products or gain access to its trade secrets and know-how.
There can be no assurance that patents will issue from any future patent
applications filed by the Company or licensed by the Company. Proceedings
initiated by the Company to protect its proprietary rights could result in
substantial costs to the Company. There can be no assurance that competitors of
the Company will not initiate litigation challenging the validity of the
Company's patents or alleging the Company is infringing the competitors'
patents, or that they will not use their resources to design comparable products
that do not infringe the Company's patents. There may also be pending or issued
patents of which the Company is not aware held by parties not affiliated with
the Company that relate to the Company's products or technologies. The Company
may need to acquire licenses to, or contest the validity of, any such patents.
It is likely that significant funds would be required to contest the validity of
any such patents. There can be no assurance that any license that may be
required under any such patent would be made available on acceptable terms or
that the Company would prevail in any such contest. If the outcome of any such
litigation or dispute is unfavorable to the Company, the Company's business and
results of operations could be materially adversely affected.
      The Company's Finnigan subsidiary has filed complaints against
Bruker-Franzen Analytik GmbH and its U.S. affiliate, and Hewlett-Packard
Company, for alleged violation of two U.S. patents owned by Finnigan. The
patents pertain to methods used in ion-trap mass spectrometers.
      The complaint was filed in the U.S. District Court for the District of
Massachusetts.  Finnigan has asked for damages to compensate for the
infringements, and for injunctions against further infringement.
      The District Court action was stayed pending completion of a parallel
investigation by the United States International Trade Commission (ITC). In
April 1998, the ITC determined that the defendants did not engage in unfair
practices in U.S. import trade with respect to the Finnigan patents, and that
the Finnigan patents are invalid and/or not infringed. Finnigan appealed the
ITC's determination with respect to one of its patents to the United States
Court of Appeals for the Federal Circuit (CAFC). The CAFC issued its decision in
June 1999 affirming the ITC's determination of noninfringement but reversing the
ITC's determination of invalidity.



                                       37
<PAGE>

      Bruker presented counterclaims in the ITC investigation. The counterclaims
were removed to the District Court in Massachusetts and also stayed. These
claims allege that the Finnigan patents are invalid and unenforceable and are
not infringed by the mass spectrometers manufactured by Bruker. They also allege
that Finnigan has violated U.S. and Massachusetts antitrust laws and engaged in
unfair competition by attempting to maintain a monopoly position and restrain
trade through enforcement of allegedly fraudulently obtained patents. Bruker has
asked for judgment consistent with its counterclaims, and for three times the
antitrust damages (including attorneys' fees) it has sustained.
      The stays on both cases in the District Court in Massachusetts have been
lifted and the cases are proceeding in the District Court.
      In February 1999, Finnigan filed complaints against Bruker-Franzen
Analytik GmbH and Hewlett-Packard GmbH, in District Court in Dusseldorf,
Germany, for violation of four German patents owned by Finnigan. The patents
pertain to methods used in ion-trap mass spectrometers. Bruker and
Hewlett-Packard have challenged the validity of these patents in Federal Patent
Court in Munich. Bruker has filed a complaint against Finnigan in District Court
in Dusseldorf for alleged violation of two German patents owned by Bruker.
      There can be no assurance as to the outcome of these matters or that an
unfavorable resolution would not have a material adverse effect on the Company's
future results of operations and financial position.
      In addition, the Company relies on trade secrets and confidentiality
agreements with its collaborators, employees, and consultants. There can be no
assurance that these agreements will not be breached, that the Company would
have adequate remedies for any breach, or that the Company's trade secrets will
not otherwise become known or be independently developed by competitors.

      Risks Associated With Acquisition Strategy. The Company's growth strategy
is to supplement its internal growth with the acquisition of businesses and
technologies that complement or augment the Company's existing product lines.
The Company has acquired certain portions of several businesses that have been
acquired by Thermo Instrument, the Company's parent, and may acquire additional
businesses from Thermo Instrument or other third parties in the future. Certain
of the businesses acquired have had low levels of profitability and businesses
that the Company may seek to acquire in the future may also be marginally
profitable or unprofitable. In order for any acquired businesses to achieve the
level of profitability desired by the Company, the Company must successfully
reduce expenses and improve operations. No assurance can be given that the
Company will be successful in this regard. In addition, promising acquisitions
are difficult to identify and complete for a number of reasons, including
competition among prospective buyers and the need for regulatory approvals,
including antitrust approvals. There can be no assurance that the Company will
be able to complete pending or future acquisitions. In order to finance any such
acquisitions, it may be necessary for the Company to raise additional funds. Any
financing, if available at all, may be on terms which are not favorable to the
Company.

      Dependence on the Pharmaceutical Industry. The largest single market for
the Company's mass spectrometers and liquid chromatographs is the pharmaceutical
industry. Although the Company's existing products are not subject to regulation
by the U.S. Food and Drug Administration (the FDA), FDA regulations apply to the
processes and production facilities used to manufacture pharmaceutical products.
Any material change by a pharmaceutical company in its manufacturing process or
equipment could necessitate additional FDA review and approval. Such
requirements may make it more difficult for the Company to sell its products to
pharmaceutical customers that have already applied for or obtained approval for
production processes using different equipment and supplies. Any changes in the
regulations that apply to the processes and production facilities used to
manufacture pharmaceutical products or enforcement efforts in respect of such
regulations may adversely affect the market for the Company's products. In
addition, from time to time as a result of industry consolidation and other
factors, the pharmaceutical industry has reduced its capital expenditures for
equipment such as that manufactured by the Company, and there can be no
assurance that further changes in the pharmaceutical industry will not adversely
affect demand for the Company's products.


                                       38
<PAGE>

      Possible Adverse Effect From Changes in Environmental Regulations. One of
the larger markets for the Company's products is environmental analysis.
Consolidation or contraction in this market could have an adverse impact on the
Company. Most air, water, and soil analysis is conducted to comply with federal,
state, local, and foreign environmental regulations. These regulations are
frequently specific as to the type of technology required for a particular
analysis and the level of detection required for that analysis. The Company
develops, configures, and markets its products to meet customer needs created by
existing and anticipated environmental regulations. These regulations may be
amended or eliminated in response to new scientific evidence or political or
economic considerations. Any significant change in environmental regulations or
enforcement efforts could result in a reduction in demand for the Company's
products.

      Possible Adverse Impact of Significant International Operations.
International sales accounted for approximately 56% of the Company's revenues in
1999, and the Company expects that international sales will continue to account
for a significant portion of the Company's revenues in the future. Sales to
customers in foreign countries are subject to a number of risks, including the
following: agreements may be difficult to enforce, and receivables difficult to
collect through a foreign country's legal system; foreign customers may have
longer payment cycles; and foreign countries could impose withholding taxes or
otherwise tax the Company's foreign income, impose tariffs, embargoes or
exchange controls, or adopt other restrictions on foreign trade. Additionally,
the U.S. dollar value of the Company's net sales varies with currency exchange
rate fluctuations. Significant increases in the value of the U.S. dollar
relative to certain foreign currencies could have a material adverse effect on
the Company's competitive position and results of operations.

      Risks Associated with Cash Management Arrangement with Thermo Electron.
The Company participates in a cash management arrangement with Thermo Electron.
Under this cash management arrangement, the Company lends its excess cash to
Thermo Electron on an unsecured basis. The Company has the contractual right to
withdraw its funds invested in the cash management arrangement upon 30 days'
prior notice. Thermo Electron is contractually required to maintain cash, cash
equivalents and/or immediately available bank lines of credit equal to at least
50% of all funds invested under the cash management arrangement by all Thermo
Electron subsidiaries other than wholly owned subsidiaries. The funds are held
on an unsecured basis and therefore are subject to the credit risk of Thermo
Electron. The Company's ability to receive its cash upon notice of withdrawal
could be adversely affected if participants in the cash management arrangement
demand withdrawal of their funds in an aggregate amount in excess of the 50%
reserve required to be maintained by Thermo Electron. In the event of a
bankruptcy of Thermo Electron, the Company would be treated as an unsecured
creditor and its right to receive funds from the bankruptcy estate would be
subordinated to secured creditors and would be treated on a pari passu basis
with all other unsecured creditors. Further, all cash withdrawn by the Company
from the cash management arrangement within one year before the bankruptcy would
be subject to rescission. The inability of Thermo Electron to return the
Company's cash on a timely basis or at all could have a material adverse effect
on the Company's results of operations and financial position.
</TABLE>
                                       39
<PAGE>
<TABLE>
<CAPTION>
ThermoQuest Corporation                                                         1999 Financial Statements

                         Selected Financial Information

<S>                                                  <C>        <C>         <C>        <C>          <C>
(In thousands except per share amounts)              1999 (a)   1998 (b)    1997 (c)   1996 (d)     1995
--------------------------------------------------- ---------- ---------- ----------- ---------- ---------

Statement of Income Data
Revenues                                             $431,827   $433,684   $ 438,863   $313,793   $241,909
Income Before Extraordinary Item                       45,749     38,085      41,805     28,023     21,002
Net Income                                             45,749     38,378      41,805     28,023     21,002
Earnings per Share:
 Basic                                                    .90        .75         .83        .59        .47
 Diluted                                                  .87        .72         .80        .57        .47

Balance Sheet Data
Working Capital                                      $170,667   $200,018   $ 156,410   $216,865   $166,902
Total Assets                                          652,823    643,242     595,626    535,070    428,042
Long-term Obligations                                   4,966     74,204      88,080    104,593    106,456
Shareholders' Investment                              445,744    417,001     370,779    303,014    227,740

(a) Reflects the reversal of previously recorded restructuring costs of $0.3
    million, the repurchase of $6.9 million principal amount of 5% subordinated
    convertible debentures, and the reclassification as short-term of the 5%
    subordinated convertible debentures due August 2000.
(b) Reflects restructuring costs of $4.6 million, an extraordinary gain of $0.3
    million, net of taxes, related to the Company's repurchase of $7.7 million
    principal amount of 5% subordinated convertible debentures, and the
    conversion of $5.0 million principal amount of 5% subordinated convertible
    debentures.
(c) Reflects the acquisition of three business units within the Laboratory
    Products Group of Life Sciences International PLC and Life Sciences'
    Hypersil operation, effective March 12, 1997, the net proceeds of the
    Company's issuance of common stock in March 1997, and the conversion of
    $15.7 million principal amount of 5% subordinated convertible debentures.
(d) Reflects the acquisition of the Automass division of Analytical Technology,
    Inc., effective January 1, 1996, CE Instruments and MassLab Instruments,
    effective March 29, 1996, and the net proceeds of the Company's initial
    public offering in March and April 1996.



                                       40
<PAGE>


ThermoQuest Corporation                                                         1999 Financial Statements

Common Stock Market Information
      The Company's common stock is traded on the American Stock Exchange under
the symbol TMQ. The following table sets forth the high and low sale prices for
1999 and 1998, as reported in the consolidated transaction reporting system.
</TABLE>
<TABLE>
<CAPTION>
<S>                                                                 <C>         <C>        <C>        <C>

                                                                         1999                 1998
                                                               --------------------  ---------------------
Quarter                                                             High        Low        High       Low
-------------------------------------------------------------- ---------- ---------- ----------- ---------

First                                                          $14 1/2    $10        $19 31/32   $13 1/2
Second                                                          13 5/16    10 1/2     19 3/4      14
Third                                                           12 15/16   9 7/8      15 1/8      6 7/16
Fourth                                                          11 1/8     9 3/4      13 3/4      8 7/8
</TABLE>

      As of January 28, 2000, the Company had 263 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 January 28, 2000, was $12 1/2 per share.

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 Board of Directors and will depend upon, among other factors,
the Company's earnings, capital requirements, and financial condition.