Exhibit 13





















                                 THERMEDICS INC.

                        Consolidated Financial Statements

                                      1996
PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements

                        Consolidated Statement of Income

    (In thousands except per share amounts)    1996        1995         1994
    ------------------------------------------------------------------------
    Revenues (Note 14)                     $258,085    $175,754     $155,111
                                           --------    --------     --------
    Costs and Operating Expenses:
      Cost of revenues                      132,896      97,290       87,597
      Selling, general, and administrative
        expenses (Note 8)                    77,539      47,933       42,734
      Research and development expenses      17,704      11,087       10,445
      Nonrecurring costs (Notes 3 and 13)    17,637           -            -
                                           --------    --------     --------
                                            245,776     156,310      140,776
                                           --------    --------     --------

    Operating Income                         12,309      19,444       14,335

    Interest Income                          10,765       9,073        7,273
    Interest Expense                         (3,770)     (3,677)      (3,206)
    Gain on Issuance of Stock by
      Subsidiaries (Note 11)                 23,651       3,455            -
    Gain on Sale of Investments, Net
      (Note 2)                                  956         421          203
    Other Income                                  -          14          719
                                           --------    --------     --------
    Income Before Provision for Income 
      Taxes and Minority Interest            43,911      28,730       19,324
    Provision for Income Taxes (Note 5)      11,055       9,154        7,334
    Minority Interest Expense                 6,025       4,455        1,153
                                           --------    --------     --------
    Net Income                             $ 26,831    $ 15,121     $ 10,837
                                           ========    ========     ========
    Earnings per Share                     $    .70    $    .45     $    .33
                                           ========    ========     ========
    Weighted Average Shares                  38,080      33,660       32,878
                                           ========    ========     ========


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


                                        2PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements

                           Consolidated Balance Sheet

    (In thousands)                                           1996       1995
    ------------------------------------------------------------------------
    Assets
    Current Assets:
      Cash and cash equivalents                         $ 82,673    $ 37,370
      Short-term available-for-sale investments,
        at quoted market value (amortized cost
        of $64,950 and $76,682; includes $1,937
        and $2,100 of related party investments;
        Notes 2 and 8)                                    65,054      77,916
      Accounts receivable, less allowances
        of $4,641 and $3,982                              58,736      41,327
      Inventories                                         50,604      44,261
      Prepaid income taxes and expenses (Note 5)          12,798       8,645
                                                        --------    --------
                                                         269,865     209,519
                                                        --------    --------
    Property, Plant, and Equipment, at Cost, Net          14,730      12,933
                                                        --------    --------

    Long-term Available-for-sale Investments,
      at Quoted Market Value (amortized cost
      of $33,929 and $39,795; Note 2)                     33,920      39,953
                                                        --------    --------
    Other Assets                                           6,563       4,171
                                                        --------    --------
    Cost in Excess of Net Assets of Acquired
      Companies (Notes 3, 5, and 13)                     113,764     101,574
                                                        --------    --------
                                                        $438,842    $368,150
                                                        ========    ========









                                        3PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements

                     Consolidated Balance Sheet (continued)

    (In thousands except share amounts)                      1996       1995
    ------------------------------------------------------------------------
    Liabilities and Shareholders' Investment
    Current Liabilities:
      Notes payable and current maturity of
        long-term obligation (includes $38,000 due
        to parent company in 1995; Notes 3 and 7)       $  9,017    $ 47,420
      Accounts payable                                    17,960      16,336
      Accrued payroll and employee benefits                9,988       8,893
      Deferred revenue                                     1,397       1,705
      Accrued income taxes                                 5,438       2,340
      Accrued warranty costs                               3,271       3,637
      Other accrued expenses                              16,064      17,469
      Due to parent company                                1,600       1,606
                                                        --------    --------
                                                          64,735      99,406
                                                        --------    --------
    Deferred Income Taxes and Other Deferred
      Items (Note 5)                                       1,382       2,173
                                                        --------    --------
    Long-term Obligations (Note 7)                        74,359      45,201
                                                        --------    --------
    Minority Interest                                     92,308      54,360
                                                        --------    --------
    Commitments and Contingency (Notes 6 and 9)

    Shareholders' Investment (Notes 4, 8, and 10):
      Common stock, $.10 par value, 100,000,000
        shares authorized; 36,842,500 and 
        33,986,050 shares issued                           3,684       3,399
      Capital in excess of par value                     138,433     120,665
      Retained earnings                                   69,018      42,187
      Treasury stock at cost, 166,144 and 2,146 shares    (4,729)        (42)
      Cumulative translation adjustment                     (409)        (88)
      Net unrealized gain on available-for-sale
        investments (Note 2)                                  61         889
                                                        --------    --------
                                                         206,058     167,010
                                                        --------    --------
                                                        $438,842    $368,150
                                                        ========    ========


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

                                        4PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements

                      Consolidated Statement of Cash Flows

    (In thousands)                              1996        1995       1994
    -----------------------------------------------------------------------
    Operating Activities:
      Net income                           $  26,831   $  15,121  $  10,837
      Adjustments to reconcile net income
        to net cash provided by operating
        activities:
          Depreciation and amortization        9,124       5,678      4,208
          Gain on issuance of stock by
            subsidiaries (Note 11)           (23,651)     (3,455)         -
          Nonrecurring costs (Notes
            3 and 13)                         17,637           -          -
          Provision for losses on accounts
            receivable                         1,352         689      1,190
          Gain on sale of investments, net
            (Note 2)                            (956)       (421)      (203)
          Minority interest expense            6,025       4,455      1,153
          Increase (decrease) in deferred
            income taxes                        (725)        643        (67)
          Other noncash expenses               1,038         962      1,382
          Changes in current accounts, 
            excluding the effects of
            acquisitions:
              Accounts receivable            (14,471)        221     (1,750)
              Inventories                       (899)    (10,304)     7,090
              Prepaid income taxes and
                expenses                          23      (1,957)       112
              Accounts payable                   611       3,468     (7,362)
              Other current liabilities       (1,534)      1,956      2,430
          Other                                 (270)       (182)       (62)
                                           ---------   ---------  ---------
    Net cash provided by operating
      activities                              20,135      16,874     18,958
                                           ---------   ---------  ---------

    Investing Activities:
      Acquisitions, net of cash acquired
        (Note 3)                             (37,044)    (56,560)   (44,657)
      Acquisition of product lines            (4,737)          -          -
      Purchases of property, plant, and 
        equipment                             (6,972)     (4,407)    (3,220)
      Purchases of available-for-sale
        investments                          (99,800)   (101,246)   (78,303)
      Proceeds from sale and maturities of
        available-for-sale investments       118,356     104,786     77,677
      Other                                     (780)        399        266
                                           ---------   ---------  ---------
    Net cash used in investing activities  $ (30,977)  $ (57,028) $ (48,237)
                                           ---------   ---------  ---------

                                        5PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements

                Consolidated Statement of Cash Flows (continued)

    (In thousands)                              1996        1995       1994
    -----------------------------------------------------------------------
    Financing Activities:
      Net proceeds from issuance of Company
        and subsidiaries' common stock
        (Note 10)                          $  49,780   $   4,515  $   2,020
      Purchases of Company and subsidiaries'
        common stock                         (15,665)       (179)    (8,064)
      Proceeds from issuance of note
        payable to parent company (Note 3)    15,000      38,000          -
      Repayments of notes payable to parent
        company (Notes 3 and 7)              (53,000)          -          -
      Net proceeds from issuance of
        subordinated convertible
        obligations (Note 7)                  63,249           -     31,968
      Repayment and repurchase of long-
        term obligations                      (2,432)       (132)         -
      Net decrease in short-term
        borrowings                            (1,944)     (1,961)         -
      Other                                     (146)        740        134
                                           ---------   ---------  ---------
    Net cash provided by financing
      activities                              54,842      40,983     26,058
                                           ---------   ---------  ---------
    Exchange Rate Effect on Cash               1,303        (502)        85
                                           ---------   ---------  ---------
    Increase (Decrease) in Cash and
      Cash Equivalents                        45,303         327     (3,136)
    Cash and Cash Equivalents at Beginning
      of Year                                 37,370      37,043     40,179
                                           ---------   ---------  ---------
    Cash and Cash Equivalents at End
      of Year                              $  82,673   $  37,370  $  37,043
                                           =========   =========  =========

    Cash Paid For:
      Interest                             $   5,333   $   3,328  $   2,884
      Income taxes                         $   7,108   $   6,489  $   4,980

    Noncash Activities:
      Fair value of assets of acquired 
        companies                          $  42,955   $  67,394  $  65,493
      Cash paid for acquired companies       (37,445)    (56,879)   (44,743)
                                           ---------   ---------  ---------
        Liabilities assumed of acquired
          companies                        $   5,510   $  10,515  $  20,750
                                           =========   =========  =========
      Issuance of Company common stock to
        parent company in exchange for
        subsidiary common stock (Note 8)   $   4,236   $       -  $     936
      Conversions of Company and
        subsidiaries' convertible
        obligations (Note 7)               $  31,562   $  37,317  $   9,745

    The accompanying notes are an integral part of these consolidated
    financial statements.
                                        6PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements

               Consolidated Statement of Shareholders' Investment

    (In thousands)                               1996       1995        1994
    -----------------------------------------------------------------------
    Common Stock, $.10 Par Value
      Balance at beginning of year           $  3,399   $  3,330    $  3,217
      Issuance of stock under employees'
        and directors' stock plans                 12          7          14
      Conversions of subordinated
        convertible debentures                     74         62          92
      Issuance of Company common stock to
        parent company in exchange for
        common stock of subsidiaries (Note 8)     199          -           7
                                             --------   --------    --------
        Balance at end of year                  3,684      3,399       3,330
                                             --------   --------    --------

    Capital in Excess of Par Value
      Balance at beginning of year            120,665    102,975      98,279
      Issuance of stock under employees'
        and directors' stock plans                737        378       1,079
      Tax benefit related to employees'
        and directors' stock plans              1,218        434         668
      Conversions of subordinated
        convertible debentures (Note 7)         7,631      6,259       9,316
      Issuance of Company common stock to
        parent company in exchange for
        common stock of subsidiaries (Note 8)   4,037          -         929
      Effect of majority-owned subsidiaries'
        equity transactions                     4,145      9,858      (7,296)
      Capital contribution from parent
        company                                     -        761           -
                                             --------   --------    --------
        Balance at end of year                138,433    120,665     102,975
                                             --------   --------    --------

    Retained Earnings
      Balance at beginning of year             42,187     27,066      16,229
      Net income                               26,831     15,121      10,837
                                             --------   --------    --------
        Balance at end of year                 69,018     42,187      27,066
                                             --------   --------    --------

    Treasury Stock
      Balance at beginning of year                (42)      (310)       (272)
      Issuance of stock under employees'
        and directors' stock plans                 58        268         (38)
      Purchase of Company common stock         (4,745)         -           -
                                             --------   --------    --------
        Balance at end of year                 (4,729)       (42)       (310)
                                             --------   --------     -------

    Cumulative Translation Adjustment
      Balance at beginning of year                (88)       326          (2)
      Translation adjustment                     (321)      (414)        328
                                             --------   --------    --------
      Balance at end of year                 $   (409)  $    (88)   $    326
                                             --------   --------    --------


                                        7PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements

         Consolidated Statement of Shareholders' Investment (continued)

    (In thousands)                               1996       1995        1994
    ------------------------------------------------------------------------
    Net Unrealized Gain (Loss) on Available-
      for-sale Investments
      Balance at beginning of year           $    889   $ (1,622)   $      -
      Effect of change in accounting
        principle (Note 2)                          -          -       1,185
      Change in net unrealized gain (loss)
        on available-for-sale investments
        (Note 2)                                 (828)     2,511      (2,807)
                                             --------   --------    --------
      Balance at end of year                       61        889      (1,622)
                                             --------   --------    --------
    Total Shareholders' Investment           $206,058   $167,010    $131,765
                                             ========   ========    ========


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

















                                        8PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements

                   Notes to Consolidated Financial Statements

    1.  Nature of Operations and Summary of Significant Accounting Policies

    Nature of Operations
        Thermedics Inc. (the Company) develops, manufactures, and markets
    precision weighing and inspection equipment, electrochemistry and
    microweighing products, product quality assurance systems, electronic
    test instruments, and explosives-detection devices, as well as
    implantable heart-assist systems and other biomedical products. 

    Relationship with Thermo Electron Corporation
        The Company was incorporated in 1983 as a wholly owned subsidiary of
    Thermo Electron Corporation (Thermo Electron). As of December 28, 1996,
    Thermo Electron owned 20,293,310 shares of the Company's common stock,
    representing 55% of such stock outstanding.

    Principles of Consolidation
        The accompanying financial statements include the accounts of the
    Company; its wholly owned subsidiaries; its majority-owned public
    subsidiaries, Thermo Cardiosystems Inc. (Thermo Cardiosystems), Thermo
    Voltek Corp. (Thermo Voltek), and Thermo Sentron Inc. (Thermo Sentron);
    and its majority-owned privately-held subsidiary, Thermedics Detection
    Inc. (Thermedics Detection). All material intercompany accounts and
    transactions have been eliminated. The Company's percentage ownership of
    its majority-owned subsidiaries at year end was as follows:

                                                        1996    1995   1994
    Thermo Cardiosystems                                 54%     52%    55%
    Thermo Voltek                                        51%     50%    60%
    Thermo Sentron                                       71%    100%   100%
    Thermedics Detection                                 94%    100%   100%

    Fiscal Year
        The Company has adopted a fiscal year ending the Saturday nearest
    December 31. References to 1996, 1995, and 1994 are for the fiscal years
    ended December 28, 1996, December 30, 1995, and December 31, 1994,
    respectively. 

    Cash and Cash Equivalents
        As of December 28, 1996, $74,625,000 of the Company's cash
    equivalents were invested in a repurchase agreement with Thermo Electron.
    Under this agreement, the Company in effect lends excess cash to Thermo
    Electron, which Thermo Electron collateralizes with investments
    principally consisting of U.S. government agency securities, corporate
    notes, 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 are readily
    convertible into cash by the Company and have an original maturity of
    three months or less. The repurchase agreement earns a rate based on the
    90-day Commercial Paper Composite Rate plus 25 basis points, set at the
    beginning of each quarter. As of December 28, 1996, the Company's cash
    equivalents were also invested in U.S. government agency discount notes

                                        9PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements

                   Notes to Consolidated Financial Statements

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

    and money market preferred stock. Cash equivalents are carried at cost,
    which approximates market value.

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

    (In thousands)                                         1996        1995
    ------------------------------------------------------------------------
    Raw materials and supplies                         $26,448      $21,517
    Work in process and finished goods                  24,156       22,744
                                                       -------      -------
                                                       $50,604      $44,261
                                                       =======      =======

    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 30 years; machinery and equipment, 2 to 10 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)                                         1996         1995
    ------------------------------------------------------------------------
    Land and building                                  $ 2,992       $ 2,944
    Machinery, equipment, and leasehold improvements    33,828        27,358
                                                       -------       -------
                                                        36,820        30,302
    Less: Accumulated depreciation and amortization     22,090        17,369
                                                       -------       -------
                                                       $14,730       $12,933
                                                       =======       =======

    Other Assets
        Other assets in the accompanying balance sheet includes the cost of
    acquired patents, trademarks, acquired technology, and other specifically
    identifiable intangible assets. These assets are amortized using the
    straight-line method over their estimated useful lives, which range from
    4 to 15 years. These assets were $3,815,000 and $2,916,000, net of
    accumulated amortization of $2,668,000 and $2,245,000, at year-end 1996
    and 1995, respectively.

    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 over periods not
    exceeding 40 years. Accumulated amortization was $9,343,000 and

                                       10PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements

                   Notes to Consolidated Financial Statements

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

    $6,343,000 at year-end 1996 and 1995, 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. The
    Company considers the future undiscounted cash flows of the acquired
    companies in assessing the recoverability of this asset. If impairment
    has occurred, any excess of carrying value over fair value is recorded as
    a loss.

    Foreign Currency
        All assets and liabilities of the Company's foreign subsidiaries are
    translated at year-end exchange rates, and revenues and expenses are
    translated at average exchange rates for the year in accordance with
    Statement of Financial Accounting Standards (SFAS) No. 52, "Foreign
    Currency Translation." Resulting translation adjustments are reflected as
    a separate component of shareholders' investment, titled "Cumulative
    translation adjustment." In 1994, the Company recorded foreign currency
    transaction gains of $635,000 on the repayment of intercompany
    borrowings, denominated in U.S. dollars, by several of the Company's
    foreign subsidiaries. The borrowings resulted from the acquisition of
    Ramsey Technology, Inc. by the Company. Foreign currency transaction
    gains are included in other income in the accompanying 1994 statement of
    income. There were no material foreign currency transaction gains or
    losses in 1996 and 1995. 

    Revenue Recognition
        In general, the Company recognizes revenues upon shipment of its
    products. The Company provides a reserve for its estimate of warranty
    costs at the time of shipment. Revenues and profits on substantially all
    contracts are recognized using the percentage-of-completion method.
    Revenues recorded under the percentage-of-completion method were
    $6,564,000 in 1996, $8,521,000 in 1995, and $2,253,000 in 1994. The
    percentage of completion is determined by relating either the actual
    costs or actual labor incurred to date to management's estimate of total
    costs or total labor, respectively, to be incurred on each contract. If a
    loss is indicated on any contract in process, a provision is made
    currently for the entire loss. The Company's contracts generally provide
    for customer billing on a cost-plus-fixed-fee basis when certain
    milestones are attained, or monthly, as costs are incurred. Revenues
    earned on contracts in process in excess of billings are included in
    inventories in the accompanying balance sheet and were not material at
    year-end 1996 and 1995. There are no significant amounts included in the
    accompanying balance sheet that are not expected to be recovered from
    existing contracts at current contract values, or that are not expected
    to be collected within one year, including amounts that are billed but
    not paid under retainage provisions.

    Gain on Issuance of Stock by Subsidiaries
        At the time a subsidiary sells its stock to unrelated parties at a
    price in excess of its book value, the Company's net investment in that
    subsidiary increases. If at that time the subsidiary is an operating 

                                       11PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements

                   Notes to Consolidated Financial Statements

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

    entity and not engaged principally in research and development, the
    Company records the increase as a gain.
        If gains have been recognized on issuances of a subsidiary's stock
    and shares of the subsidiary are subsequently repurchased by the
    subsidiary, the Company, or Thermo Electron, gain recognition does not
    occur on issuances subsequent to the date of a repurchase until such time
    as shares have been issued in an amount equivalent to the number of
    repurchased shares. Such transactions are reflected as equity
    transactions and the net effect of these transactions is reflected in the
    accompanying statement of shareholders' investment as "Effect of
    majority-owned subsidiaries' equity transactions."

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

    Income Taxes
        In accordance with 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
        Earnings per share has been computed based on the weighted average
    number of shares outstanding during the year. Weighted average shares in
    1996 includes the effect of common stock equivalents, which represent the
    assumed conversion of the Company's noninterest-bearing subordinated
    convertible debentures and the assumed exercise of stock options that
    were computed using the treasury stock method. Because the effect of the
    assumed exercise of stock options would be immaterial in 1995 and 1994,
    they have been excluded from the earnings per share calculation. Fully
    diluted earnings per share has not been presented because the effect of
    the assumed exercise of stock options and the assumed conversion of the
    Company's interest-bearing subordinated convertible debentures would be
    immaterial.

    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.

                                       12PAGE
<PAGE>
   Thermedics Inc.                                   1996 Financial Statements

                   Notes to Consolidated Financial Statements

   2.  Available-for-sale Investments

        Effective January 2, 1994, the Company adopted SFAS No. 115,
   "Accounting for Certain Investments in Debt and Equity Securities." In
   accordance with SFAS No. 115, the Company's debt securities are considered
   available-for-sale investments in the accompanying balance sheet and are
   carried at market value, with the difference between cost and market value,
   net of related tax effects, recorded currently as a component of
   shareholders' investment titled "Net unrealized gain (loss) on
   available-for-sale investments." Effect of change in accounting principle
   in the accompanying 1994 statement of shareholders' investment represents
   the unrealized gain, net of related tax effects, pertaining to
   available-for-sale investments held by the Company on January 2, 1994.
        The aggregate market value, cost basis, and gross unrealized gains and
   losses of short- and long-term available-for-sale investments by major
   security type, as of December 28, 1996, and December 30, 1995, are as
   follows:

                                                           Gross        Gross
                                    Market       Cost Unrealized   Unrealized
   (In thousands)                    Value      Basis      Gains       Losses
   --------------------------------------------------------------------------
   1996

   Government agency securities  $ 86,403   $ 86,412    $      7     $    (16)
   Corporate bonds                  6,806      6,634         172            -
   Money market preferred stock     1,060      1,071           -          (11)
   Other                            4,705      4,762           -          (57)
                                 --------   --------    --------     --------
                                 $ 98,974   $ 98,879    $    179     $    (84)
                                 ========   ========    ========     ========

   1995

   Government agency securities  $ 99,373   $ 98,434    $  1,020    $     (81)
   Corporate bonds                 10,612     10,169         454          (11)
   Money market preferred stock     6,297      6,287          28          (18)
   Other                            1,587      1,587           -            -
                                 --------   --------    --------     --------
                                     
                                 $117,869   $116,477    $  1,502     $   (110)
                                 ========   ========    ========     ========

       Short- and long-term available-for-sale investments in the accompanying
   1996 balance sheet include $59,457,000 with contractual maturities of one
   year or less, $38,667,000 with contractual maturities of more than one year
   through five years, and $850,000 with contractual maturities of more than
   five years. Actual maturities may differ from contractual maturities as a
   result of the Company's intent to sell these securities prior to maturity
   and as a result of put and call options that enable either the Company, the
   issuer, or both to redeem these securities at an earlier date.

                                       13PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements

                   Notes to Consolidated Financial Statements

    2.  Available-for-sale Investments (continued)

        The cost of available-for-sale investments that were sold was based
    on specific identification in determining realized gains recorded in the
    accompanying statement of income. Gain on sale of investments, net,
    resulted from gross realized gains of $1,086,000, $439,000, and $241,000
    and gross realized losses of $130,000, $18,000, and $38,000 in 1996,
    1995, and 1994, respectively, relating to the sale of available-for-sale
    investments.

    3.  Acquisitions

        In December 1996, Thermo Cardiosystems acquired substantially all of
    the assets, subject to certain liabilities, of Nimbus Medical, Inc.
    (Nimbus), a research and development organization specializing in
    ventricular-assist devices and total artificial hearts, for $5,013,000 in
    cash. Nimbus is engaged strictly in research and development activities
    and, through its acquisition date, had not completed development of any
    commercial products for which it retains ownership rights. Nimbus' assets
    acquired by Thermo Cardiosystems included certain technology in
    development. The feasibility of the technology in development had not
    been conclusively established at the acquisition date and such technology
    had no future use other than in potential future generations of
    heart-assist devices or in total artificial hearts. In connection with
    the acquisition of Nimbus, Thermo Cardiosystems wrote off $4,909,000,
    which represents the portion of the purchase price allocated to
    technology in development based on estimated replacement cost.
        In January 1996, Thermedics Detection acquired the assets and certain
    liabilities of Moisture Systems Corporation and certain affiliated
    companies (collectively, Moisture Systems), and the stock of Rutter & Co.
    B.V. (Rutter) for a total purchase price of $21,668,000 in cash, which
    included the repayment of $700,000 of debt. In connection with these
    acquisitions, the Company borrowed $15,000,000 from Thermo Electron
    pursuant to a promissory note due March 1997, and bearing interest at the
    90-day Commercial Paper Composite Rate plus 25 basis points, set at the
    beginning of each quarter. The Company repaid the $15,000,000 promissory
    note to Thermo Electron in September 1996 (Note 7). Moisture Systems and
    Rutter design, manufacture, and sell instruments that use near-infrared
    spectroscopy to measure moisture and other product components. During
    1996, the Company's majority-owned subsidiaries made other acquisitions
    for $15,501,000 in cash, subject to post-closing adjustments, as
    applicable.
        In December 1995, the Company acquired the Orion laboratory products
    division (Orion) of Analytical Technology, Inc. for $52,724,000 in cash,
    which included the repayment of $8,585,000 of debt. To partially finance
    this acquisition, the Company borrowed $38,000,000 from Thermo Electron
    pursuant to a promissory note due December 1996, and bearing interest at
    the 90-day Commercial Paper Composite Rate plus 25 basis points. The
    balance of the purchase price was funded from the Company's working
    capital. The Company repaid the $38,000,000 promissory note to Thermo
    Electron in September 1996 (Note 7). Orion manufactures

                                       14PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements

                   Notes to Consolidated Financial Statements

    3.  Acquisitions (continued)

    electrochemistry, microweighing, process, and other instruments used to
    analyze the chemical composition of food, beverage, and pharmaceutical
    products and detect contaminants in high-purity water. In 1995, one of
    the Company's majority-owned subsidiaries made an acquisition for
    $3,755,000 in cash.
        In March 1994, the Company acquired substantially all of the assets,
    subject to certain liabilities, of Ramsey Technology, Inc. (Ramsey), a
    business of Baker Hughes Incorporated, for a cash purchase price of
    $41,872,000. In January 1996, Ramsey was contributed by the Company to
    its newly formed Thermo Sentron subsidiary in exchange for shares of
    Thermo Sentron common stock. Thermo Sentron designs, develops,
    manufactures, and sells high-speed precision weighing and inspection
    equipment for industrial production and packaging lines. In 1994, the
    Company and one of its majority-owned subsidiaries made other
    acquisitions for an aggregate of $2,871,000 in cash.
        These acquisitions have been accounted for using the purchase method
    of accounting, and their results of operations have been included in the
    accompanying financial statements from their respective dates of
    acquisition. The aggregate cost of these acquisitions exceeded the
    estimated fair value of the acquired net assets by $111,826,000, which is
    being amortized over periods not exceeding 40 years. Allocation of the
    purchase price for these acquisitions was based on estimates of the fair
    value of the net assets acquired and, for acquisitions completed in 1996,
    is subject to adjustment upon finalization of the purchase price
    allocation.
        Based on unaudited data, the following table presents selected
    financial information on a pro forma basis, assuming the Company, Thermo
    Sentron, and Orion had been combined since the beginning of 1994. The
    effect of the acquisitions not included in the pro forma data was not
    material to the Company's results of operations.

    (In thousands except per share amounts)                    1995      1994
    -------------------------------------------------------------------------
    Revenues                                               $218,920  $212,392
    Net income                                               17,186    12,821
    Earnings per share                                          .51       .39

        The pro forma results are not necessarily indicative of future
    operations or the actual results that would have occurred had the
    acquisitions been made at the beginning of 1994.

    4.  Employee Benefit Plans

    Stock-based Compensation Plans

    Stock Option Plans
    ------------------
        The Company has stock-based compensation plans for its key employees,
    directors, and others. Two of these plans, adopted in 1983, permitted the
    grant of nonqualified and incentive stock options. These plans expired
    during 1993. A third plan, adopted in 1993, permits the grant of a
                                       15PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements

                   Notes to Consolidated Financial Statements

    4.  Employee Benefit Plans (continued)

    variety of stock and stock-based awards as determined by the human
    resources committee of the Company's Board of Directors (the Board
    Committee), including restricted stock, stock options, stock bonus
    shares, or performance-based shares. To date, only nonqualified stock
    options have been awarded under this plan. The option recipients and the
    terms of options granted under this plan are determined by the Board
    Committee. Generally, options granted to date are exercisable
    immediately, but are subject to certain transfer restrictions and the
    right of the Company to repurchase shares issued upon exercise of the
    options at the exercise price, upon certain events. The restrictions and
    repurchase rights generally lapse ratably over a five to ten year period,
    depending on the term of the option, which may range from seven 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, adopted in 1991,
    that provides for the grant of stock options to outside directors
    pursuant to a formula approved by the Company's shareholders. Options
    awarded under this plan are exercisable six months after the date of
    grant and expire three or seven years after the date of grant. In
    addition to the Company's stock-based compensation plans, certain
    officers and key employees may also participate in stock-based
    compensation plans of Thermo Electron.

    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 or its majority-owned public subsidiaries and Thermo
    Electron. Under this program, shares of the Company's or its
    majority-owned public subsidiaries', and shares of Thermo Electron's,
    common stock can be purchased at 95% of the fair market value at the
    beginning of the period, and the shares purchased are subject to a
    six-month resale restriction. Prior to November 1, 1995, the applicable
    shares of common stock could be purchased at the end of a 12-month period
    at 85% of the fair market value at the beginning of the period, and the
    shares purchased were subject to a one-year resale restriction. Shares
    are purchased through payroll deductions of up to 10% of each
    participating employee's gross wages. During 1996, 1995, and 1994, the
    Company issued 9,503 shares, 14,552 shares, and 13,711 shares,
    respectively, of its common stock under this program.

    Pro Forma Stock-based Compensation Expense
        In October 1995, the Financial Accounting Standards Board issued SFAS
    No. 123, "Accounting for Stock-based Compensation," which sets forth a
    fair-value based method of recognizing stock-based compensation expense.
    As permitted by SFAS No. 123, the Company has elected to continue to
    apply APB No. 25 to account for its stock-based compensation plans. Had
    compensation cost for awards granted in 1996 and 1995 under the Company's
    stock-based compensation plans been determined based on the fair value at

                                       16PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements

                   Notes to Consolidated Financial Statements

    4.  Employee Benefit Plans (continued)

    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)                 1996       1995
    -----------------------------------------------------------------------
    Net income:
      As reported                                        $26,831    $15,121
      Pro forma                                           25,653     14,951
    Earnings per share:
      As reported                                            .70        .45
      Pro forma                                              .67        .44

        Because the method prescribed by SFAS No. 123 has not been applied to
    options granted prior to January 1, 1995, the resulting pro forma
    compensation expense may not be representative of the amount to be
    expected in future years. Pro forma compensation expense for options
    granted is reflected over the vesting period; therefore, future pro forma
    compensation expense may be greater as additional options are granted.
        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:

                                                           1996        1995
    -----------------------------------------------------------------------
    Volatility                                              39%         39%
    Risk-free interest rate                               5.70%       6.05%
    Expected life of options                         5.03 years  3.72 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.



                                       17PAGE
<PAGE>
   Thermedics Inc.                                   1996 Financial Statements

                   Notes to Consolidated Financial Statements

   4.  Employee Benefit Plans (continued)

   Stock Option Activity
       A summary of the Company's stock option activity is as follows:

                              1996              1995               1994
                        ----------------  ----------------  -----------------
                               Weighted           Weighted          Range of
                       Number   Average   Number   Average  Number    Option
   (Shares in              of  Exercise       of  Exercise      of    Prices
   thousands)          Shares     Price   Shares     Price  Shares per Share
   --------------------------------------------------------------------------
   Options outstanding,                                              $ 4.70-
     beginning of year  1,557    $12.38    1,773   $12.14    1,669    16.45
                                                                      12.43-
       Granted            303     27.17       27    17.65      366    14.53
                                                                       4.70-
       Exercised         (137)     9.12      (74)    8.16     (195)   10.65
                                                                       5.00-
       Forfeited          (59)    22.42     (169)   12.57      (67)   16.28
                        -----              -----             -----
   Options outstanding,                                              $ 4.70-
     end of year        1,664    $14.99    1,557   $12.38    1,773    16.45
                        =====    ======    =====   ======    =====   ======
                                                                     $ 4.70-
   Options exercisable  1,664    $14.99    1,557   $12.38    1,771    16.45
                        =====    ======    =====   ======    =====   ======
   Options available
     for grant            284                545               457
                        =====              =====             =====
   Weighted average fair
     value per share of
     options granted
     during year                 $11.49            $ 6.50
                                 ======            ======

        A summary of the status of the Company's stock options at December 28,
   1996, is as follows:

                                          Options Outstanding and Exercisable
                                          -----------------------------------
                                                                     Weighted
                                                   Weighted Average   Average
                                           Number         Remaining  Exercise
   Range of Exercise Prices             of Shares  Contractual Life     Price
   --------------------------------------------------------------------------
   (Shares in thousands)

   $ 4.70 - $ 9.03                           458          2.4 years   $ 7.16
     9.04 -  15.93                           319          8.3 years    13.20
    15.94 -  22.83                           642          8.9 years    16.46
    22.84 -  29.73                           245          6.5 years    28.11
                                           -----
   $ 4.70 - $29.73                         1,664          6.6 years   $14.99
                                           =====

                                       18PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements

                   Notes to Consolidated Financial Statements

    4.  Employee Benefit Plans (continued)

    401(k) Savings Plan and Employee Stock Ownership Plan
      The majority of the Company's full-time U.S. employees are eligible to
    participate in Thermo Electron's 401(k) savings plan and, prior to 1995,
    in Thermo Electron's employee stock ownership plan (ESOP). Contributions
    to the 401(k) savings plan are made by both the employee and the Company.
    Company contributions to the 401(k) plan are based upon the level of
    employee contributions. For these plans, the Company contributed and
    charged to expense $1,193,000, $1,011,000, and $942,000 in 1996, 1995,
    and 1994, respectively. Effective December 31, 1994, the ESOP was split
    into two plans: ESOP I, covering employees of Thermo Electron's corporate
    office and its wholly owned subsidiaries, and ESOP II, covering employees
    of certain of Thermo Electron's majority-owned subsidiaries, including
    the Company. Also, effective December 31, 1994, the ESOP II plan was
    terminated and as a result, the Company's employees are no longer
    eligible to participate in an ESOP.

    5.  Income Taxes

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

    (In thousands)                                 1996      1995      1994
    -----------------------------------------------------------------------
    Domestic                                    $35,861   $25,020   $17,761
    Foreign                                       8,050     3,710     1,563
                                                -------   -------   -------
                                                $43,911   $28,730   $19,324
                                                =======   =======   =======

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

    (In thousands)                                 1996      1995      1994
    -----------------------------------------------------------------------
    Currently payable:
      Federal                                   $ 9,837   $ 7,541   $ 5,390
      State                                       1,725     1,546     1,335
      Foreign                                     3,618     1,783       998
                                                -------   -------   -------
                                                 15,180    10,870     7,723
                                                -------   -------   -------
    Net deferred (prepaid):
      Federal                                    (3,913)   (1,373)     (331)
      State                                           3      (343)      (58)
      Foreign                                      (215)        -         -
                                                -------   -------   -------
                                                 (4,125)   (1,716)     (389)
                                                -------   -------   -------
                                                $11,055   $ 9,154   $ 7,334
                                                =======   =======   =======

                                       19PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements

                   Notes to Consolidated Financial Statements

    5.  Income Taxes (continued)

        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 Company's common stock on the date of
    exercise. The provision for income taxes that is currently payable does
    not reflect $3,520,000, $3,935,000, and $668,000 of such benefits of the
    Company and its majority-owned subsidiaries that have been allocated to
    capital in excess of par value, directly or through the effect of
    majority-owned subsidiaries' equity transactions, in 1996, 1995, and
    1994, respectively. The provision for income taxes that is currently
    payable also does not reflect $1,800,000 of tax benefits used to reduce
    cost in excess of net assets of acquired companies in 1996.
        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 minority interest due to the following:

    (In thousands)                                 1996      1995      1994
    -----------------------------------------------------------------------
    Provision for income taxes at
      statutory rate                            $15,369   $10,056   $ 6,763
    Increases (decreases) resulting from:
      Gain on issuance of stock by subsidiaries  (8,278)   (1,206)        -
      Amortization and write-off of cost in
        excess of net assets of acquired
        companies                                 3,256       232       296
      State income taxes, net of federal tax      1,123       782       830
      Reduction in valuation allowance             (684)     (854)        -
      Tax-exempt investment income                  (11)     (115)     (113)
      Tax benefit of foreign sales corporation     (326)     (323)     (833)
      Foreign tax rate and regulation
        differential                               (132)      485       363
      Nondeductible expenses                        228       137        88
      Other, net                                    510       (40)      (60)
                                                -------   -------   -------
                                                $11,055   $ 9,154   $ 7,334
                                                =======   =======   =======


                                       20PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements

                   Notes to Consolidated Financial Statements

   5.  Income Taxes (continued)

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

   (In thousands)                                    1996      1995
   ----------------------------------------------------------------
   Prepaid income taxes:
     Inventory reserves                           $ 1,403   $ 1,926
     Reserves and accruals                          3,433     1,042
     Warranty reserves                                934     1,142
     Tax loss and credit carryforwards                652     2,105
     Accrued compensation                           1,380     1,013
     Allowance for doubtful accounts                1,079       684
     Available-for-sale investments                   308      (116)
     Write-off of acquired technology (Note 3)      1,865         -
     Other, net                                       225       207
                                                  -------   -------
                                                   11,279     8,003
     Less: Valuation allowance                          -     1,516
                                                  -------   -------
                                                  $11,279   $ 6,487
                                                  =======   =======

   Deferred income taxes:
    Trademarks and other intangible assets        $   962   $ 1,627
    Difference in book and tax basis
     of fixed assets                                  288       348
                                                  -------   -------
                                                  $ 1,250   $ 1,975
                                                  =======   =======

       The 1995 valuation allowance primarily related to uncertainty
   surrounding the realization of tax loss and credit carryforwards and
   other tax assets of certain subsidiaries. The elimination of the
   valuation allowance in 1996 is primarily due to reduced uncertainty
   surrounding the realizability of such future tax benefits and was
   recorded in part as a reduction of $684,000 in the 1996 provision for
   income taxes. The remaining decrease in the valuation allowance primarily
   relates to the elimination of related tax loss and credit carryforwards
   due to the inability to obtain a benefit prior to the expiration thereof.
   The provision for income taxes in 1995 was reduced by $854,000 due to a
   decrease in the valuation allowance as a result of reduced uncertainty
   surrounding the realizability of tax assets of certain subsidiaries.
       As of December 28, 1996, federal and state tax assets existed at
   Thermo Voltek that are not consolidated for federal tax purposes. Thermo
   Voltek had federal and state tax net operating loss carryforwards of
   approximately $2,500,000 expiring in 1998 through 2006. The carryforwards
   of Thermo Voltek are limited to a tax benefit of approximately $240,000
   per year under Sections 382 and 383 of the U.S. Internal Revenue Code.
        The Company has not recognized a deferred tax liability for the
   difference between the book basis and tax basis of its investment in the 

                                       21PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements

                   Notes to Consolidated Financial Statements

   5.  Income Taxes (continued)

   common stock of its domestic subsidiaries (such difference relates
   primarily to unremitted earnings and gains on issuance of stock by
   subsidiaries) because the Company does not expect this basis difference
   to become subject to tax at the parent level. The Company believes it can
   implement certain tax strategies to recover its investment in its
   domestic subsidiaries tax-free.
       A provision has not been made for U.S. or additional foreign taxes on
   $8,041,000 of undistributed earnings of foreign subsidiaries that could
   be subject to taxation if remitted to the U.S. because the Company
   currently plans to keep these amounts permanently reinvested overseas.
   The Company believes that any additional U.S. tax liability due upon
   remittance of such earnings would be immaterial due to available U.S.
   foreign tax credits.

   6.  Commitments

       The Company and its subsidiaries lease various office and
   manufacturing facilities under noncancellable operating lease
   arrangements expiring from 1997 through 2003. The accompanying statement
   of income includes expenses from operating leases of $5,501,000,
   $3,403,000, and $2,081,000 in 1996, 1995, and 1994, respectively. Future
   minimum payments due under noncancellable operating leases as of December
   28, 1996, are $4,221,000 in 1997; $3,806,000 in 1998; $2,918,000 in 1999;
   $2,433,000 in 2000; $1,892,000 in 2001; and $7,542,000 in 2002 and
   thereafter. Total future minimum lease payments are $22,812,000.

   7.   Short- and Long-term Obligations and Other Financing Arrangements

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

   (In thousands except per share amounts)                  1996       1995
   ------------------------------------------------------------------------
   Noninterest-bearing subordinated convertible notes,
     due 2003, convertible at $32.68 per share           $65,000    $     -
   6 1/2% Subordinated convertible debentures,
     due 1998, convertible at $10.42 per share                 -      8,037
   3 3/4% Subordinated convertible debentures,
     due 2000, convertible into shares of
     Thermo Voltek at $7.83 per share                      9,345     25,240
   Noninterest-bearing subordinated convertible
     debentures, due 1997, convertible into shares
     of Thermo Cardiosystems at $14.49 per share           3,755     11,642
   Other                                                      14        282
                                                         -------    -------
                                                          78,114     45,201
   Less: Current maturity of long-term obligation          3,755          -
                                                         -------    -------
                                                         $74,359    $45,201
                                                         =======    =======

                                       22PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements

                   Notes to Consolidated Financial Statements

   7.  Short- and Long-term Obligations and Other Financing Arrangements
       (continued)

       In February 1996, the Company called for redemption on March 11,
   1996, all of the outstanding principal amount of its 6 1/2% subordinated
   convertible debentures due 1998. Approximately $7,780,000 of the
   outstanding principal amount of the debentures was converted into the
   Company's common stock.
       The Company's convertible obligations are guaranteed on a
   subordinated basis by Thermo Electron. The Company has agreed to
   reimburse Thermo Electron in the event Thermo Electron is required to
   make a payment under its guarantee of Thermo Voltek's or Thermo
   Cardiosystems' obligations. 
       In lieu of issuing shares of Thermo Voltek common stock upon the
   conversion of the 3 3/4% subordinated convertible debentures due 2000,
   Thermo Voltek has the option to pay holders of the debentures cash equal
   to the weighted average market price of its common stock on the trading
   date prior to conversion.
       During 1996, 1995, and 1994, convertible obligations of $31,562,000,
   $37,317,000, and $9,745,000, respectively, were converted into common
   stock of the Company or its subsidiaries.
       See Note 12 for fair value information pertaining to the Company's
   long-term obligations.

   Short-term Obligations and Other Financing Arrangements
       In September 1996, the Company repaid its $15,000,000 and $38,000,000
   million promissory notes to Thermo Electron with proceeds from its 1996
   issuance of $65,000,000 principal amount of noninterest-bearing
   subordinated convertible debentures.
       Several of the Company's foreign subsidiaries have lines of credit
   under which an aggregate of $17,344,000 may be borrowed at a current rate
   as determined by each country's local market. The lines of credit are
   denominated in local currency. Unused lines of credit were $12,178,000 as
   of December 28, 1996. Amounts borrowed under these agreements are
   included in notes payable and current maturity of long-term obligation in
   the accompanying balance sheet and are guaranteed by either the Company
   or Thermo Electron. The weighted average interest rate on these
   borrowings was 6.3% and 8.5% at year-end 1996 and 1995, respectively.

   8.  Related Party Transactions

   Corporate Services Agreement
       The Company and Thermo Electron have a corporate services agreement
   under which Thermo Electron's corporate staff provides certain
   administrative services, including certain legal advice and services,
   risk management, certain employee benefit administration, tax advice and
   preparation of tax returns, centralized cash management, and certain
   financial and other services, for which the Company pays Thermo Electron
   annually an amount equal to 1.0% of the Company's revenues. The Company
   paid Thermo Electron an amount equal to 1.20% and 1.25% of the Company's
   revenues in 1995 and 1994, respectively. The annual fee is reviewed and
   adjusted annually by mutual agreement of the parties. The corporate

                                       23PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements

                   Notes to Consolidated Financial Statements

   8.  Related Party Transactions (continued)

   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 relationships among Thermo Electron and its
   majority-owned subsidiaries). In addition, the Company uses data
   processing and contract administration services of two majority-owned
   subsidiaries of Thermo Electron, and is charged based on actual usage.
   For these services, as well as the administrative services provided by
   Thermo Electron, the Company was charged $2,613,000, $2,142,000, and
   $1,964,000 in 1996, 1995, and 1994, respectively. Management believes
   that the service fees charged by Thermo Electron and its subsidiaries are
   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.

   Distribution Agreements
       Pursuant to an international distributorship agreement, Thermedics
   Detection appointed Arabian Business Machines Co. (ABM) as its exclusive
   distributor of the Company's security instruments in certain Middle
   Eastern countries. ABM is a member of The Olayan Group. Ms. Hutham S.
   Olayan, a director of Thermo Electron, is the president and a director of
   Olayan America Corporation and Competrol Real Estate Limited, two other
   members of The Olayan Group, which are indirectly controlled by Suliman
   S. Olayan, Ms. Olayan's father. Revenues recorded under this agreement
   totaled $652,000, $3,000, and $42,000 in 1996, 1995, and 1994,
   respectively. In addition, during 1994, the Company sold $1,240,000 of
   security instruments directly to a customer in the Middle East and paid a
   commission of $409,000 pursuant to the ABM distributor agreement.

   Management Contract
       Two executive employees of the Company allocate a portion of their
   salary, bonus, and travel expenses for the time they devote to Thermo
   Electron in connection with certain management responsibilities relating
   to International Technidyne Corporation (ITC), a wholly owned subsidiary
   of Thermo Electron, as well as Thermo Electron's other biomedical
   businesses. In 1996, 1995, and 1994, the Company was reimbursed $707,000,
   $402,000, and $84,000, respectively, under this arrangement.

   Repurchase Agreement

       The Company invests excess cash in a repurchase agreement with Thermo
   Electron as discussed in Note 1.
   Short-term Available-for-sale Investments
        As of December 28, 1996, and December 30, 1995, the Company's
   short-term available-for-sale investments included $1,937,000 and
   $2,100,000 (amortized cost of $1,846,000 and $1,844,000), respectively,
   of 6 1/2% subordinated convertible debentures due 1997, which were
   purchased on the open market. The debentures have a par value of
   $1,800,000 and were issued by Thermo TerraTech Inc., a majority-owned
   subsidiary of Thermo Electron.
                                       24PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements

                   Notes to Consolidated Financial Statements

   8.   Related Party Transactions (continued)

   Common Stock
        In January and April 1996, the Company issued an aggregate of
   1,987,273 shares of its common stock to Thermo Electron in exchange for
   634,049 shares of common stock of Thermo Voltek and 929,947 shares of
   common stock of Thermo Cardiosystems. The shares of common stock were
   exchanged at their respective fair market values on the dates of the
   transactions.
        During 1994, the Company issued 66,265 shares of its common stock
   to Thermo Electron in exchange for 187,200 shares of Thermo Voltek common
   stock.
        Share information for Thermo Cardiosystems and Thermo Voltek has
   been restated to reflect three-for-two stock splits, effected in the form
   of 50% stock dividends, distributed in May 1996 and August 1996,
   respectively.

   9.   Contingency

        Thermo Cardiosystems has received correspondence alleging that the
   textured surface of the left ventricular-assist system's (LVAS) housing
   infringed the intellectual property rights of another party. In general,
   an owner of intellectual property can prevent others from using such
   property without a license and is entitled to damages for unauthorized
   past usage. The Company has investigated the bases of the allegation and,
   based on the opinion of its counsel, believes that if Thermo
   Cardiosystems were sued on these bases, it would have meritorious
   defenses. 

   10.  Common Stock

        At December 28, 1996, the Company had reserved 4,030,200 unissued
   shares of its common stock for possible issuance under stock-based
   compensation plans and possible issuance upon conversion of the
   noninterest-bearing subordinated convertible debentures.

   11.  Transactions in Stock of Subsidiaries

        In March 1996, Thermedics Detection issued 300,000 shares of its
   common stock, at $10.00 per share, in a private placement for net
   proceeds of $3,000,000, resulting in a gain of $2,516,000. In November
   1996, Thermedics Detection issued 383,500 shares of its common stock, at
   $10.75 per share, in a private placement for net proceeds of $3,964,000,
   resulting in a gain of $3,165,000.
        In April 1996, the Company's Thermo Sentron subsidiary issued
   2,875,000 shares of its common stock, at $16.00 per share, in an initial
   public offering for net proceeds of $42,335,000, resulting in a gain of
   $17,970,000.
        During 1995, $9,111,000 principal amount of Thermo Voltek's
   subordinated convertible debentures was converted into 1,163,098 shares
   of Thermo Voltek common stock, resulting in a gain of $3,455,000.

                                       25PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements

                   Notes to Consolidated Financial Statements

   11.  Transactions in Stock of Subsidiaries (continued)
        During 1996 and 1995, a large portion of Thermo Cardiosystems'
   subordinated convertible obligations was converted into shares of Thermo
   Cardiosystems common stock. No gains were recorded on the conversions of
   these convertible obligations as Thermo Cardiosystems was principally
   engaged in research and development at the time the convertible
   obligations were issued.

   12.  Fair Value of Financial Instruments

        The Company's financial instruments consist mainly of cash and cash
   equivalents, available-for-sale investments, accounts receivable, notes
   payable and current maturity of long-term obligation, accounts payable,
   due to parent company, and long-term obligations. The carrying amounts of
   these financial instruments, with the exception of available-for-sale
   investments, current maturity of long-term obligation, and long-term
   obligations, approximates fair value due to their short-term nature.
        Available-for-sale investments are carried at fair value in the
   accompanying balance sheet. The fair values were determined based on
   quoted market prices. See Note 2 for fair value information pertaining to
   these financial instruments.
        The fair value of short- and long-term obligations was determined
   based on quoted market prices. The fair value of convertible obligations
   at year-end 1995 exceeds the carrying amount primarily due to the market
   price of the Company's or subsidiaries' common stock exceeding the
   conversion price of the convertible obligations. The carrying amount and
   fair value of the Company's short- and long-term obligations are as
   follows:
                                     1996                     1995
                             --------------------     --------------------
                             Carrying       Fair      Carrying        Fair
   (In thousands)              Amount      Value        Amount       Value
   -----------------------------------------------------------------------
   Current maturity of
     long-term
     obligation               $ 3,755     $ 7,435      $     -     $     -
                              =======     =======      =======     =======
   Convertible
     obligations              $74,345     $62,666      $44,919     $95,589
   Other long-term
     obligations                   14          14          282         282
                              -------     -------      -------     -------
                              $74,359     $62,680      $45,201     $95,871
                              =======     =======      =======     =======

   13.  Nonrecurring Costs

        The Company recorded nonrecurring costs of $12,728,000 in 1996 for
   the write-off of cost in excess of net assets of acquired company and
   certain other intangible assets associated with its Corpak subsidiary.
   The primary growth focus of the Company's biomedical products segment has
   become technology for improved product quality and implantable left
   ventricular-assist systems. The Company no longer expects to reinvest in
   its enteral nutrition-delivery business. The Company's analysis indicates
                                       26PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements

                   Notes to Consolidated Financial Statements

   13.  Nonrecurring Costs (continued)

   that the expected future undiscounted cash flow from this business would
   be insufficient to recover the Company's investment.
        In 1996, the Company wrote off $4,909,000 of acquired technology
   associated with the acquisition of Nimbus by Thermo Cardiosystems (Note
   3).

   14.  Business Segments, Geographical Information, and Concentrations
        of Risk

        The Company's principal businesses can be divided into two
   segments. The Company's Instruments and Other Equipment segment develops,
   manufactures, sells, and distributes precision equipment that weighs and
   inspects bulk materials and packaged goods; electrochemistry,
   microweighing, and other laboratory instruments; process detection
   instruments; explosives-detection instruments; instruments that test
   electronic and electrical systems and components for immunity to
   electromagnetic interference; high-voltage power-conversion systems; and
   programmable power amplifiers. The Company's Biomedical Products segment
   develops, manufactures, and sells LVAS and other biomedical products.
        The Company's Instruments and Other Equipment segment derived
   revenues from precision weighing and inspection equipment of $70,027,000,
   $67,474,000 and $50,116,000 in 1996, 1995, and 1994, respectively, and
   from laboratory products of $50,854,000 in 1996. In addition, this
   segment derived revenues from process detection instruments of
   $16,032,000, $18,488,000, and $38,001,000, and from electronic test
   instruments of $44,081,000, $31,580,000, and $19,009,000 in 1996, 1995,
   and 1994, respectively.
        The Company's Biomedical Products segment derived revenues from
   LVAS devices of $29,970,000, $20,593,000, and $10,409,000 in 1996, 1995,
   and 1994, respectively.
        Certain raw materials used in the manufacture of Thermo
   Cardiosystems' LVAS are available from only one or two suppliers. Thermo
   Cardiosystems is making efforts to minimize the risks associated with
   sole sources and ensure long-term availability, including qualifying
   certain other alternative materials and components or developing
   alternative sources for materials or components supplied by a single
   source. Although the Company believes that it has adequate supplies of
   materials and components to meet demand for the LVAS for the foreseeable
   future, no assurance can be given that the Company will not experience
   shortages of certain materials or components in the future that could
   delay shipments of the LVAS.

                                       27PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements

                   Notes to Consolidated Financial Statements

   14.  Business Segments, Geographical Information, and Concentrations
        of Risk (continued)

        No customer accounted for 10% or more of the Company's total
   revenues in 1996 and 1995. During 1994, revenues derived from one
   customer accounted for 21% of the Company's total revenues.

   (In thousands)                                  1996      1995      1994
   ------------------------------------------------------------------------
   Business Segment Information

   Revenues:
       Instruments and Other Equipment         $213,138  $136,742  $124,100
       Biomedical Products                       44,947    39,012    31,011
                                               --------  --------  --------
                                               $258,085  $175,754  $155,111
                                               ========  ========  ========

   Income before provision for income
     taxes and minority interest:
       Instruments and Other Equipment         $ 22,725  $ 14,778  $ 16,054
       Biomedical Products                       (8,304)    7,128     1,337
       Corporate (a)                             (2,112)   (2,462)   (3,056)
                                               --------  --------  --------
       Total operating income                    12,309    19,444    14,335
       Interest and other income, net            31,602     9,286     4,989
                                               --------  --------  --------
                                               $ 43,911  $ 28,730  $ 19,324
                                               ========  ========  ========

   Identifiable assets:
       Instruments and Other Equipment         $297,141  $213,755  $141,763
       Biomedical Products                      115,191   128,170   117,475
       Corporate (b)                             26,510    26,225    32,329
                                               --------  --------  --------
                                               $438,842  $368,150  $291,567
                                               ========  ========  ========

   Depreciation and amortization:
       Instruments and Other Equipment         $  7,304  $  4,040  $  2,923
       Biomedical Products                        1,808     1,609     1,256
       Corporate                                     12        29        29
                                               --------  --------  --------
                                               $  9,124  $  5,678  $  4,208
                                               ========  ========  ========
   Capital expenditures:
       Instruments and Other Equipment         $  5,185  $  2,669  $  1,919
       Biomedical Products                        1,787     1,715     1,278
       Corporate                                      -        23        23
                                               --------  --------  --------
                                               $  6,972  $  4,407  $  3,220
                                               ========  ========  ========

                                       28PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements

                   Notes to Consolidated Financial Statements

   14.  Business Segments, Geographical Information, and Concentrations
        of Risk (continued)


   (In thousands)                                  1996      1995      1994
   ------------------------------------------------------------------------
   Geographical Information

   Revenues:
       United States                           $193,458  $127,729  $121,351
       Europe                                    62,955    43,018    31,640
       Other                                     14,420    13,084    12,594
       Transfers among geographical areas (c)   (12,748)   (8,077)  (10,474)
                                               --------  --------  --------
                                               $258,085  $175,754  $155,111
                                               ========  ========  ========
   Income before provision for income 
     taxes and minority interest:
       United States                           $  5,552  $ 17,124  $ 15,292
       Europe                                     7,091     3,170     1,040
       Other                                      1,778     1,612     1,059
       Corporate (a)                             (2,112)   (2,462)   (3,056)
                                               --------  --------  --------
       Total operating income                    12,309    19,444    14,335
       Interest and other income, net            31,602     9,286     4,989
                                               --------  --------  --------
                                               $ 43,911  $ 28,730  $ 19,324
                                               ========  ========  ========
   Identifiable assets:
       United States                           $354,083  $301,613  $225,569
       Europe                                    50,762    33,259    27,361
       Other                                      7,487     7,053     6,308
       Corporate (b)                             26,510    26,225    32,329
                                               --------  --------  --------
                                               $438,842  $368,150  $291,567
                                               ========  ========  ========
   Export revenues included in United States
     revenues above (d):
       Europe                                  $ 21,700  $ 17,748  $ 21,455
       Other                                     38,497    22,378    34,149
                                               --------  --------  --------
                                               $ 60,197  $ 40,126  $ 55,604
                                               ========  ========  ========

   (a) Primarily general and administrative expenses.
   (b) Primarily cash, cash equivalents, and short- and long-term
       available-for-sale investments.
   (c) Transfers among geographical areas are accounted for at prices that
       are representative of transactions with unaffiliated parties.
   (d) In general, export sales are denominated in U.S. dollars.


                                       29PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements

                   Notes to Consolidated Financial Statements

   15.  Unaudited Quarterly Information

   (In thousands except per share amounts)

   1996(a)                    First(b)    Second       Third       Fourth
   ----------------------------------------------------------------------
   Revenues                 $60,282      $62,630     $65,712      $69,461
   Gross profit              28,563       29,653      32,885       34,088
   Net income                 4,753        9,174       5,767        7,137
   Earnings per share           .13          .24         .15          .18


   1995                       First       Second       Third       Fourth(c)

   Revenues                 $43,858      $43,268     $41,224      $47,404
   Gross profit              19,572       19,553      17,595       21,744
   Net income                 3,262        3,666       4,017        4,176
   Earnings per share           .10          .11         .12          .12

   (a) Results include nontaxable gains of $2,516,000, $17,970,000, and
       $3,165,000 in the first, second, and fourth quarters, respectively,
       from the issuance of stock by subsidiaries. 
   (b) Reflects the January 1996 acquisition of Moisture Systems and Rutter.
   (c) Reflects the December 1995 acquisition of Orion.





                                       30PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements

                    Report of Independent Public Accountants

    To the Shareholders and Board of Directors of Thermedics Inc.:

        We have audited the accompanying consolidated balance sheet of
    Thermedics Inc. (a Massachusetts corporation and 55%-owned subsidiary of
    Thermo Electron Corporation) and subsidiaries as of December 28, 1996,
    and December 30, 1995, and the related consolidated statements of income,
    shareholders' investment, and cash flows for each of the three years in
    the period ended December 28, 1996. 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 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
    Thermedics Inc. and subsidiaries as of December 28, 1996, and December
    30, 1995, and the results of their operations and their cash flows for
    each of the three years in the period ended December 28, 1996, in
    conformity with generally accepted accounting principles.



                                            Arthur Andersen LLP



    Boston, Massachusetts
    February 6, 1997




                                       31PAGE
<PAGE>
    Thermedics Inc.                                 1996 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
    caption "Forward-looking Statements."
    
    Overview

        The Company's business can be divided into two segments: Instruments
    and Other Equipment, and Biomedical Products. The Instruments and Other
    Equipment segment includes the Company's Thermo Sentron Inc. (Thermo
    Sentron) subsidiary, which designs, develops, manufactures, and sells
    high-speed precision weighing and inspection equipment for industrial
    production and packaging lines; its Orion laboratory products division
    (Orion), which manufactures electrochemistry, microweighing, process, and
    other instruments used to analyze the chemical compositions of foods,
    beverages, and pharmaceuticals and to detect contaminants in high-purity
    water; its Thermedics Detection Inc. (Thermedics Detection) subsidiary,
    which develops, manufactures, and markets high-speed, on-line detection
    instruments used in a variety of industrial process applications,
    explosives detection, and laboratory analysis; and its Thermo Voltek
    Corp. (Thermo Voltek) subsidiary, which manufactures electromagnetic
    compatibility testing instruments, high-voltage power-conversion systems,
    and programmable power amplifiers.
        As part of its Biomedical Products segment, the Company's Thermo
    Cardiosystems Inc. (Thermo Cardiosystems) subsidiary manufactures
    implantable left ventricular-assist systems (LVAS). Thermo Cardiosystems'
    electric LVAS is being used in Europe as a bridge to transplant and as an
    alternative to medical therapy. According to terms set by the U.S. Food
    and Drug Administration (FDA), no profit can be earned from the sale of
    an LVAS in the U.S. until the FDA has approved the device for commercial
    sale. With the FDA's approval, the Company began earning a profit on the
    sale of its air-driven LVAS in the fourth quarter of 1994. Until FDA
    approval has been obtained, the Company may not earn a profit on the sale
    in the U.S. of other products, such as the electric LVAS, currently used
    in clinical studies. The Company also develops and manufactures enteral
    nutrition delivery systems and a line of medical-grade polymers used in
    medical disposables and nonmedical, industrial applications, including
    safety glass and automotive coatings.
        Approximately 48% of the Company's revenues in 1996 were derived from
    sales of products outside of the U.S., through export sales and sales by
    the Company's foreign subsidiaries. The Company expects an increase in
    the percentage of revenues derived from international operations.
    Although the Company seeks to charge its customers in the same currency
    as its operating costs, the Company's financial performance and
                                       32PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements

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

    Overview (continued)

    competitive position can be affected by currency exchange rate
    fluctuations between the U.S. dollar and foreign currencies. Where
    appropriate, the Company uses forward contracts to reduce its exposure to
    currency fluctuations.

    Results of Operations

    1996 Compared With 1995
        Total revenues increased 47% to $258.1 million in 1996 from $175.8
    million in 1995. Instruments and Other Equipment segment revenues
    increased to $213.1 million in 1996 from $136.7 million in 1995,
    primarily due to the inclusion of $73.5 million in revenues from acquired
    businesses (Note 3), principally Orion, acquired in December 1995,
    Moisture Systems Corporation (Moisture Systems) and Rutter & Co. B.V.
    (Rutter), acquired by Thermedics Detection in January 1996 and, to a
    lesser extent, acquisitions by Thermo Sentron and Thermo Voltek.
    Thermedics Detection's process detection instrument sales to the beverage
    industry declined to $16.0 million in 1996 from $18.5 million in 1995,
    primarily due to a decrease in product demand from Thermedics Detection's
    principal customer, which has substantially completed its initial
    deployment of Alexus systems. Revenues from Thermedics Detection's
    explosives-detection systems increased to $7.1 million in 1996 from $4.6
    million in 1995, primarily due to the sale of eight EGIS units to the
    U.S. government to provide counter-terrorism support in Israel. Revenues
    from Thermo Voltek increased $12.2 million to $48.5 million in 1996 due
    in part to an increase in revenues at its Comtest subsidiary from sales
    of electrostatic-discharge test equipment and its introduction of a new
    product line in 1995. In addition, Thermo Voltek's revenues increased due
    to the inclusion of $3.0 million in revenues from Pacific Power Source
    Corporation, acquired in July 1996, and increased demand for
    electromagnetic compatibility test equipment at its Keytek division.
        Biomedical Products segment revenues increased to $44.9 million in
    1996 from $39.0 million in 1995. Revenues from Thermo Cardiosystems
    increased $9.4 million to $30.0 million in 1996, primarily due to a 61%
    increase in the number of air-driven and electric LVAS units shipped for
    subsequent implant and a 30% increase in the number of LVAS
    implementation programs sold during 1996. This increase was offset in
    part by a decline of $4.3 million in revenues from Scent Seal fragrance
    samplers. In June 1995, the Company entered into an agreement with a
    third party granting an exclusive license to all of its patents and
    know-how relating to the Scent Seal fragrance samplers to a third party
    in consideration for royalty payments on future sales by the licensee.
    The Company recorded royalty income of $426,000 in 1996 and $197,000 in
    1995 related to this agreement. The Company expects that shipments of
    LVAS will stabilize at current levels until the electric LVAS is approved
    for commercial sale in the U.S. and for use outside the hospital. The
    Company believes that this approval could occur during 1997, however,
    there can be no assurance that the Company will receive this approval
    within the expected time period or at all.

                                       33PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements

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

    1996 Compared With 1995 (continued)
        The gross profit margin was 49% in 1996, compared with 45% in 1995.
    The gross profit margin for the Instruments and Other Equipment segment
    increased to 48% in 1996 from 43% in 1995, primarily due to the inclusion
    of higher-margin revenues at Orion, Moisture Systems, and Rutter.
        The gross profit margin for the Biomedical Products segment increased
    to 52% in 1996 from 49% in 1995, primarily due to an increase in revenues
    at Thermo Cardiosystems from higher-margin implementation programs, an
    increase in sales volume and, to a lesser extent, improvements in
    manufacturing efficiencies. These increases were offset in part by
    inventory write-offs at the Company's Corpak subsidiary associated with
    discontinued product lines. In addition, 1995 included lower-margin
    revenues from the sale of Scent Seal fragrance samplers.
        Selling, general, and administrative expenses as a percentage of
    revenues increased to 30% in 1996 from 27% in 1995, primarily due to
    higher expenses as a percentage of revenues at Orion, Moisture Systems,
    and Rutter and, to a lesser extent, costs incurred by Thermedics
    Detection related to a reduction in personnel and leased space in
    response to the lower sales volume of process detection instruments to
    the beverage industry.
        Research and development expenses as a percentage of revenues
    increased to 6.9% in 1996 from 6.3% in 1995, primarily due to increased
    research and development expenses at Thermedics Detection. The Company
    does not expect research and development expenses to increase as a result
    of Thermo Cardiosystems' acquisition of Nimbus Medical, Inc. (Nimbus)
    (Note 3), as most of Nimbus' research and development costs have
    historically been externally funded through government contracts.
        The primary growth focus of the Company's Biomedical Products segment
    has become technology for improved product quality and implantable LVAS.
    The Company no longer expects to reinvest in its enteral
    nutrition-delivery business. The Company's analysis indicates that the
    expected future undiscounted cash flow from this business will be
    insufficient to recover the Company's investment. Accordingly, in 1996,
    the Company recorded nonrecurring costs of $12.7 million for the
    write-off of cost in excess of net assets of acquired company and certain
    other intangible assets associated with its Corpak subsidiary. In
    addition, in connection with the December 1996 acquisition of Nimbus, the
    Company wrote off $4.9 million, which represents the portion of the
    purchase price allocated to technology in development based on estimated
    replacement cost (Note 3).
        Interest income increased to $10.8 million in 1996 from $9.1 million
    in 1995, primarily due to interest income earned on invested proceeds
    from the Company's May 1996 issuance of $65.0 million principal amount of
    noninterest-bearing subordinated convertible debentures and Thermo
    Sentron's April 1996 initial public offering of common stock. These
    increases were offset in part by cash used for the repayment of an
    aggregate of $53.0 million of promissory notes to Thermo Electron
    Corporation (Thermo Electron) (Note 3). Interest expense increased to
    $3.8 million in 1996 from $3.7 million in 1995, as a result of additional
    borrowings by the Company to fund acquisitions, largely offset by a
    decrease in interest expense due to conversions of the Company's and its
    subsidiaries' subordinated convertible obligations.

                                       34PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements

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

    1996 Compared With 1995 (continued)
        The Company has adopted a strategy of spinning out certain of its
    businesses into separate subsidiaries and having these subsidiaries sell
    a minority interest to outside investors. The Company believes that this
    strategy provides additional motivation and incentives for the management
    of the subsidiary through the establishment of subsidiary-level stock
    option incentive programs, as well as capital to support the
    subsidiaries' growth. As a result of Thermo Sentron's April 1996 initial
    public offering of its common stock and Thermedics Detection's March 1996
    and November 1996 private placements of its common stock, the Company
    recorded gains of $23.7 million in 1996. These gains represent an
    increase in the Company's proportionate share of the subsidiary's equity
    and are classified as "Gain on issuance of stock by subsidiaries" in the
    accompanying statement of income. The size and timing of these
    transactions are dependent on market and other conditions that are beyond
    the Company's control. In addition, in October 1995, the Financial
    Accounting Standards Board (FASB) issued an exposure draft of a Proposed
    Statement of Financial Accounting Standards, "Consolidated Financial
    Statements: Policy and Procedures" (the Proposed Statement). The Proposed
    Statement would establish new rules for how consolidated financial
    statements should be prepared. If the Proposed Statement is adopted,
    there could be significant changes in the way the Company records certain
    transactions of its controlled subsidiaries. Among those changes, any
    sale of the stock of a subsidiary that does not result in a loss of
    control would be accounted for as a transaction in equity of the
    consolidated entity with no gain or loss being recorded. The FASB expects
    to issue a final statement or a revised exposure draft in 1997.
        The effective tax rate was 25% in 1996, compared with 32% in 1995.
    The effective tax rate in 1996 was below the statutory federal income tax
    rate primarily due to the nontaxable gain on issuance of stock by
    subsidiaries and the elimination of the valuation allowance no longer
    required (Note 5), offset in part by the nondeductible write-off of
    certain intangible assets at the Company's Corpak subsidiary (Note 13),
    the impact of state income taxes, and nondeductible amortization of cost
    in excess of net assets of acquired companies. The effective tax rate in
    1995 was below the statutory federal income tax rate primarily due to
    nontaxable gain on issuance of stock by subsidiaries and the reduction of
    the valuation allowance no longer required (Note 5), offset in part by
    the impact of state income taxes.
        Minority interest expense increased to $6.0 million in 1996 from $4.5
    million in 1995 due to higher profits at the Company's Thermo Voltek
    subsidiary, and to a lesser extent, the minority interest associated with
    the Company's newly public Thermo Sentron subsidiary.

    1995 Compared With 1994
         Total revenues increased 13% to $175.8 million in 1995 from $155.1
    million in 1994. Instruments and Other Equipment segment revenues
    increased 10% to $136.7 million in 1995 from $124.1 million in 1994.
    Revenues increased $17.4 million due to the inclusion of sales for a full
    year from Thermo Sentron, acquired in March 1994. Revenues from Thermo
    Voltek increased $12.7 million, due to the inclusion of an additional
    $7.2 million in revenues from businesses acquired in 1994 and 1995, an
    increase of $3.1 million in revenues from Comtest primarily due to the
                                       35PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements

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

    1995 Compared With 1994 (continued)
    introduction of a new product line in 1995, and an increase of $2.3
    million in revenues from Keytek due to greater demand. Revenues at
    Thermedics Detection were $28.0 million in 1995, compared with $50.3
    million in 1994. Revenues from Thermedics Detection's process detection
    instruments declined to $18.5 million in 1995 from $38.0 million in 1994.
    This decline was due to a decrease in product demand from Thermedics
    Detection's principal customer, which has substantially completed its
    initial deployment of Alexus systems. Revenues from Thermedics
    Detection's EGIS explosives-detection system declined to $4.6 million in
    1995 from $10.1 million in 1994. The Company's sales of the EGIS system
    have been made primarily to government entities outside of the U.S.
    During 1993 and 1994, large orders from the U.K. and German governments
    accounted for a significant portion of EGIS sales. These orders were
    substantially filled by the end of 1994.
        Biomedical Products segment revenues increased 26% to $39.0 million
    in 1995 from $31.0 million in 1994. Revenues from Thermo Cardiosystems
    increased by $10.2 million to $20.6 million due in part to an increase in
    the price of the LVAS. Revenues also increased due to a 43% increase in
    the number of air-driven and electric LVAS units shipped during 1995
    compared with 1994. The increase in revenues from Thermo Cardiosystems
    was partially offset by a decline of $2.8 million in revenues from Scent
    Seal fragrance samplers. In June 1995, the Company entered into an
    agreement granting an exclusive license to all of its patents and
    know-how relating to the Scent Seal fragrance samplers to a third party
    in consideration for royalty payments on future sales by the licensee.
    The Company recorded royalty income of $197,000 in 1995.
        The gross profit margin was 45% in 1995, compared with 44% in 1994.
    The gross profit margin for the Instruments and Other Equipment segment
    was 43% in 1995, compared with 44% in 1994. This decline was primarily
    due to lower gross margins at Thermedics Detection as a result of a lower
    sales volume and, to a lesser extent, the inclusion of lower-margin
    research and development contract revenues. In addition, Thermo Voltek's
    gross profit margin decreased to 48% in 1995 from 49% in 1994 primarily
    due to higher European sales in one product line, which has lower margins
    due to competitive pricing pressures. These decreases were offset in part
    by improved gross profit margins at Thermo Sentron due to a reduction in
    operating expenses.
        The gross profit margin for the Biomedical Products segment was 49%
    in 1995, compared with 42% in 1994, reflecting higher margins at Thermo
    Cardiosystems resulting from the LVAS price increase and, to a lesser
    extent, the increase in sales volume and improvements in manufacturing
    efficiencies.
        Selling, general, and administrative expenses as a percentage of
    revenues decreased to 27% in 1995 from 28% in 1994. This decline results
    primarily from lower expenses as a percentage of revenues at Thermo
    Cardiosystems as a result of a higher sales volume in 1995 and, to a
    lesser extent, a reduction in operating expenses at Thermo Sentron. These
    improvements were partially offset by higher expenses as a percentage of
    revenues at Thermedics Detection due to a lower sales volume in 1995.

                                       36PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements

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

    1995 Compared With 1994 (continued)
        Research and development expenses as a percentage of revenues
    decreased to 6.3% in 1995 from 6.7% in 1994, primarily due to lower
    expenses as a percentage of revenues at Thermo Cardiosystems as a result
    of an increase in total revenues.
        Interest income increased to $9.1 million in 1995 from $7.3 million
    in 1994 due to higher prevailing interest rates in 1995. Interest expense
    increased to $3.7 million in 1995 from $3.2 million in 1994 as a result
    of borrowings by Thermo Sentron's and Thermo Voltek's foreign
    subsidiaries, offset in part by a decrease in interest expense due to
    conversions of the Company's and its subsidiaries' subordinated
    convertible obligations.
        Gain on issuance of stock by subsidiaries of $3.5 million in 1995
    resulted from the conversion of $9.1 million principal amount of Thermo
    Voltek's 3 3/4% subordinated convertible debentures.
        The effective tax rate was 32% in 1995, compared with 38% in 1994.
    The effective tax rate in 1995 was below the statutory federal income tax
    rate primarily due to the nontaxable gain on issuance of stock by
    subsidiaries and the reduction of the valuation allowance no longer
    required, offset in part by the impact of state income taxes (Note 5).
    The effective tax rate in 1994 was higher than the statutory federal
    income tax rate primarily due to the impact of state income taxes.
        Minority interest expense increased to $4.5 million in 1995 from $1.2
    million in 1994 due to higher net income at the Company's Thermo
    Cardiosystems subsidiary and, to a lesser extent, the Company's Thermo
    Voltek subsidiary.

    Liquidity and Capital Resources

        Consolidated working capital was $205.1 million at December 28, 1996,
    compared with $110.1 million at December 30, 1995. Cash, cash
    equivalents, and short- and long-term available-for-sale investments were
    $181.6 million at December 28, 1996, compared with $155.2 million at
    December 30, 1995. Of the $181.6 million balance at December 28, 1996,
    $81.4 million was held by Thermo Cardiosystems, $34.8 million by Thermo
    Sentron, $27.9 million by Thermo Voltek, $13.5 million by Thermedics
    Detection, and the remainder by the Company and its wholly owned
    subsidiaries.
        During 1996, $20.1 million of cash was provided by operating
    activities. Cash provided by operations was offset in part by cash of
    $14.5 million used to fund an increase in accounts receivable primarily
    due to increased sales at Thermo Voltek and Thermo Cardiosystems and, to
    a lesser extent, due to a high level of sales in December 1996 at Thermo
    Sentron.
        During 1996, the Company's primary investing activities, excluding
    purchases, sales, and maturities of available-for-sale investments,
    included acquisitions and capital expenditures. In January 1996, the
    Company acquired the assets and certain liabilities of Moisture Systems
    and the stock of Rutter, for a total purchase price of $21.7 million in
    cash, which included the repayment of $0.7 million of debt. In connection
    with these acquisitions, the Company borrowed $15.0 million from Thermo
    Electron pursuant to a promissory note due February 1997 (Note 3). In
    September 1996, the Company repaid the promissory note with proceeds from
                                       37PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements

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

    Liquidity and Capital Resources (continued)

    the sale of subordinated convertible debentures (Note 7). During 1996,
    the Company, through its majority-owned subsidiaries, made other
    acquisitions of businesses and product lines for approximately $20.5
    million in cash. During 1996, the Company expended $7.0 million on
    purchases of property, plant, and equipment and expects to make capital
    expenditures of approximately $8.0 million in 1997.
        During 1996, the Company expended approximately $54.8 million for
    financing activities. In March and November 1996, Thermedics Detection
    issued shares of its common stock in private placements for aggregate net
    proceeds of $7.0 million. In April 1996, Thermo Sentron issued shares of
    its common stock in an initial public offering for net proceeds of $42.3
    million (Note 11). In May 1996, the Company issued and sold $65.0 million
    principal amount of noninterest-bearing subordinated convertible
    debentures due 2003, for net proceeds of $63.2 million (Note 7). In
    September 1996, the Company repaid its $15.0 million and $38.0 million
    promissory notes to Thermo Electron with proceeds from the debenture
    offering.
        The Company intends, for the foreseeable future, to maintain at least
    50% ownership of Thermo Cardiosystems, Thermo Voltek, Thermo Sentron, and
    Thermedics Detection. This may require the Company's purchase of
    additional shares of common stock or, if applicable, convertible
    debentures (which are then converted) of these companies from time to
    time, as the number of the companies' outstanding shares increases,
    whether as a result of conversion of convertible notes or exercise of
    stock options issued by them, or otherwise. These or any other purchases
    may be made in the open market; directly from the applicable subsidiary,
    or Thermo Electron; or pursuant to the conversion of all or part of
    Thermo Voltek's subordinated convertible notes held by the Company. The
    Company's and Thermo Cardiosystems' Boards of Directors each authorized
    the repurchase, through June 1, 1997, and August 12, 1997, respectively,
    of up to $10.0 million of their own securities. The Company's
    authorization also includes the repurchase of securities of Thermo
    Cardiosystems, Thermo Voltek, and Thermo Sentron. Any such purchases
    would be funded from working capital. Through December 28, 1996, the
    Company and Thermo Cardiosystems had expended $10.0 million and $5.7
    million, respectively, under their authorizations. In February 1997, the
    Securities and Exchange Commission declared effective a registration
    statement filed by Thermedics Detection covering shares of common stock
    to be offered in its initial public offering. The Company anticipates
    that the offering will be completed in March 1997.
        In January and April 1996, the Company issued an aggregate of
    1,987,273 shares of its common stock to Thermo Electron in exchange for
    634,049 shares of Thermo Voltek common stock and 929,947 shares of Thermo
    Cardiosystems common stock. The shares of common stock were exchanged at
    their respective fair market values on the dates of the transactions.

                                       38PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements

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

    Liquidity and Capital Resources (continued)

        The Company expects to continue to pursue its strategy of expanding
    its business both through the continued development, manufacture, and
    sale of new products, and through the possible acquisition of companies
    that will provide additional marketing or manufacturing capabilities and
    new products. The Company expects that it will finance these acquisitions
    through a combination of internal funds, additional debt or equity
    financing from the capital markets, or short-term borrowings from Thermo
    Electron. The Company believes its existing resources are sufficient to
    meet the capital requirements of its existing operations for the
    foreseeable future.












                                       39PAGE
<PAGE>
    Thermedics Inc.                                 1996 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 1997 and beyond to differ
    materially from those expressed in any forward-looking statements made
    by, or on behalf of, the Company.
        Risks Associated With Acquisition Strategy. The Company's strategy
    includes the acquisition of businesses and technologies that complement
    or augment its existing product lines. Promising acquisitions are
    difficult to identify and complete for a number of reasons, including
    competition among prospective buyers and the need for regulatory
    approval, including antitrust approvals. There can be no assurance that
    the Company will be able to complete future acquisitions or that it will
    be able to successfully integrate any acquired business. In order to
    finance such acquisitions, it may be necessary for the Company to raise
    additional funds through public or private financings. Any equity or debt
    financing, if available at all, may be on terms which are not favorable
    to the Company and, in the case of equity financing, may result in
    dilution to the Company's stockholders.
        Risks Associated with Spin-Out of Subsidiaries. The Company has
    adopted a strategy of spinning out certain of its businesses into
    separate subsidiaries and having these subsidiaries sell a minority
    interest to outside investors. As a result of the sale of stock by
    subsidiaries, the issuance of stock by subsidiaries upon conversion of
    convertible debentures and similar transactions, the Company records
    gains that represent the increase in the Company's net investment in the
    subsidiaries. These gains have represented a substantial portion of the
    net income reported by the Company in certain periods. The size and
    timing of these transactions are dependent on market and other conditions
    that are beyond the Company's control. Accordingly, there can be no
    assurance that the Company will be able to generate gains from such
    transactions in the future.
        In addition, in October 1995, the Financial Accounting Standards
    Board (FASB) issued an exposure draft of a Proposed Statement of
    Financial Accounting Standards, "Consolidated Financial Statements:
    Policy and Procedures" (the Proposed Statement). The Proposed Statement
    would establish new rules for how consolidated financial statements
    should be prepared. If the Proposed Statement is adopted, there could be
    significant changes in the way the Company records certain transactions
    of its controlled subsidiaries. Among those changes, any sale of the
    stock of a subsidiary that does not result in a loss of control would be
    accounted for as a transaction in equity of the consolidated entity with
    no gain or loss being recorded. The FASB expects to issue a final
    statement or a revised exposure draft in 1997.
         International Operations. Sales outside the U.S. have accounted for
    a significant percentage of the Company's total revenues. The Company
    intends to continue to expand its presence in international markets.
    International sales 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; foreign countries may impose

                                       40PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements

                           Forward-looking Statements

    additional withholding taxes or otherwise tax the Company's foreign
    income, impose tariffs, or adopt other restrictions on foreign trade;
    fluctuations in exchange rates may affect product demand and adversely
    affect the profitability in U.S. dollars of products and services
    provided by the Company in foreign markets where payment for the
    Company's products and services is made in the local currency; U.S.
    export licenses may be difficult to obtain; and the protection of
    intellectual property in foreign countries may be more difficult to
    enforce. There can be no assurance that any of these factors will not
    have a material adverse effect on the Company's business and results of
    operations. 
        Technological Change and Competition. The market for many of the
    Company's products is characterized by changing technology, evolving
    industry standards, and new product introductions. The Company's future
    success will depend, in part, upon its ability to enhance its existing
    products and to develop and introduce new products and technologies to
    meet changing customer requirements. The Company is currently devoting
    significant resources toward the enhancement of its existing products and
    the development of new products and technologies. There can be no
    assurance that the Company will successfully complete the enhancement and
    development of these products in a timely fashion, or that these products
    will compete successfully with those of the Company's competitors.
    Certain of the Company's competitors have greater resources,
    manufacturing and marketing capabilities, technical staff, and production
    facilities than those of the Company. As a result, they may be able to
    adapt more quickly to new or emerging technologies and changes in
    customer requirements, or to devote greater resources to the promotion
    and sale of their products than can the Company. Competition could
    increase if new companies enter the market, or if existing competitors
    expand their product lines.
        Intellectual Property Rights. The Company relies upon trade secret
    protection and patents to protect its proprietary rights. There can be no
    assurance that patents will issue from any pending or future patent
    applications owned by or licensed to the Company, or that the claims
    allowed under any issued patents will be sufficiently broad to protect
    the Company's technology. 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.
    Proceedings initiated by the Company to protect its proprietary rights
    could result in substantial costs to the Company. The Company has
    received correspondence from a third party alleging that the textured
    surface of the LVAS infringes certain patent rights of such third party.
    The Company believes that it has meritorious defenses to the claims of
    the third party. However, no assurance can be given that the Company
    would be successful if litigation was commenced or that others will not
    claim that the Company infringes their intellectual property rights.
    There can be no assurance that competitors of the Company will not
    initiate litigation to challenge the validity of the Company's 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 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. There

                                       41PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements

                           Forward-looking Statements

    can be no assurance that any license required under any such patent would
    be made available on acceptable terms, or that the Company would prevail
    in any such contest. The Company could incur substantial costs in
    defending itself in suits brought against it, or in suits in which the
    Company may assert its patent rights against others. If the outcome of
    any such litigation is unfavorable to the Company, the Company's business
    and results of operations could be materially adversely affected. In
    addition, the Company relies on trade secrets and proprietary know-how
    which it seeks to protect, in part, by 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.
        Uncertainty of Regulatory Approval for Biomedical Devices. Thermo
    Cardiosystems' LVAS are subject to approval by the FDA before they may be
    sold for profit in the United States. Thermo Cardiosystems is also
    subject to regulatory requirements in foreign countries in which it
    markets its devices. The process of obtaining regulatory approvals is
    lengthy, expensive, and inherently uncertain. Even after FDA approval has
    been obtained, such approval can be suspended or revoked if the FDA does
    not continue to be satisfied with the safety and efficacy of a product.
    Failure to comply with applicable regulatory requirements can result in,
    among other things, fines, suspensions of approvals, recalls of products,
    operating restrictions, and criminal prosecutions.
        In October 1994, Thermo Cardiosystems received FDA approval for the
    commercial sale of its pneumatic LVAS. In April 1994, Thermo
    Cardiosystems received the CE Mark for commercial sale of the pneumatic
    LVAS in all European Union countries. Thermo Cardiosystems has developed
    the HeartPak(TM), a lightweight, portable console that can be carried
    over the shoulder and which can be used as an alternative to the larger
    external console approved for use with the pneumatic LVAS. The HeartPak
    received the CE Mark in February 1995 and is currently in Phase I
    clinical trials in the U.S. Thermo Cardiosystems' electric LVAS is
    currently in use in clinical trials in the U.S. These trials are testing
    the safety and efficacy of the device as both a bridge to transplant and
    as an alternative to transplant. The electric LVAS received the CE Mark
    in August 1995.
        No assurance can be given that Thermo Cardiosystems will file a
    supplement to its pre-market approval (PMA) application with the FDA with
    respect to the electric LVAS on a timely basis, or at all, or that the
    PMA supplement, if filed, will ultimately be approved by the FDA. In
    addition, any design changes to Thermo Cardiosystems' LVAS, including use
    of the portable console for the pneumatic LVAS, must be approved pursuant
    to a supplement to an approved PMA application. Failure of Thermo
    Cardiosystems to obtain FDA approval for the commercial sale of the
    electric LVAS, either as a bridge to transplant or as an alternative to
    transplant, would have a material adverse effect on Thermo Cardiosystems'
    long-term growth prospects. In addition, failure of Thermo Cardiosystems
    to obtain approval for the HeartPak portable console would require
    patients supported by the pneumatic LVAS to remain hospitalized. This
    could materially decrease the market for the pneumatic LVAS.
        Uncertainty of Patient Reimbursement. The cost of implanting a
    cardiac support system is substantial. Without the financial support of
                                       42PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements

                           Forward-looking Statements

    the government or third-party insurers, the market for Thermo
    Cardiosystems' devices will be limited. Medicare and Medicaid limit the
    reimbursement that U.S. hospitals receive for treating certain medical
    conditions by setting maximum fees that can be charged to their patients.
    Under these systems, hospitals are paid a fixed amount for treating each
    patient with a particular diagnosis. Private insurers also have initiated
    reimbursement systems designed to slow the escalation of health care
    costs. In addition, the federal government is considering, and certain
    state governments are considering or have adopted, new health care
    policies intended to curb rising health care costs. Such policies include
    rationing of government-funded reimbursement for health care services and
    imposing price controls upon providers of medical products and services.
    These policies could have the effect of limiting the availability of
    reimbursement for procedures, such as the implantation of an LVAS, that
    involve prolonged treatment of critically ill patients.
        In November 1995, the U.S. Health Care Finance Administration (HCFA)
    issued a decision that extends Medicare coverage to Thermo Cardiosystems'
    HeartMate pneumatic LVAS. Several major nongovernment insurers have
    already agreed to offer coverage for the pneumatic LVAS. Even though
    reimbursement has been established by HCFA and by certain nongovernment
    insurers, the amount of available reimbursement may change, and
    reimbursement may be denied by an insurer under certain circumstances,
    including if it is determined that a procedure was not the most
    cost-effective treatment method, was experimental, or was used for an
    unapproved indication. No assurance can be given that additional
    third-party reimbursement for the pneumatic LVAS will be granted within a
    reasonable period of time, or at all. The unavailability of third-party
    reimbursement for procedures involving Thermo Cardiosystems' systems
    would have a material adverse effect on Thermo Cardiosystems' business.
        Uncertainty of Opinion Leader Acceptance and Support for LVAS. A
    limited number of cardiac surgeons and cardiologists influences medical
    device selection and purchase decisions for a large portion of the target
    patient population. Thermo Cardiosystems will achieve its business
    objectives only if its LVAS are recommended for use by such opinion
    leaders. Thermo Cardiosystems has developed working relationships with a
    number of leading medical centers, and its existing and proposed LVAS
    have been well received by opinion leaders in cardiac surgery and
    cardiology. Moreover, since the inception of its work on cardiac support
    systems in 1966, Thermo Cardiosystems has relied upon surgical teams at
    medical institutions to perform clinical trials that are necessary to
    obtain FDA approvals. A continuing working relationship with those and
    other institutions will be important to the success of Thermo
    Cardiosystems. No assurance can be given that existing relationships and
    arrangements can be maintained or that new relationships will be
    established. Furthermore, economic, psychological, ethical, and other
    concerns may limit acceptance of heart assist devices in general, and
    there can be no assurance that markets of sufficient size will develop
    for Thermo Cardiosystems' LVAS.
        Availability of Components and Raw Materials Used in LVAS. Thermo
    Cardiosystems relies on a number of custom-designed components and
    materials supplied by other companies to manufacture its LVAS. Thermo
    Cardiosystems is making efforts to minimize the risks associated with
    sole sources and ensure long-term availability, including qualifying
    alternative materials and components or developing alternative sources
                                       43PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements

                           Forward-looking Statements

    for the materials and components supplied by a single source. Although
    Thermo Cardiosystems believes that it has adequate supplies of materials
    and components to meet demand for its products for the foreseeable
    future, no assurance can be given that Thermo Cardiosystems will not
    experience in the future shortages of certain materials or components
    that could delay shipments of its products. The cost to Thermo
    Cardiosystems to evaluate and test alternative materials and components
    and the time necessary to obtain FDA approval for these materials are
    inherently difficult to determine because both time and cost are
    dependent on at least two factors: the similarity of the alternative
    material or component to the original material or component, and the
    amount of third-party testing that may have already been completed on
    alternative materials or components. There can be no assurance that the
    substitution of alternative materials or components would not cause
    delays in Thermo Cardiosystems' LVAS development programs or adversely
    affect Thermo Cardiosystems' ability to manufacture and ship LVAS to meet
    demand.
        Limited Manufacturing and Marketing Experience of Thermo
    Cardiosystems. Prior to FDA approval of commercial sale of the pneumatic
    LVAS, Thermo Cardiosystems was engaged only in the research and
    development of its LVAS. Since that time, Thermo Cardiosystems has been
    building its manufacturing, marketing, and sales capabilities. While
    Thermo Cardiosystems has not experienced difficulties in manufacturing
    its LVAS at volumes, cost, and quality levels, sufficient to satisfy the
    increased demand resulting from commercial approval, no assurance can be
    given that Thermo Cardiosystems will not encounter difficulties as sales
    volumes increase or new products or components are approved for
    commercial sale. Thermo Cardiosystems does not have experience in the
    large-scale commercialization of medical devices. While Thermo
    Cardiosystems has added sales and marketing staff and is expanding its
    distribution capabilities worldwide, no assurance can be given that
    Thermo Cardiosystems will be able to market and sell its products
    successfully in high volumes.
        Product Liability. Thermo Cardiosystems faces an inherent business
    risk of exposure to product liability claims relating to the use of its
    products. Although Thermo Cardiosystems currently maintains product
    liability insurance against this risk, there can be no assurance that it
    will continue to be able to obtain such coverage at economically feasible
    rates, if at all, or that such coverage will be adequate in terms and
    scope to completely protect Thermo Cardiosystems in the event of a
    successful product liability claim.
        Effect of Government Regulations and Approvals on Market for Thermo
    Sentron's Products. The market for certain of Thermo Sentron's products,
    both in the United States and abroad, is subject to or influenced by
    various domestic and foreign clean air and consumer protection laws.
    Thermo Sentron designs, develops, and markets its products to meet
    customer needs created by existing and anticipated regulations, and any
    changes in these regulations may adversely affect consumer demand for
    Thermo Sentron's products. In addition, the marketing of certain of
    Thermo Sentron's products is dependent upon the receipt of regulatory and
    other approvals, including industry association approvals of the design,
    construction, and accuracy of Thermo Sentron's products. Delays in
    obtaining, or the failure to obtain, any such approvals could have a

                                       44PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements

                           Forward-looking Statements

    material adverse effect on Thermo Sentron's business and results of
    operations.
        Effect of Electrical Standards on Demand for Thermo Voltek's
    Products. Demand for Thermo Voltek's EMC testing products and services is
    driven to a large extent by mandatory government standards and voluntary
    industry standards relating to electromagnetic compatibility. In
    particular, demand for Thermo Voltek's products results from efforts by
    manufacturers to comply with IEC 801, an EU directive that became
    effective on January 1, 1996. Although many manufacturers have not yet
    complied with IEC 801, as the number of non-complying manufacturers is
    reduced over time, demand for Thermo Voltek's products could be adversely
    affected. In addition, if new EMC standards requiring new testing
    capabilities are enacted less frequently or if EMC standards become less
    strict, demand for Thermo Voltek's products could be adversely affected.
        Dependence of Explosives-Detection Market on Government Regulation
    and Airline Industry. Sales of Thermedics Detection's explosives-
    detection systems for use in airports has been and will continue to be
    dependent on governmental initiatives to require, or support, the
    screening of checked luggage, carry-on items, and personnel with advanced
    explosives-detection equipment. Substantially all of such systems have
    been installed at airports in countries other than the United States in
    which the applicable government or regulatory authority overseeing the
    operations of the airport has mandated such screening. Such mandates are
    influenced by many factors outside of the control of Thermedics
    Detection, including political and budgetary concerns of governments,
    airlines, and airports. Of the more than 600 commercial airports
    worldwide, more than 400 are located in the United States. Accordingly,
    Thermedics Detection believes that the size of the market for
    explosives-detection equipment is, and will increasingly be,
    significantly influenced by United States government regulation. In the
    United States, the Aviation Security Act of 1990 directed the Federal
    Aviation Administration (FAA) to develop a standard for
    explosives-detection systems and required airports in the United States
    to deploy systems meeting this standard in 1993. The standard adopted by
    the FAA is more comprehensive than standards adopted in most other
    countries. To date, no system has demonstrated that it meets the FAA
    standard under realistic airport operating conditions. As a result, the
    FAA has not mandated the installation of automated explosives-detection
    systems, and only a limited number of these systems have been deployed,
    primarily on a test basis, in the United States. The FAA first certified
    a computed X-ray tomography system for checked luggage in December 1994.
    However, the FAA has recognized that this system must undergo further
    testing to resolve whether it can operate under realistic airport
    operating conditions. Thermedics Detection's systems are trace detectors
    for which no FAA certification process for checked baggage, carry-on, or
    personal screening exists to date. In 1992, the FAA approved Thermedics
    Detection's EGIS system for use by airlines in screening carry-on
    electronic items and luggage searches. Each airline must seek this
    approval for each application. Although the FAA has provided significant
    funding to Thermedics Detection in connection with the development of its
    explosives-detection technology, there can be no assurance that any of
    Thermedics Detection' systems will ever meet this or any other United
    States certification standard. Any product utilizing a technology
    ultimately recommended or required by the FAA will have a significant
                                       45PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements

                           Forward-looking Statements

    competitive advantage in the market for explosives-detection devices.
    Unless the FAA takes action with respect to a particular
    explosives-detection product or technology, airlines will not be required
    to upgrade existing metal-detection equipment. Earnings of U.S. air
    carriers tend to fluctuate significantly from time to time. Any
    depression in the financial condition of such carriers would likely
    result in lower capital spending for discretionary items. Moreover, there
    can be no assurance that additional countries will mandate the
    implementation of effective explosives screening for airline baggage,
    carry-on items or personnel, or that, if mandated, Thermedics Detection's
    systems will meet the certification or other requirements of the
    applicable government authority. Even if Thermedics Detection's systems
    were to meet the applicable requirements, there can be no assurance that
    Thermedics Detection would be able to market its systems effectively.
        In October 1996, the United States enacted legislation which includes
    a $144.2 million allocation to purchase explosives-detection systems and
    other advanced security equipment, including trace detection equipment
    such as the systems manufactured by Thermedics Detection, for carry-on
    and checked baggage screening. There can be no assurance that this
    legislation will not be modified to reduce the funding for advanced
    explosives equipment; that the necessary appropriations will be made to
    fund the purchases of advanced explosives-detection equipment
    contemplated by the legislation; that trace-detection equipment such as
    the systems manufactured by Thermedics Detection will be mandated; or
    that, even if such appropriation is made and such equipment is mandated,
    any of the Thermedics Detection's explosives-detection systems will be
    purchased for installation at any airports in the United States. Further,
    there can be no assurance that the U.S. will mandate the widespread use
    of these systems after completion of the initial purchases.
        Significance of Certain Customers to Thermedics Detection. Sales of
    process detection instruments and related services to bottlers licensed
    by The Coca-Cola Company (Coca-Cola Bottlers) were $32,184,000,
    $9,974,000 and $10,641,000 in 1994, 1995, and 1996, respectively. Sales
    to Coca-Cola Bottlers have decreased as these customers have
    substantially completed full deployment of Thermedics Detection's Alexus
    system in existing plant locations. Although the Company anticipates that
    Thermedics Detection will continue to derive revenues from the sale of
    upgrades and new systems to new plants, as well as services to the
    Coca-Cola Bottlers, the Company does not expect that revenues derived
    from these customers will continue at a rate comparable to prior years.
    While the Company believes that the introduction of new process detection
    products for the food, beverage, and other markets will continue to
    reduce the significance of the Coca-Cola Bottlers to Thermedics
    Detection's results of operations, there can be no assurance that
    Thermedics Detection will be successful in the introduction of new
    process detection products or that any sales of these products will be
    sufficient to maintain a rate of growth equivalent to prior years.


                                       46PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements

                         Selected Financial Information

    (In thousands except
    per share amounts)      1996(a)    1995(b)    1994(c)     1993(d)   1992
    ------------------------------------------------------------------------
    Statement of Income Data:
    Revenues            $258,085   $175,754   $155,111    $ 80,220  $ 45,778
    Net income            26,831     15,121     10,837       6,670     2,467
    Earnings per share       .70        .45        .33         .22       .09

    Balance Sheet Data:
    Working capital     $205,130   $110,113   $128,330    $133,003  $ 63,205
    Total assets         438,842    368,150    291,567     237,487   146,663
    Long-term
      obligations         74,359     45,201     82,551      59,130    33,820
    Common stock
      of subsidiary
      subject to
      redemption               -          -          -         -       5,468
    Shareholders'
      investment         206,058    167,010    131,765     117,451    69,323

    (a)Reflects the January 1996 acquisition of Moisture Systems and Rutter,
       the May 1996 issuance of $65.0 million principal amount of
       noninterest-bearing subordinated convertible debentures, and
       nontaxable gains of $23.7 million from the issuance of stock by
       subsidiaries.
    (b)Reflects the December 1995 acquisition of Orion.
    (c)Reflects the January 1994 issuance of $33.0 million principal amount
       of noninterest-bearing subordinated convertible debentures by Thermo
       Cardiosystems and the March 1994 acquisition of Ramsey.
    (d)Reflects the May 1993 public offering of the Company's common stock
       for net proceeds of $30.0 million, the August 1993 acquisition of
       Comtest Instrumentation B.V. and Comtest Limited, and the November
       1993 issuance of $34.5 million principal amount of 3 3/4%
       subordinated convertible debentures by Thermo Voltek.










                                       47PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements



   Common Stock Market Information
       The following table shows the market range for the Company's common
   stock based on reported sales prices on the American Stock Exchange
   (symbol TMD) for 1996 and 1995:

                                     1996                  1995
                                ------------------    ----------------
   Quarter                        High        Low      High       Low
   -------------------------------------------------------------------
   First                       $30 1/2    $23 3/8   $17 1/2    $12 1/2
   Second                       31 7/8     24 5/8    20 1/2     15 1/2
   Third                        31 1/8     20 1/4    21 3/4     17 3/4
   Fourth                       33 3/8     17 5/8    28         17 1/2

       As of January 24, 1997, the Company had 2,297 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 24, 1997, was $18 3/8 per share.
       Common stock of the Company's majority-owned public subsidiaries is
   traded on the American Stock Exchange: Thermo Cardiosystems Inc. (symbol
   TCA), Thermo Voltek Corp. (symbol TVL), Thermo Sentron Inc. (symbol TSR),
   and Thermedics Detection Inc. (TDX).

   Shareholder Services
       Shareholders of Thermedics Inc. who desire information about the
   Company are invited to contact John N. Hatsopoulos, Chief Financial
   Officer, Thermedics Inc., 81 Wyman Street, P.O. Box 9046, Waltham,
   Massachusetts 02254-9046, (617) 622-1111. A mailing list is maintained to
   enable shareholders whose stock is held in street name, and other
   interested individuals, to receive quarterly reports, annual reports, and
   press releases as quickly as possible. Beginning in 1997, quarterly
   distribution will be limited to the second quarter report only. All
   quarterly reports and press releases will be available through the
   Internet from Thermo Electron's home page on the World Wide Web
   (http://www.thermo.com/subsid/tmd.html).

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

       Bank of Boston
       c/o Boston EquiServe Limited Partnership
       P.O. Box 8040
       Boston, Massachusetts 02266-8040
       (617) 575-3120

                                       48PAGE
<PAGE>
    Thermedics Inc.                                 1996 Financial Statements


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

   Form 10-K Report
       A copy of the Annual Report on Form 10-K for the fiscal year ended
   December 28, 1996, as filed with the Securities and Exchange Commission,
   may be obtained at no charge by writing to John N. Hatsopoulos, Chief
   Financial Officer, Thermedics Inc., 81 Wyman Street, P.O. Box 9046,
   Waltham, Massachusetts 02254-9046.

   Annual Meeting
       The annual meeting of shareholders will be held on Monday, June 2,
   1997, at 1:30 p.m. at the Hyatt Regency Hotel, Hilton Head, South
   Carolina.