Exhibit 13


















                                 THERMEDICS INC.

                        Consolidated Financial Statements

                                      1997
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements

                        Consolidated Statement of Income

    (In thousands except per share amounts)      1997       1996        1995
    ------------------------------------------------------------------------

    Revenues (Note 14)                      $307,666    $292,077    $208,041
                                            --------    --------    --------

    Costs and Operating Expenses:
      Cost of revenues                       155,680     148,137     110,935
      Selling, general, and administrative
        expenses (Note 8)                     86,308      85,045      55,951
      Research and development expenses       24,270      21,363      14,874
      Nonrecurring costs (Notes 3 and 13)          -      17,637           -
                                            --------    --------    --------

                                             266,258     272,182     181,760
                                            --------    --------    --------

    Operating Income                          41,408      19,895      26,281

    Interest Income                           13,326      10,765       9,073
    Interest Expense                          (3,398)     (3,770)     (3,677)
    Gain on Issuance of Stock by
      Subsidiaries (Note 11)                  17,075      23,651       3,455
    Gain on Sale of Investments, Net
      (includes gain on sale of related-
      party investments of $428 in 1997;
      Notes 2 and 8)                             432         956         421
    Other Income                                  54           -          14
                                            --------    --------    --------

    Income Before Provision for Income 
      Taxes and Minority Interest             68,897      51,497      35,567
    Provision for Income Taxes (Note 5)       19,675      13,969      11,781
    Minority Interest Expense                  7,730       8,390       6,612
                                            --------    --------    --------

    Net Income                              $ 41,492    $ 29,138    $ 17,174
                                            ========    ========    ========

    Earnings per Share (Note 15):
      Basic                                 $   1.13    $    .80    $    .51
                                            ========    ========    ========
      Diluted                               $   1.07    $    .75    $    .48
                                            ========    ========    ========

    Weighted Average Shares (Note 15):
      Basic                                   36,700      36,417      33,660
                                            ========    ========    ========
      Diluted                                 38,911      38,202      35,036
                                            ========    ========    ========


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





                                        2
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements

                           Consolidated Balance Sheet

    (In thousands)                                           1997       1996
    ------------------------------------------------------------------------

    Assets
    Current Assets:
      Cash and cash equivalents                         $187,012    $ 82,800
      Short-term available-for-sale investments,
        at quoted market value (amortized cost of
        $58,144 and $64,950; includes $3,336 of 
        related-party investments in 1996;
        Notes 2 and 8)                                    58,317      65,054
      Accounts receivable, less allowances of
        $4,207 and $4,903                                 61,488      62,783
      Inventories                                         59,574      54,230
      Prepaid income taxes and expenses (Note 5)          12,769      14,713
                                                        --------    --------

                                                         379,160     279,580
                                                        --------    --------

    Property, Plant, and Equipment, at Cost, Net          21,611      21,550
                                                        --------    --------

    Long-term Available-for-sale Investments, at
      Quoted Market Value (amortized cost of
      $12,655 and $33,929; Note 2)                        12,665      33,920
                                                        --------    --------

    Other Assets (Note 5)                                 12,139       7,885
                                                        --------    --------

    Cost in Excess of Net Assets of Acquired
      Companies (Notes 3, 5, and 13)                     110,977     113,764
                                                        --------    --------

                                                        $536,552    $456,699
                                                        ========    ========























                                        3
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements

                     Consolidated Balance Sheet (continued)

    (In thousands except share amounts)                      1997       1996
    ------------------------------------------------------------------------

    Liabilities and Shareholders' Investment
    Current Liabilities:
      Notes payable and current maturity of
        long-term obligation (Note 7)                   $  7,498    $  9,017
      Accounts payable                                    18,020      19,615
      Accrued payroll and employee benefits               12,576      11,951
      Accrued income taxes                                 6,815       5,438
      Accrued warranty costs                               3,784       3,971
      Other accrued expenses                              18,838      19,818
      Due to parent company and affiliates                 2,266       1,600
                                                        --------    --------

                                                          69,797      71,410
                                                        --------    --------

    Deferred Income Taxes and Other Deferred Items
      (Note 5)                                               177       1,382
                                                        --------    --------

    Long-term Obligations (Note 7)                       142,771      74,359
                                                        --------    --------

    Minority Interest                                     96,461      97,966
                                                        --------    --------

    Commitments and Contingency (Notes 6 and 9)

    Shareholders' Investment (Notes 4, 8, 10, and 17):
      Common stock, $.10 par value, 100,000,000
        shares authorized; 36,846,175 and 36,842,500 
        shares issued                                      3,685       3,684
      Capital in excess of par value                     113,913     138,433
      Retained earnings                                  116,034      74,542
      Treasury stock at cost, 134,172 and 166,144
        shares                                            (3,449)     (4,729)
      Cumulative translation adjustment                   (2,954)       (409)
      Net unrealized gain on available-for-sale
        investments (Note 2)                                 117          61
                                                        --------    --------

                                                         227,346     211,582
                                                        --------    --------

                                                        $536,552    $456,699
                                                        ========    ========


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









                                        4
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements

                      Consolidated Statement of Cash Flows

    (In thousands)                               1997       1996        1995
    ------------------------------------------------------------------------

    Operating Activities:
      Net income                            $ 41,492    $ 29,138    $ 17,174
      Adjustments to reconcile net income
        to net cash provided by operating
        activities:
          Depreciation and amortization       10,361      10,431       6,766
          Gain on issuance of stock by
            subsidiaries (Note 11)           (17,075)    (23,651)     (3,455)
          Nonrecurring costs (Notes 3
            and 13)                                -      17,637           -
          Provision for losses on accounts
            receivable                           815       1,352         689
          Gain on sale of investments, net
            (Note 2)                            (432)       (956)       (421)
          Minority interest expense            7,730       8,390       6,612
          Increase (decrease) in deferred
            income taxes                          45        (601)        766
          Other noncash expenses                 780         938         990
          Changes in current accounts, 
            excluding the effects of
            acquisitions:
              Accounts receivable                491     (13,906)         53
              Inventories                     (5,367)       (839)    (11,675)
              Prepaid income taxes and
                expenses                        (845)         16      (2,367)
              Accounts payable                (2,042)        892       3,643
              Other current liabilities        2,906      (1,162)      2,704
          Other                                    -        (270)       (182)
                                            --------    --------    --------

    Net cash provided by operating
      activities                              38,859      27,409      21,297
                                            --------    --------    --------

    Investing Activities:
      Acquisitions, net of cash acquired
        (Note 3)                              (5,658)    (37,044)    (56,560)
      Acquisition of product lines                 -      (4,737)          -
      Purchases of property, plant, and 
        equipment                             (7,087)     (8,621)     (6,691)
      Purchases of available-for-sale
        investments                          (89,900)    (99,800)   (101,246)
      Proceeds from sale and maturities of
        available-for-sale investments       118,413     118,356     104,786
      Other                                      275        (754)        371
                                            --------    --------    --------

    Net cash provided by (used in)
      investing activities                  $ 16,043    $(32,600)   $(59,340)
                                            --------    --------    --------





                                        5
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements

                Consolidated Statement of Cash Flows (continued)

    (In thousands)                               1997       1996        1995
    ------------------------------------------------------------------------

    Financing Activities:
      Net proceeds from issuance of Company
        and subsidiaries' common stock
        (Note 10)                           $ 29,122    $ 49,780    $  4,515
      Purchases of Company and subsidiaries'
        common stock                         (51,091)    (15,665)       (179)
      Proceeds from issuance of note payable
        to parent company (Notes 3 and 7)          -      15,000      38,000
      Repayment of notes payable to parent
        company (Notes 3 and 7)                    -     (53,000)          -
      Net proceeds from issuance of
        subordinated convertible
        obligations (Note 7)                  68,028      63,249           -
      Repayment and repurchase of long-term
        obligations                             (700)     (2,432)       (132)
      Net increase (decrease) in short-term
        borrowings                             2,699      (1,944)     (1,961)
      International Technidyne transfers 
        (to) from Thermo Electron                350      (5,567)     (2,158)
      Other                                        -        (146)        740
                                            --------    --------    --------

    Net cash provided by financing
      activities                              48,408      49,275      38,825
                                            --------    --------    --------

    Exchange Rate Effect on Cash                 902       1,303        (502)
                                            --------    --------    --------

    Increase in Cash and Cash Equivalents    104,212      45,387         280
    Cash and Cash Equivalents at Beginning
      of Year                                 82,800      37,413      37,133
                                            --------    --------    --------

    Cash and Cash Equivalents at End
      of Year                               $187,012    $ 82,800    $ 37,413
                                            ========    ========    ========


















                                        6
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements

                Consolidated Statement of Cash Flows (continued)

    (In thousands)                               1997       1996        1995
    ------------------------------------------------------------------------

    Cash Paid For:
      Interest                              $  2,467    $  5,333    $  3,328
      Income taxes                          $ 14,588    $  7,108    $  6,489

    Noncash Activities:
      Fair value of assets of acquired 
        companies                           $  9,351    $ 42,955    $ 67,394
      Cash paid for acquired companies        (6,291)    (37,445)    (56,879)
                                            --------    --------    --------
        Liabilities assumed of acquired
          companies                         $  3,060    $  5,510    $ 10,515
                                            ========    ========    ========

      Issuance of Company common stock to
        parent company in exchange for
        subsidiary common stock (Note 8)    $      -    $  4,236    $      -
                                            ========    ========    ========

      Conversions of Company and
        subsidiary convertible
        obligations (Note 7)                $  4,650    $ 31,562    $ 37,317
                                            ========    ========    ========


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


























                                        7
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements

               Consolidated Statement of Shareholders' Investment

    (In thousands)                               1997       1996        1995
    ------------------------------------------------------------------------

    Common Stock, $.10 Par Value
      Balance at beginning of year          $  3,684    $  3,399    $  3,330
      Issuance of stock under employees'
        and directors' stock plans                 1          12           7
      Conversions of subordinated
        convertible debentures                     -          74          62
      Issuance of Company common stock to
        parent company in exchange for
        common stock of subsidiaries
        (Note 8)                                   -         199           -
                                            --------    --------    --------

      Balance at end of year                   3,685       3,684       3,399
                                            --------    --------    --------

    Capital in Excess of Par Value
      Balance at beginning of year           138,433     120,665     102,975
      Issuance of stock under employees'
        and directors' stock plans            (1,239)        737         378
      Tax benefit related to employees'
        and directors' stock plans                55       1,218         434
      Conversions of subordinated
        convertible debentures (Note 7)            -       7,631       6,259
      Issuance of Company common stock to
        parent company in exchange for
        common stock of subsidiaries
        (Note 8)                                   -       4,037           -
      Effect of majority-owned subsidiaries'
        equity transactions                  (23,336)      4,145       9,858
      Capital contribution from parent
        company                                    -           -         761
                                            --------    --------    --------
      Balance at end of year                 113,913     138,433     120,665
                                            --------    --------    --------

    Retained Earnings
      Balance at beginning of year            74,542      47,928      32,084
      Net income                              41,492      29,138      17,174
      International Technidyne transfers
        to Thermo Electron                         -      (2,524)     (1,330)
                                            --------    --------    --------

      Balance at end of year                 116,034      74,542      47,928
                                            --------    --------    --------

    Treasury Stock
      Balance at beginning of year            (4,729)        (42)       (310)
      Issuance of stock under employees'
        and directors' stock plans             1,572          58         268
      Purchases of Company common stock         (292)     (4,745)          -
                                            --------    --------    --------

      Balance at end of year                $ (3,449)   $ (4,729)   $    (42)
                                            --------    --------    --------





                                        8
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements

         Consolidated Statement of Shareholders' Investment (continued)

    (In thousands)                               1997       1996        1995
    ------------------------------------------------------------------------

    Cumulative Translation Adjustment
      Balance at beginning of year          $   (409)   $    (88)   $    326
      Translation adjustment                  (2,545)       (321)       (414)
                                            --------    --------    --------

      Balance at end of year                  (2,954)       (409)        (88)
                                            --------    --------    --------

    Net Unrealized Gain on Available-
      for-sale Investments
      Balance at beginning of year                61         889      (1,622)
      Change in net unrealized gain (loss)
        on available-for-sale investments
        (Note 2)                                  56        (828)      2,511
                                            --------    --------    --------

      Balance at end of year                     117          61         889
                                            --------    --------    --------

    Total Shareholders' Investment          $227,346    $211,582    $172,751
                                            ========    ========    ========


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






























                                        9
<PAGE>




    Thermedics Inc.                                 1997 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 a range of power electronics, and security devices,
    as well as implantable heart-assist systems, whole-blood coagulation
    testing equipment, skin-incision devices, and other biomedical products. 

    Relationship with Thermo Electron Corporation
        The Company was incorporated in 1983 as a wholly owned subsidiary of
    Thermo Electron Corporation. As of January 3, 1998, Thermo Electron owned
    21,141,471 shares of the Company's common stock, representing 58% of such
    stock outstanding.

    Principles of Consolidation
        The accompanying financial statements include the accounts of the
    Company; its wholly owned subsidiaries; and its majority-owned public
    subsidiaries, Thermo Cardiosystems Inc., Thermo Voltek Corp., Thermo
    Sentron Inc., and Thermedics Detection Inc. All material intercompany
    accounts and transactions have been eliminated. 

    Fiscal Year
        The Company has adopted a fiscal year ending the Saturday nearest
    December 31. References to 1997, 1996, and 1995 are for the fiscal years
    ended January 3, 1998, December 28, 1996, and December 30, 1995,
    respectively. Fiscal 1997 included 53 weeks; 1996 and 1995 each included
    52 weeks.

    Cash and Cash Equivalents
        At year-end 1997 and 1996, $175,101,000 and $74,625,000,
    respectively, of the Company's cash equivalents were invested in a
    repurchase agreement with Thermo Electron. Under this agreement, the
    Company in effect lends excess cash to Thermo Electron, which Thermo
    Electron collateralizes with investments principally consisting of
    corporate notes, commercial paper, U.S. government-agency securities,  
    money market funds, and other marketable securities, in the amount of at
    least 103% of such obligation. The Company's funds subject to the
    repurchase agreement are readily convertible into cash by the Company 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. At
    year-end 1997 and 1996, the Company's cash equivalents were also invested
    in U.S. government-agency discount notes and money market preferred
    stock. Cash equivalents are carried at cost, which approximates market
    value.






                                       10
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements

                   Notes to Consolidated Financial Statements

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

    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)                                         1997        1996
    -----------------------------------------------------------------------

    Raw materials and supplies                         $23,857      $28,210
    Work in process                                     18,218       10,719
    Finished goods                                      17,499       15,301
                                                       -------      -------

                                                       $59,574      $54,230
                                                       =======      =======

    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 31.5 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)                                         1997        1996
    -----------------------------------------------------------------------

    Land and buildings                                 $ 6,154      $ 5,778
    Machinery, equipment, and leasehold improvements    49,443       43,114
                                                       -------      -------

                                                        55,597       48,892
    Less: Accumulated depreciation and amortization     33,986       27,342
                                                       -------      -------

                                                       $21,611      $21,550
                                                       =======      =======

    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 40 years. These assets were $4,400,000 and $4,146,000, net of
    accumulated amortization of $3,253,000 and $2,798,000, at year-end 1997
    and 1996, 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 $12,116,000 and
    $9,343,000 at year-end 1997 and 1996, respectively. The Company assesses

                                       11
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements

                   Notes to Consolidated Financial Statements

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

    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." There were no material foreign currency
    transaction gains or losses in the accompanying statement of income.

    Revenue Recognition
        The Company recognizes the majority of its 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
    $8,735,000 in 1997, $6,564,000 in 1996, and $8,521,000 in 1995. 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 1997 and 1996. 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
    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

                                       12
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements

                   Notes to Consolidated Financial Statements

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

    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
        During the fourth quarter of 1997, the Company adopted SFAS No. 128,
    "Earnings per Share" (Note 15). As a result, all previously reported
    earnings per share have been restated and the Company is required to
    report diluted earnings per share. Basic earnings per share have been
    computed by dividing net income by the weighted average number of shares
    outstanding during the year. Diluted earnings per share have been
    computed assuming the conversion of convertible obligations and the
    elimination of the related interest expense, and the exercise of stock
    options, as well as their related income tax effects.

    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.

    Presentation
        The historical information for all periods presented has been
    restated to reflect the May 2, 1997, acquisition of International
    Technidyne Corporation by Thermo Cardiosystems from Thermo Electron,
    which has been accounted for at historical cost in a manner similar to a
    pooling of interests (Note 3).



                                       13
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements

                   Notes to Consolidated Financial Statements

    2.  Available-for-sale Investments

        In accordance with SFAS No. 115, "Accounting for Certain Investments
    in Debt and Equity Securities," the Company's debt and equity 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 on
    available-for-sale investments." 
        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, are as follows:

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

    1997

    Government-agency securities  $55,391   $55,334    $    66      $    (9)
    Corporate bonds                11,547    11,521         26            -
    Other                           4,044     3,944        174          (74)
                                  -------   -------    -------       ------

                                  $70,982   $70,799    $   266      $   (83)
                                  =======   =======    =======      =======

    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)
                                  =======   =======    =======      =======

        Short- and long-term available-for-sale investments in the
    accompanying 1997 balance sheet include $57,356,000 with contractual
    maturities of one year or less and $13,626,000 with contractual
    maturities of more than one year through 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.
        The cost of available-for-sale investments that were sold was based
    on specific identification in determining realized gains and losses
    recorded in the accompanying statement of income. Gain on sale of
    investments, net, resulted from gross realized gains of $432,000,
    $1,086,000, and $439,000 in 1997, 1996, and 1995, respectively, and gross
    realized losses of $130,000 and $18,000 in 1996 and 1995, respectively,
    relating to the sale of available-for-sale investments.


                                       14
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements

                   Notes to Consolidated Financial Statements

   3.  Acquisitions

       On May 2, 1997, Thermo Cardiosystems acquired International Technidyne
   from Thermo Electron in exchange for the right to receive 3,355,705 shares
   of Thermo Cardiosystems' common stock. International Technidyne is a
   leading manufacturer of near-patient, whole-blood coagulation testing
   equipment and related disposables, and also manufactures premium-quality,
   single-use skin-incision devices.
       Because the Company, Thermo Cardiosystems, and International Technidyne
   were deemed for accounting purposes to be under control of their common
   majority owner, Thermo Electron, the transaction has been accounted for at
   historical cost in a manner similar to a pooling of interests.
   Accordingly, all historical financial information presented has been
   restated to reflect the acquisition of International Technidyne. The
   3,355,705 shares of Thermo Cardiosystems' common stock issuable in
   connection with the acquisition will not be issued until the listing of
   such shares for trading upon the American Stock Exchange has been approved
   by Thermo Cardiosystems' shareholders. Because the Company is the majority
   shareholder and intends to vote its shares in favor of such listing, the
   approval is assured and, therefore, the results of International
   Technidyne are included in the Company's results for all periods
   presented.
       Revenues and net income, as previously reported by the separate
   entities prior to the acquisition and as restated for the combined
   Company, are as follows:

   (In thousands)                                          1996       1995
   -----------------------------------------------------------------------

   Revenues:
     Historical                                        $258,085   $175,754
     International Technidyne                            33,992     32,287
                                                       --------   --------

                                                       $292,077   $208,041
                                                       ========   ========

   Net income:
     Historical                                        $ 26,831   $ 15,121
     International Technidyne                             4,672      4,210
     Minority interest expense not
       previously reported                               (2,365)    (2,157)
                                                       --------   --------

                                                       $ 29,138   $ 17,174
                                                       ========   ========










                                       15
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements

                   Notes to Consolidated Financial Statements

   3.  Acquisitions (continued)

       In addition, during 1997, two of the Company's majority-owned
   subsidiaries made acquisitions for $6,291,000 in cash.
       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. The cost of these acquisitions
   exceeded the estimated fair value of the acquired net assets by
   $16,905,000, which is being amortized over 40 years. 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.
       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. The cost of this
   acquisition exceeded the estimated fair value of the acquired net assets by
   $42,681,000, which is being amortized over 40 years. 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 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.



                                       16
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements

                   Notes to Consolidated Financial Statements

   3.  Acquisitions (continued)

       These acquisitions, excluding Thermo Cardiosystems' acquisition of
   International Technidyne, 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 all of these acquisitions exceeded the
   estimated fair value of the acquired net assets by $76,845,000, 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 1997,
   is subject to adjustment upon finalization of the purchase price
   allocation. The Company has gathered no information that indicates the
   final allocation of purchase price will differ materially from the
   preliminary estimates.
       Based on unaudited data, the following table presents selected
   financial information on a pro forma basis, assuming the Company and Orion
   had been combined since the beginning of 1995. 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
   ------------------------------------------------------------------------

   Revenues                                                        $251,207
   Net income                                                        19,239
   Earnings per share:
     Basic                                                              .57
     Diluted                                                            .54

       The pro forma results are not necessarily indicative of future
   operations or the actual results that would have occurred had the
   acquisition of Orion been made at the beginning of 1995.

   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. Two other plans, adopted in 1993 and 1997, permit the grant of
   a variety of stock and stock-based awards as determined by the human
   resources committee of the Company's Board of Directors (the Board
   Committee), including restricted stock, stock options, stock bonus shares,
   or performance-based shares. To date, only nonqualified stock options have
   been awarded under these plans. The option recipients and the terms of
   options granted under these plans are determined by the Board Committee.
   Generally, options granted to date are exercisable immediately, but are
   subject to certain transfer restrictions and the right of the Company to
   repurchase shares issued upon exercise of the options at the exercise
   price, upon certain events. The restrictions and repurchase rights


                                       17
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements

                   Notes to Consolidated Financial Statements

   4.  Employee Benefit Plans (continued)

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

                              1997              1996               1995
                        ----------------  ----------------  -----------------
                                Weighted          Weighted           Weighted
                        Number   Average  Number   Average  Number    Average
   (Shares in               of  Exercise      of  Exercise      of   Exercise
   thousands)           Shares     Price  Shares     Price  Shares      Price
   --------------------------------------------------------------------------

   Options outstanding,
     beginning of year  1,664    $14.99    1,557   $12.38    1,773     $12.14

       Granted            111     19.00      303    27.17       27      17.65

       Exercised          (63)     7.92     (137)    9.12      (74)      8.16

       Forfeited         (128)    22.75      (59)   22.42     (169)     12.57
                        -----              -----             -----

   Options outstanding,
     end of year        1,584    $14.93    1,664   $14.99    1,557     $12.38
                        =====    ======    =====   ======    =====     ======

   Options exercisable  1,584    $14.93    1,664   $14.99    1,557     $12.38
                        =====    ======    =====   ======    =====     ======
   Options available
     for grant            296                284               545
                        =====              =====             =====












                                       18
<PAGE>




   Thermedics Inc.                                   1997 Financial Statements

                   Notes to Consolidated Financial Statements

   4.  Employee Benefit Plans (continued)

       A summary of the status of the Company's stock options at January 3,
   1998, is as follows:

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

   (Shares in thousands)

   $ 4.70 - $10.96                           398         1.5 years    $ 7.13
    10.97 -  17.21                           878         7.8 years     15.22
    17.22 -  23.47                           134         7.8 years     19.07
    23.48 -  29.73                           174         5.5 years     28.10
                                           -----

   $ 4.70 - $29.73                         1,584         6.0 years    $14.93
                                           =====

   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 1997, 1996, and 1995, the Company issued 9,445 shares, 9,503 shares,
   and 14,552 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 1997, 1996, and 1995 under the Company's
   stock-based compensation plans been determined based on the fair value at








                                       19
<PAGE>




    Thermedics Inc.                                 1997 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)     1997       1996        1995
    -----------------------------------------------------------------------

    Net income:
      As reported                           $41,492     $29,138     $17,174
      Pro forma                              39,454      27,960      17,004
    Basic earnings per share:
      As reported                              1.13         .80         .51
      Pro forma                                1.08         .77         .51  
    Diluted earnings per share:
      As reported                              1.07         .75         .48
      Pro forma                                1.01         .72         .48

        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 weighted average fair value per share of options granted was
    $8.81, $11.49, and $6.50 in 1997, 1996, and 1995, respectively. The fair
    value of each option grant was estimated on the grant date using the
    Black-Scholes option-pricing model with the following weighted-average
    assumptions:

                                                1997       1996         1995
    ------------------------------------------------------------------------

    Volatility                                  39%         39%          39%
    Risk-free interest rate                    6.2%        5.7%         6.1%
    Expected life of options              5.6 years   5.0 years    3.7 years

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

    401(k) Savings Plan
        The majority of the Company's full-time U.S. employees are eligible
    to participate in Thermo Electron's 401(k) savings plan. 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 

                                       20
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements

                   Notes to Consolidated Financial Statements

    4.  Employee Benefit Plans (continued)

    employee contributions. For these plans, the Company contributed and
    charged to expense $1,758,000, $1,460,000, and $1,289,000 in 1997, 1996,
    and 1995, respectively. 

    5.  Income Taxes

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

    (In thousands)                                 1997      1996      1995
    -----------------------------------------------------------------------

    Domestic                                    $63,053   $43,172   $31,857
    Foreign                                       5,844     8,325     3,710
                                                -------   -------   -------

                                                $68,897   $51,497   $35,567
                                                =======   =======   =======

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

    (In thousands)                                 1997      1996      1995
    -----------------------------------------------------------------------

    Currently payable:
      Federal                                   $13,256   $12,058   $ 9,850
      State                                       3,008     2,327     2,202
      Foreign                                     2,049     3,618     1,783
                                                -------   -------   -------

                                                 18,313    18,003    13,835
                                                -------   -------   -------
    Net deferred (prepaid):
      Federal                                       496    (3,843)   (1,633) 
      State                                         145        24      (421)
      Foreign                                       721      (215)        -
                                                -------   -------   -------

                                                  1,362    (4,034)   (2,054)
                                                -------   -------   -------

                                                $19,675   $13,969   $11,781
                                                =======   =======   =======

        The Company and its majority-owned subsidiaries receive a tax
    deduction upon exercise of nonqualified stock options by employees for
    the difference between the exercise price and the market price of the
    Company's common stock on the date of exercise. The provision for income
    taxes that is currently payable does not reflect $1,591,000, $3,520,000,
    and $3,935,000 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 1997, 1996, and 1995, 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.


                                       21
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements

                   Notes to Consolidated Financial Statements

    5.  Income Taxes (continued)

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

    (In thousands)                                 1997      1996      1995
    -----------------------------------------------------------------------

    Provision for income taxes at statutory
      rate                                      $24,114   $18,024   $12,448
    Increases (decreases) resulting from:
      Gain on issuance of stock by subsidiaries  (5,976)   (8,278)   (1,206)
      State income taxes, net of federal tax      2,057     1,534     1,163
      Amortization and write-off of cost in
        excess of net assets of acquired
        companies                                   401     3,256       232
      Reduction in valuation allowance                -      (684)     (854)
      Tax-exempt investment income                    -       (11)     (115)
      Tax benefit of foreign sales corporation     (698)     (437)     (426)
      Foreign tax rate and regulation
        differential                               (125)     (132)      485
      Nondeductible expenses                        107       228       137
      Other, net                                   (205)      469       (83)
                                                -------   -------   -------

                                                $19,675   $13,969   $11,781
                                                =======   =======   =======

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

    (In thousands)                                 1997      1996
    -------------------------------------------------------------

    Prepaid (deferred) income taxes:
      Reserves and accruals                     $ 3,732   $ 4,455
      Inventory reserves                          3,869     2,234
      Depreciation and amortization               1,912       958
      Accrued compensation                        1,988     1,380
      Write-off of acquired technology (Note 3)   1,834     1,865
      Tax loss and credit carryforwards           1,180       652
      Trademarks and other intangible assets     (1,069)     (962)
      Allowance for doubtful accounts               328     1,079
      Warranty reserves                             107       934
      Other, net                                     72       264
                                                -------   -------

                                                $13,953   $12,859
                                                =======   =======








                                       22
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements

                   Notes to Consolidated Financial Statements

    5.  Income Taxes (continued)

        Thermo Voltek has federal tax net loss carryforwards, subject to the
    limitations described below. These net operating loss carryforwards will
    begin to expire in 1999. Pursuant to U.S. Internal Revenue Code Sections
    382 and 383, the utilization of the net operating loss carryforwards is
    limited to the tax benefit of a deduction of approximately $240,000 per
    year with any unused portion of this annual limitation carried forward to
    future years. As of January 3, 1998, net operating loss carryforwards
    totaled $2,500,000, including $600,000 that have not been benefited since
    they will expire unused. 
        The Company has not recognized a deferred tax liability for the
    difference between the book basis and tax basis of its investment in the
    common stock of its domestic subsidiaries (such difference relates
    primarily to unremitted earnings and gains on issuance of stock by
    subsidiaries) because the Company does not expect this basis difference
    to become subject to tax at the parent level. The Company believes it can
    implement certain tax strategies to recover its investment in its
    domestic subsidiaries tax-free. 
        A provision has not been made for U.S. or additional foreign taxes on
    $10,769,000 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. 

    6.  Commitments

        The Company and its subsidiaries lease various office and
    manufacturing facilities under operating lease arrangements expiring from
    1998 through 2003. The accompanying statement of income includes expenses
    from operating leases of $5,470,000, $5,689,000, and $3,416,000 in 1997,
    1996, and 1995, respectively. Future minimum payments due under
    noncancellable operating leases as of January 3, 1998, are $5,345,000 in
    1998; $4,030,000 in 1999; $3,224,000 in 2000; $2,281,000 in 2001;
    $2,077,000 in 2002; and $6,506,000 in 2003 and thereafter. Total future
    minimum lease payments are $23,463,000.


















                                       23
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements

                   Notes to Consolidated Financial Statements

    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)                  1997       1996
    ------------------------------------------------------------------------

    Noninterest-bearing subordinated convertible
      debentures, due 2003, convertible at 
      $32.68 per share                                  $ 65,000    $ 65,000
    3 3/4% Subordinated convertible debentures,
      due 2000, convertible into shares of
      Thermo Voltek at $7.83 per share                     7,750       9,345
    4 3/4% Subordinated convertible debentures,
      due 2004, convertible into shares of
      Thermo Cardiosystems at $31.415 per share           70,000           -
    Noninterest-bearing subordinated convertible
      debentures, due 1997, convertible into shares
      of Thermo Cardiosystems at $14.49 per share              -       3,755
    Other                                                     52          14
                                                        --------    --------

                                                         142,802      78,114
    Less: Current maturity of long-term obligation            31       3,755
                                                        --------    --------

                                                        $142,771    $ 74,359
                                                        ========    ========

        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 the Company's, 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 last
    trading date prior to conversion.
        During 1997, 1996, and 1995, convertible obligations of $4,650,000,
    $31,562,000, and $37,317,000, 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
    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
    outstanding of $5,506,000 and $5,262g,000 as of year-end 1997 and 1996,
    respectively. Amounts borrowed under these agreements are included in
    notes payable and current maturity of long-term obligation in the 

                                       24
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements

                   Notes to Consolidated Financial Statements

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

    accompanying balance sheet, and are guaranteed by either the Company or
    Thermo Electron. The weighted average interest rate on these borrowings
    was 7.4% and 6.3% at year-end 1997 and 1996, respectively. Unused lines
    of credit were $12,305,000 as of year-end 1997. In addition, included in
    notes payable and current maturity of long-term obligation in 1997 is a
    $1,961,000 promissory note relating to an acquisition by Thermo Sentron,
    bearing interest at 7.94%. The promissory note was repaid in January
    1998.

    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 paid Thermo Electron
    annually an amount equal to 1.0% of the Company's revenues in 1997 and
    1996 and 1.20% of the Company's revenues in 1995. Beginning in fiscal
    1998, the Company will pay an annual fee equal to 0.8% of the Company's
    revenues. The annual fee is reviewed and adjusted annually by mutual
    agreement of the parties. The corporate services agreement is renewed
    annually but can be terminated upon 30 days' prior notice by the Company
    or upon the Company's withdrawal from the Thermo Electron Corporate
    Charter (the Thermo Electron Corporate Charter defines the 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 $3,143,000,
    $2,953,000, and $2,529,000 in 1997, 1996, and 1995, 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.

    Research and Development Agreement
        Pursuant to a subcontract entered into in October 1993, Thermedics
    Detection performs research and development services for Thermo Coleman
    Corporation, which is the prime contractor under a contract with the U.S.
    Department of Energy. Thermo Coleman is a wholly owned subsidiary of
    Thermo Electron. Thermo Coleman paid Thermedics Detection $533,000,
    $619,000, and $829,000 for services rendered in 1997, 1996, and 1995,
    respectively.



                                       25
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements

                   Notes to Consolidated Financial Statements

    8.  Related-party Transactions (continued)

    Distribution Agreement
        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, another member of The Olayan Group, which is
    indirectly controlled by Suliman S. Olayan, Ms. Olayan's father. Revenues
    recorded under this agreement totaled $480,000, $652,000, and $3,000 in
    1997, 1996, and 1995, respectively.

    Management Contract
        One of the Company's executive employees in 1997 and two of the
    Company's executive employees in 1996 allocated 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 Thermo Electron's wholly owned biomedical businesses. In 1997, 1996,
    and 1995, the Company was reimbursed $194,000, $707,000, and $402,000,
    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, the Company's short-term available-for-sale
    investments included $3,336,000 (amortized cost of $3,182,000) of 6 1/2%
    subordinated convertible debentures due 1997, which were purchased on the
    open market. The debentures have a par value of $3,100,000 and were
    issued by Thermo TerraTech Inc., a majority-owned subsidiary of Thermo
    Electron. The debentures were sold in 1997, resulting in a gain of
    $428,000, included in gain on sale of investments in the accompanying
    statement of income.

    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. See Note 17 for additonal information pertaining to
    related-party common stock activity.

    9.  Contingency

        Thermo Cardiosystems has received correspondence alleging that the
    textured surface of the left ventricular-assist systems'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 

                                       26
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements

                   Notes to Consolidated Financial Statements

    9.  Contingency (continued)

    past usage. The Company has investigated the bases of the allegation and,
    based on the opinion of its counsel and the Company's assessment of the
    proceedings in the United States Patent and Trademark Office to date,
    believes that if Thermo Cardiosystems were sued on these bases, it would
    have meritorious defenses. Given the inherent uncertainties in dispute
    resolution, however, if Thermo Cardiosystems were sued and the outcome
    were unfavorable, the Company's results of operations or financial
    condition could be materially adversely affected in amounts the Company
    cannot reasonably estimate.

    10. Common Stock

        At January 3, 1998, the Company had reserved 4,250,895 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 1997, Thermedics Detection sold 2,671,292 shares of its
    common stock in an initial public offering at $11.50 per share, for net
    proceeds of $28,078,000, resulting in a gain of $17,075,000.
        In March 1996, Thermedics Detection sold 300,000 shares of its common
    stock in a private placement at $10.00 per share, for net proceeds of
    $3,000,000, resulting in a gain of $2,516,000. In November 1996,
    Thermedics Detection sold 383,500 shares of its common stock in a private
    placement at $10.75 per share, for net proceeds of $3,964,000, resulting
    in a gain of $3,165,000.
        In April 1996, Thermo Sentron sold 2,875,000 shares of its common
    stock in an initial public offering at $16.00 per share, 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.
        During 1997, 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.
        The Company's percentage ownership of its majority-owned subsidiaries
    at year end was as follows:

                                                         1997   1996   1995
    -----------------------------------------------------------------------

    Thermo Cardiosystems                                  51%    54%    52%
    Thermo Voltek                                         65%    51%    50%
    Thermo Sentron                                        71%    71%   100%
    Thermedics Detection                                  76%    94%   100%


                                       27
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements

                   Notes to Consolidated Financial Statements

    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 affiliates, and long-term obligations. The
    carrying amount 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 long-term obligations was determined based on
    quoted market prices. The carrying amount and fair value of the Company's
    long-term obligations are as follows:

                                      1997                     1996
                              -------------------      --------------------
                              Carrying       Fair      Carrying        Fair
    (In thousands)              Amount      Value        Amount       Value
     ----------------------------------------------------------------------

    Current maturity of
      long-term
      obligation             $      -    $      -     $  3,755    $  7,435
                             ========    ========     ========    ========

    Convertible
      obligations            $142,750    $130,201     $ 74,345    $ 62,666
    Other long-term
      obligations                  21          21           14          14
                             --------    --------     --------    --------

                             $142,771    $130,222     $ 74,359    $ 62,680
                             ========    ========     ========    ========

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




                                       28
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements

                   Notes to Consolidated Financial Statements

    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; security instruments; instruments that test electronic and
    electrical systems and components for immunity to electromagnetic
    interference; and a range of power electronics, including programmable
    power amplifiers and high-voltage power-conversion systems. The Company's
    Biomedical Products segment develops, manufactures, and sells LVAS;
    whole-blood, coagulation testing equipment, and skin-incision devices;
    and other biomedical products.
        The Company's Instruments and Other Equipment segment derived
    revenues from precision weighing and inspection equipment of $78,695,000,
    $70,027,000, and $67,474,000 in 1997, 1996, and 1995, respectively, and
    from laboratory products of $53,054,000 and $50,854,000 in 1997 and 1996,
    respectively. In addition, this segment derived revenues from electronic
    test instruments and power products of $44,648,000, $48,507,000, and
    $36,326,000 in 1997, 1996, and 1995, respectively.
        The Company's Biomedical Products segment derived revenues from LVAS
    devices of $24,969,000, $29,970,000, and $20,593,000 in 1997, 1996, and
    1995, respectively. In addition, this segment derived revenues from
    blood-coagulation testing equipment and skin-incision devices of
    $35,873,000, $33,992,000, and $32,287,000 in 1997, 1996, and 1995,
    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.














                                       29
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements

                   Notes to Consolidated Financial Statements

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

    (In thousands)                                  1997      1996      1995
    ------------------------------------------------------------------------

    Business Segment Information

    Revenues:
        Instruments and Other Equipment         $227,717  $213,138  $136,742
        Biomedical Products                       79,949    78,939    71,299
                                                --------  --------  --------

                                                $307,666  $292,077  $208,041
                                                ========  ========  ========
    Income before provision for income
      taxes and minority interest:
        Instruments and Other Equipment         $ 29,371  $ 22,725  $ 14,778
        Biomedical Products                       14,141      (718)   13,965
        Corporate (a)                             (2,104)   (2,112)   (2,462)
                                                --------  --------  --------

        Total operating income                    41,408    19,895    26,281
        Interest and other income, net            27,489    31,602     9,286
                                                --------  --------  --------

                                                $ 68,897  $ 51,497  $ 35,567
                                                ========  ========  ========
    Identifiable assets:
        Instruments and Other Equipment         $325,219  $297,141  $213,755
        Biomedical Products                      183,734   133,048   146,269
        Corporate (b)                             27,599    26,510    26,225
                                                --------  --------  --------

                                                $536,552  $456,699  $386,249
                                                ========  ========  ========
    Depreciation and amortization:
        Instruments and Other Equipment         $  7,115  $  7,304  $  4,040
        Biomedical Products                        3,232     3,115     2,697
        Corporate                                     14        12        29
                                                --------  --------  --------

                                                $ 10,361  $ 10,431  $  6,766
                                                ========  ========  ========
    Capital expenditures:
        Instruments and Other Equipment         $  3,530  $  5,185  $  2,669
        Biomedical Products                        3,539     3,436     3,999
        Corporate                                     18         -        23
                                                --------  --------  --------

                                                $  7,087  $  8,621  $  6,691
                                                ========  ========  ========








                                       30
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements

                   Notes to Consolidated Financial Statements

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

    (In thousands)                                  1997      1996      1995
    ------------------------------------------------------------------------

    Geographical Information

    Revenues:
        United States                           $245,682  $227,077  $160,016
        Europe                                    56,827    61,894    43,018
        Other                                     18,362    14,311    13,084
        Transfers among geographical areas (c)   (13,205)  (11,205)   (8,077)
                                                --------  --------   -------

                                                $307,666  $292,077  $208,041
                                                ========  ========  ========
    Income before provision for income 
      taxes and minority interest:
        United States                           $ 37,231  $ 12,863  $ 23,961
        Europe                                     3,461     7,366     3,170
        Other                                      2,820     1,778     1,612
        Corporate (a)                             (2,104)   (2,112)   (2,462)
                                                --------  --------  --------

        Total operating income                    41,408    19,895    26,281
        Interest and other income, net            27,489    31,602     9,286
                                                --------  --------  --------

                                                $ 68,897  $ 51,497  $ 35,567
                                                ========  ========  ========
    Identifiable assets:
        United States                           $445,839  $371,326  $319,712
        Europe                                    51,520    51,376    33,259
        Other                                     11,594     7,487     7,053
        Corporate (b)                             27,599    26,510    26,225
                                                --------  --------  --------

                                                $536,552  $456,699  $386,249
                                                ========  ========  ========
    Export revenues included in United States
      revenues above (d):
        Europe                                  $ 30,723  $ 24,769  $ 21,432
        Other                                     49,001    42,233    25,602
                                                --------  --------  --------

                                                $ 79,724  $ 67,002  $ 47,034
                                                ========  ========  ========
    ____________
    (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.




                                       31
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements

                   Notes to Consolidated Financial Statements

    15. Earnings per Share

        Basic and diluted earnings per share were calculated as follows:

    (In thousands except per share amounts)      1997       1996        1995
    ------------------------------------------------------------------------

    Basic
    Net income                              $ 41,492    $ 29,138    $ 17,174
                                            --------    --------    --------

    Weighted average shares                   36,700      36,417      33,660
                                            --------    --------    --------

    Basic earnings per share                $   1.13    $    .80    $    .51
                                            ========    ========    ========

    Diluted
    Net income                              $ 41,492    $ 29,138    $ 17,174
    Effect of:
      Convertible obligations                      -          50         428
      Majority-owned subsidiaries'
        dilutive securities                      (39)       (441)       (651)
                                            --------    --------    --------

    Income available to common
      shareholders, as adjusted             $ 41,453    $ 28,747    $ 16,951
                                            --------    --------    --------

    Weighted average shares                   36,700      36,417      33,660
    Effect of:
      Convertible obligations                  1,989       1,346       1,055
      Stock options                              222         439         321
                                            --------    --------    --------

    Weighted average shares, as adjusted      38,911      38,202      35,036
                                            --------    --------    --------

    Diluted earnings per share              $   1.07    $    .75    $    .48
                                            ========    ========    ========

        The computation of diluted earnings per share excludes the effect of
    assuming the exercise of certain outstanding stock options because the
    effect would be antidilutive. As of January 3, 1998, there were 496,380
    of such options outstanding, with exercise prices ranging from $17.73 to
    $29.73 per share.














                                       32
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements

                   Notes to Consolidated Financial Statements

    16. Unaudited Quarterly Information

    (In thousands except per share amounts)

    1997                        First(a)   Second        Third      Fourth
    ----------------------------------------------------------------------

    Revenues                 $72,057     $75,996      $76,217     $83,396
    Gross profit              35,096      37,856       37,784      41,250
    Net income                21,966       5,506        6,664       7,356
    Earnings per share:
      Basic                      .60         .15          .18         .20
      Diluted                    .56         .14          .17         .19

    1996(b)                     First      Second        Third      Fourth
    ----------------------------------------------------------------------

    Revenues                 $68,994     $71,094      $74,202     $77,787
    Gross profit              33,185      34,121       37,668      38,966
    Net income                 5,257       9,754        6,359       7,768
    Earnings per share:
      Basic                      .15         .27          .17         .21
      Diluted                    .14         .25          .16         .20
    ____________
    (a) Results include a nontaxable gain of $17,075,000 from the issuance of
        stock by subsidiaries.
    (b) 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. 

    17. Subsequent Event

        On February 5, 1998, the Company's Board of Directors voted to issue
    4,880,533 shares of its common stock to Thermo Electron in exchange for
    100% of the stock of TMO TCA Holdings Inc., which is the beneficial
    owner of 3,355,705 shares of Thermo Cardiosystems' common stock. The
    issuance of the 3,355,705 shares of Thermo Cardiosystems common stock is
    subject to the approval by Thermo Cardiosystems' shareholders for the
    acquisition of International Technidyne from Thermo Electron (Note 3).
    The Company's issuance of the 4,880,533 shares of its common stock to
    Thermo Electron is subject to approval by the Company's shareholders.
    However, because Thermo Electron is the majority shareholder and intends
    to vote its shares in favor of the transaction, approval is assured. The
    shares of common stock will be exchanged at their respective fair market
    values as of February 5, 1998.  










                                       33
<PAGE>




    Thermedics Inc.                                 1997 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 58%-owned subsidiary of
    Thermo Electron Corporation) and subsidiaries as of January 3, 1998, and
    December 28, 1996, and the related consolidated statements of income,
    shareholders' investment, and cash flows for each of the three years in
    the period ended January 3, 1998. These consolidated financial statements
    are the responsibility of the Company's management. Our responsibility is
    to express an opinion on these consolidated financial statements based on
    our audits.
        We conducted our audits in accordance with generally accepted
    auditing standards. Those standards require that we plan and perform the
    audit to obtain reasonable assurance about whether the consolidated
    financial statements are free of material misstatement. An audit includes
    examining, on a test basis, evidence supporting the amounts and
    disclosures in the financial statements. An audit also includes assessing
    the accounting principles used and significant estimates made by
    management, as well as evaluating the overall financial statement
    presentation. We believe that our audits provide a reasonable basis for
    our opinion.
        In our opinion, the consolidated financial statements referred to
    above present fairly, in all material respects, the financial position of
    Thermedics Inc. and subsidiaries as of January 3, 1998, and December 28,
    1996, and the results of their operations and their cash flows for each
    of the three years in the period ended January 3, 1998, in conformity
    with generally accepted accounting principles.



                                            Arthur Andersen LLP



    Boston, Massachusetts
    February 12, 1998

















                                       34
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements

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

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

    Overview

        The Company's business are divided into two segments: Instruments and
    Other Equipment, and Biomedical Products. The Instruments and Other
    Equipment segment includes the Company's Thermo Sentron Inc. 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
    electrode-based chemical-measurement products that determine the quality
    of a wide variety of substances by measuring components, such as pH, ion,
    dissolved oxygen, and conductivity levels and are used in the
    agricultural, biomedical research, food-processing, pharmaceutical, and
    many other industries; its Thermedics Detection Inc. subsidiary, which
    develops, manufactures, and markets high-speed, on-line detection
    instruments used in a variety of industrial process applications,
    security applications, and laboratory analysis; and its Thermo Voltek
    Corp. subsidiary, which manufactures electronic-test instruments and a
    range of products related to power amplification, conversion, and
    quality.
        As part of its Biomedical Products segment, the Company's Thermo
    Cardiosystems Inc. subsidiary manufactures two implantable left
    ventricular-assist systems (LVAS): a pneumatic, or air-driven, system and
    an electric version. 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 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. Thermo
    Cardiosystems' International Technidyne Corporation subsidiary is a
    leading manufacturer of near-patient, whole-blood coagulation testing
    equipment and related disposables and also manufactures single-use,
    premium-quality, skin-incision devices. The Company also develops and
    manufactures and markets 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.


                                       35
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements

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

    Overview (continued)

        Approximately 46% of the Company's revenues in 1997 were derived from
    sales of products outside of the U.S., through export sales and sales by
    the Company's foreign subsidiaries. During 1997, the Company had exports
    from its U.S. and foreign operations to Asia of approximately 8% of total
    revenues. Exports to Asia in 1997 were primarily to Japan, China, and
    South Korea. Asia is experiencing a severe economic crisis, which has
    been characterized by sharply reduced economic activity and liquidity,
    highly volatile foreign-currency-exchange and interest rates, and
    unstable stock markets. The Company's export sales could be adversely
    affected by the unstable economic conditions in Asia. 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 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

    1997 Compared With 1996
        Total revenues increased to $307.7 million in 1997 from $292.1
    million in 1996. Instruments and Other Equipment segment revenues
    increased to $227.7 million in 1997 from $213.1 million in 1996,
    primarily due to increases in revenues of $7.6 million, $8.7 million, and
    $2.2 million at Thermedics Detection, Thermo Sentron, and Orion,
    respectively, offset in part by a $3.9 million decrease in revenues at
    Thermo Voltek. 
        Revenues at Thermedics Detection increased to $51.3 million in 1997
    from $43.8 million in 1996. Revenues from Thermedics Detection's process
    detection instruments and related services increased to $22.4 million in
    1997 from $16.0 million in 1996, primarily as a result of the fulfillment
    of a mandated product-line upgrade from The Coca-Cola Company to its
    existing installed base and, to a lesser extent, increased shipments of
    its InScan systems, introduced in 1996. The mandated product-line upgrade
    was completed in 1997. These increases were offset in part by a decrease
    in demand from The Coca-Cola Company for new installations in 1997. As a
    result of this decrease in demand and the completion of the product-line
    upgrade, the Company anticipates that sales of Alexus systems will slow
    in 1998, which is the primary reason for the $5.1 million decrease in the
    Company's backlog in 1997. Revenues from Thermedics Detection's EGIS
    security systems and related services increased to $10.3 million in 1997
    from $7.1 million in 1996, primarily due to $3.2 million of shipments
    under a contract with the Federal Aviation Administration (FAA). Revenues
    from Thermo Sentron increased to $78.7 million in 1997 from $70.0 million
    in 1996, primarily due to an increase of $7.2 million related to an
    increase in product demand and $4.2 million due to acquisitions. These
    increases were offset in part by a decrease of $2.7 million due to the
    impact of a stronger U.S. dollar relative to currencies in foreign 


                                       36
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements

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

    1997 Compared With 1996 (continued)
    countries in which Thermo Sentron operates. Revenues from Thermo Voltek
    decreased to $44.6 million in 1997 from $48.5 million in 1996, primarily
    due to a lower demand for EMC test products, resulting from the declining
    influence of IEC 801, the European Union directive on electromagnetic
    compatibility that took effect January 1, 1996, and, to a lesser extent,
    a decline in the component-reliability market for electrostatic discharge
    test equipment resulting from a slowdown in capital expenditures by the
    semiconductor industry. These decreases in revenues at Thermo Voltek were
    offset in part by an increase in revenues of $5.8 million due to
    acquisitions.
        Biomedical Products segment revenues increased slightly to
    $79.9 million in 1997 from $78.9 million in 1996. Revenues from Thermo
    Cardiosystems decreased to $62.8 million in 1997 from $64.0 million in
    1996, primarily due to a $6.6 million decrease in revenues from its
    air-driven LVAS, offset in part by a $1.9 million increase in revenues
    from its electric LVAS. Thermo Cardiosystems expects that revenues from
    sales of its LVAS will stabilize at approximately current levels until
    the electric system is approved in the U.S. for commercial sale. Thermo
    Cardiosystems believes that this approval could occur within the first
    six months of 1998; however, there can be no assurance that the Company
    will receive this approval within the expected time period, or at all.
    The decrease in revenues at Thermo Cardiosystems in 1997 was also offset
    in part by the inclusion of $2.0 million in revenues from an acquisition.
    In addition, revenues from International Technidyne and the Company's
    Polymer Products division increased $1.9 million and $1.8 million,
    respectively, during 1997 due to an increase in demand. 
        The gross profit margin remained constant at 49% in 1997 and 1996.
    The gross profit margin for the Instruments and Other Equipment segment
    was 48% in both 1997 and 1996. The gross profit margin at Thermedics
    Detection increased primarily due to a change in product mix to
    higher-margin revenues from The Coca-Cola Company's mandated product line
    upgrade, field service efficiencies in 1997, and a change in sales mix to
    higher-margin revenues at Moisture Systems and Rutter. To a lesser
    extent, the gross profit margin improved at Thermedics Detection due to
    the effect in 1996 of a charge for inventory obsolescence in connection
    with planned product changes. In addition, the gross profit margin
    improved at Orion in 1997, primarily due to lower overhead costs at its
    new operating location. These increases were offset in part by a decrease
    in the gross profit margin at Thermo Voltek, primarily due to a decrease
    in sales of certain higher-margin EMC test products, as well as the
    effect of a decrease in total revenues.
        The gross profit margin for the Biomedical Products segment remained
    constant at 54% in 1997 and 1996. The gross profit margin at Thermo
    Cardiosystems decreased primarily due to a shift in the sales mix to the
    lower-margin electric LVAS and, to a lesser extent, increased warranty
    costs due to a company-initiated modification of certain of its LVAS,
    completed in the first quarter of 1997. This decrease was offset by
    improved margins at International Technidyne, primarily due to
    manufacturing efficiencies. Thermo Cardiosystems announced an overall



                                       37
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements

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

    1997 Compared With 1996 (continued)
    price increase of approximately 10% in the electric LVAS product line,
    effective June 28, 1997, to help offset increased production costs.
    Thermo Cardiosystems will continue to be unable to earn a profit on sales
    of the electric LVAS in the U.S. until FDA approval of that system is
    obtained. The gross profit margin increased at the Company's Polymer
    Products division due in part to the effect of establishing certain
    inventory and related reserves in 1996.
        Selling, general, and administrative expenses as a percentage of
    revenues decreased to 28% in 1997 from 29% in 1996. Selling, general, and
    administrative expenses as a percentage of revenues decreased at
    Thermedics Detection due to $0.4 million of nonrecurring costs in 1996
    and, to a lesser extent, an increase in revenues in 1997, offset in part
    by increased selling expenses as Thermedics Detection developed a sales
    force for its InScan and Flash-GC systems. Selling, general, and
    administrative expenses as a percentage of revenues increased at Thermo
    Cardiosystems due to higher marketing expenses as a result of an increase
    in its LVAS sales force and, to a lesser extent, promotional expenses at
    International Technidyne. Selling, general, and administrative expenses
    as a percentage of revenues also increased at Thermo Voltek due to the
    effect of a decrease in revenues, and severance and related costs
    incurred as part of a continuing evaluation of its lines of business.
        Research and development expenses increased to $24.3 million in 1997
    from $21.4 million in 1996, primarily due to increased research and
    development expenses at Orion to develop new products and at Thermo
    Cardiosystems. The increase in research and development expenses at
    Thermo Cardiosystems primarily relates to a clinical trial being
    conducted to evaluate the electric LVAS as an alternative to medical
    therapy and, to a lesser extent, the inclusion of expenditures at Nimbus,
    acquired in December 1996. Thermo Cardiosystems expects research and
    development expenses to continue to increase over the life of the
    clinical trial, estimated at two to three years. There can be no
    assurance that the Company will complete this study or that it will
    receive FDA approval of the electric LVAS as an alternative to medical
    therapy during this time period, or at all.
        In 1996, the Company recorded nonrecurring expenses 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 (Note 3).
        Interest income increased to $13.3 million in 1997 from $10.8 million
    in 1996, due to higher average invested balances at Thermedics Detection
    and Thermo Sentron as a result of their initial public offerings of
    common stock in March 1997 and April 1996, respectively, and at Thermo
    Cardiosystems as a result of the issuance of $70.0 million principal
    amount of 4 3/4% subordinated convertible debentures in May 1997.
    Interest expense decreased to $3.4 million in 1997 from $3.8 million in
    1996, primarily due to the repayment of $53.0 million of notes payable to
    Thermo Electron in September 1996, conversions of subordinated
    convertible obligations, and a reduction in short-term borrowings at 


                                       38
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements

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

    1997 Compared With 1996 (continued)
    Thermo Sentron, offset in part by Thermo Cardiosystems' issuance of
    debentures.
        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 subsidiaries through the establishment of subsidiary-level stock
    option incentive programs, as well as capital to support the
    subsidiaries' growth. As a result of the sale of stock by subsidiaries,
    the Company recorded gains of approximately $17.1 million and
    $23.7 million in 1997 and 1996, respectively (Note 11). 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. 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 would be significant changes in the way the Company records certain
    transactions of its controlled subsidiaries. Among those changes, any
    sale of the stock of a subsidiary that does not result in a loss of
    control would be accounted for as a transaction in equity of the
    consolidated entity with no gain or loss being recorded. The exposure
    draft addresses the consolidation issues in two parts: consolidation
    procedures, which includes proposed rule changes affecting the Company's
    ability to recognize gains on issuances of subsidiary stock, and
    consolidation policy, which does not address accounting for such gains.
    During 1997, the FASB decided to focus its efforts on the consolidation
    policy part of the exposure draft and to consider resuming discussion on
    consolidation procedures after completion of the efforts on consolidation
    policy. The timing and content of any final statement are uncertain.
        The effective tax rates were 29% and 27% in 1997 and 1996,
    respectively. The effective tax rates were below the statutory federal
    income tax rate primarily due to nontaxable gains on issuance of stock by
    subsidiaries, offset in part by the impact of state income taxes and
    nondeductible amortization of cost in excess of net assets of acquired
    companies.
        Minority interest expense decreased to $7.7 million in 1997 from
    $8.4 million in 1996, primarily due to lower profits at Thermo
    Cardiosystems and Thermo Voltek, offset in part by the minority interest
    associated with Thermedics Detection and Thermo Sentron.
        The Company is currently assessing the potential impact of the year
    2000 on the processing of date-sensitive information by the Company's
    computerized information systems and on products sold as well as products
    purchased by the Company. The Company believes that its internal 


                                       39
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements

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

    1997 Compared With 1996 (continued)
    information systems and current products are either year 2000 compliant
    or will be so prior to the year 2000 without incurring material costs.
    There can be no assurance, however, that the Company will not experience
    unexpected costs and delays in achieving year 2000 compliance for its
    internal information systems and current products, which could result in
    a material adverse effect on the Company's future results of operations.
        The Company is presently assessing the effect that the year 2000
    problem may have on its previously sold products. The Company is also
    assessing whether its key suppliers are adequately addressing this issue
    and the effect this might have on the Company. The Company has not
    completed its analysis and is unable to conclude at this time that the
    year 2000 problem as it relates to its previously sold products and
    products purchased from key suppliers is not reasonably likely to have a
    material adverse effect on the Company's future results of operations.

    1996 Compared With 1995
        Total revenues increased 40% to $292.1 million in 1996 from $208.0
    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 and 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 EGIS security 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 $78.9 million in
    1996 from $71.3 million in 1995. Revenues from Thermo Cardiosystems
    increased $11.1 million to $64.0 million in 1996, primarily due to a $9.4
    million increase in LVAS sales and, to a lesser extent, a $1.7 million
    increase in sales of International Technidyne products. International
    Technidyne revenue growth resulted primarily from a $1.4 million increase
    in sales of skin-incision devices due to an increase in demand. These
    increases were 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


                                       40
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements

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

    1996 Compared With 1995 (continued)
    the licensee. The Company recorded royalty income of $426,000 in 1996 and
    $197,000 in 1995 related to this agreement.
        The gross profit margin was 49% in 1996, compared with 47% 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 54% in 1996 from 53% in 1995, primarily from an increase in revenues
    in Thermo Cardiosystems' LVAS product line due to 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 29% 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, $0.4 million of 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 increased to $21.4 million in 1996
    from $14.9 million in 1995, primarily due to the inclusion of expenses
    from Orion for a full year in 1996 and, to a lesser extent, increased
    research and development expenses at Thermo Voltek and Thermedics
    Detection.
        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 (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 (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.
        The Company recorded gains of $23.7 million and $3.5 million in 1996
    and 1995, respectively, from issuance of stock by subsidiaries (Note 11).
        The effective tax rate was 27% in 1996, compared with 33% 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 



                                       41
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements

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

    1996 Compared With 1995 (continued)
    subsidiaries and the elimination of the valuation allowance no longer
    required, offset in part by the nondeductible write-off of certain
    intangible assets at the Company's Corpak subsidiary, 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. 
        Minority interest expense increased to $8.4 million in 1996 from $6.6
    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.

    Liquidity and Capital Resources

        Consolidated working capital was $309.4 million at January 3, 1998,
    compared with $208.2 million at December 28, 1996. Cash, cash
    equivalents, and short- and long-term available-for-sale investments were
    $258.0 million at January 3, 1998, compared with $181.8 million at
    December 28, 1996. Of the $258.0 million balance at January 3, 1998,
    $231.7 million was held by the Company's majority-owned subsidiaries and
    the remainder by the Company and its wholly owned subsidiaries.
        During 1997, $38.9 million of cash was provided by operating
    activities. Cash of $2.9 million, provided by an increase in other
    current liabilities, was more than offset by the use of $5.4 million of
    cash to fund an increase in inventories. The increase in inventories
    related to an order received from the FAA, which resulted in increased
    inventory purchases at Thermedics Detection. Inventories at Orion
    increased to normal operating levels from a low level at year-end 1996,
    which was due to its relocation in the fourth quarter of 1996.
        Excluding available-for-sale investment activity, the Company's
    primary investing activities during 1997 included expenditures of $5.7
    million for acquisitions (Note 3) and $7.1 million for purchases of
    property, plant, and equipment. During 1998, the Company expects to make
    capital expenditures of approximately $10.0 million. 
        During 1997, the Company's financing activities provided
    $48.4 million in cash. In March 1997, Thermedics Detection issued shares
    of its common stock in an initial public offering for net proceeds of
    approximately $28.1 million (Note 11). In addition, in May 1997, Thermo
    Cardiosystems issued and sold $70.0 million principal amount of 4 3/4%
    subordinated convertible debentures due 2004 for net proceeds of $68.0
    million (Note 7). 
        The Company intends, for the foreseeable future, to maintain at least
    50% ownership of its majority-owned subsidiaries. This may require the
    Company to purchase 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 these companies' outstanding shares
    increases, whether as a result of conversion of convertible notes
    orexercise of stock options issued by them, or otherwise. These or any
    other purchases may be made (i) in the open market or in negotiated 



                                       42
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements

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

    Liquidity and Capital Resources (continued)

    transactions, (ii) directly from Thermo Electron or the relevant
    subsidiary, or (iii) in the case of Thermo Voltek, pursuant to the
    conversion of all or part of its subordinated convertible notes held by
    the Company. 
        During 1997, the Company and certain of its majority-owned
    subsidiaries expended $9.1 million and $42.7 million, respectively, to
    purchase securities of the Company and certain of its majority-owned
    subsidiaries. These purchases were made pursuant to authorizations by the
    Company's and the applicable majority-owned subsidiaries' Boards of
    Directors. As of January 3, 1998, $0.8 million and $21.7 million remained
    under the Company's and its majority-owned subsidiaries' authorizations,
    respectively. In March 1998, the Company's Board of Directors authorized
    the repurchase, through March 5, 1999, of up to an additional $10.0
    million of its own securities and those of its majority-owned
    subsidiaries in private and open markets, or in negotiated transactions.
    Any such purchases are funded from working capital.
        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. In March 1998, Thermo Sentron reached a definitive
    agreement with Smiths Industries plc to acquire the three businesses that
    constitute the product-monitoring group of its Graseby plc division, for
    approximately $43.0 million in cash, net of cash acquired. The purchase
    price is subject to a post-closing adjustment. Graseby plc designs,
    manufactures, and distributes specialized packaged-goods equipment,
    including checkweighers, metal detectors, and thermal printers, primarily
    for use by food producers and pharmaceutical companies. The completion of
    this transaction is subject to the receipt of approvals from anti-trust
    authorities in the United States and Germany. While the Company currently
    has no other agreements to make any acquisitions, it expects that it
    would finance any acquisitions through a combination of internal funds,
    additional debt or equity financing from the capital markets, or
    short-term borrowings from Thermo Electron, although its has no agreement
    with Thermo Electron that assures funds will be available on acceptable
    terms or at all. The Company believes its existing resources are
    sufficient to meet the capital requirements of its existing operations
    for the foreseeable future.













                                       43
<PAGE>




    Thermedics Inc.                                 1997 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 1998 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 exposure draft addresses the
    consolidation issues in two parts: consolidation procedures, which
    includes proposed rule changes affecting the Company's ability to
    recognize gains on issuances of subsidiary stock, and consolidation
    policy, which does not address accounting for such gains. During 1997,
    the FASB decided to focus its efforts on the consolidation policy part of


                                       44
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements

                           Forward-looking Statements

    the exposure draft and to consider resuming discussion on consolidation
    procedures after completion of the efforts on consolidation policy. The
    timing and content of any final statement are uncertain.

        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
    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. During 1997, the Company had exports from its U.S. and
    foreign operations to Asia of approximately 8% of total revenues. Exports
    to Asia in 1997 were primarily to Japan, China, and South Korea. Asia is
    experiencing a severe economic crisis, which has been characterized by
    sharply reduced economic activity and liquidity, highly volatile
    foreign-currency-exchange and interest rates, and unstable stock markets.
    The Company's export sales could be adversely affected by the unstable
    economic conditions in Asia.

        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.




                                       45
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements

                           Forward-looking Statements

        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 were 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
    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' biomedical devices, including its 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.



                                       46
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements

                           Forward-looking Statements

        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.
        In June 1997, Thermo Cardiosystems submitted a PMA supplemental
    application to receive FDA approval of its electric system for use as a
    bridge to transplant. This application is currently under review;
    however, no assurance can be given that the FDA will review this
    application on a timely basis or will grant approval once it completes
    its review. Significant 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
    likely 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. In addition, the Company's
    coagulation-testing equipment can cost several thousand dollars per
    instrument. Without the financial support of 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'


                                       47
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements

                           Forward-looking Statements

    HeartMate pneumatic LVAS. Several major nongovernment insurers have
    already agreed to offer coverage for the pneumatic LVAS. HCFA's coverage
    policy could also extend to the electric LVAS once approved, although
    there can be no assurance such coverage will extend to the electric LVAS.
    In addition, some major nongovernment insurers currently offer coverage
    for the electric LVAS because of its investigational device exemption
    status as a category B device (eligible for Medicare coverage and
    payment). Even though reimbursement has been established by HCFA and by
    certain nongovernment insurers for the pneumatic LVAS, 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. 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. In addition, acceptance by these physicians of Thermo
    Cardiosystems' whole-blood coagulation monitoring systems and Coumadin
    monitors is also important to the success of Thermo Cardiosystems'
    business. Thermo Cardiosystems has developed working relationships with a
    number of leading medical centers, and its existing and proposed LVAS and
    its blood-coagulation monitoring systems 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. 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 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


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    Thermedics Inc.                                 1997 Financial Statements

                           Forward-looking Statements

    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 and components 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' LVAS business was engaged only in the
    research and development. 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 volume, 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 and/or components are approved for
    commercial sale. Thermo Cardiosystems does not have experience in the
    large-scale commercialization of LVAS medical devices. Although 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 LVAS
    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 protect Thermo Cardiosystems completely 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


                                       49
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    Thermedics Inc.                                 1997 Financial Statements

                           Forward-looking Statements

    obtaining, or the failure to obtain, any such approvals could have a
    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 many of Thermo Voltek's products results from
    efforts by manufacturers to comply with IEC 801, an EU directive that
    became effective on January 1, 1996. As the number of noncomplying
    manufacturers is reduced over time, demand for Thermo Voltek's products
    is likely to be adversely affected. In addition, if new EMC standards
    requiring new testing capabilities are enacted less frequently or if EMC
    standards become less strict or not strictly enforced, 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 Company beleives the
    FAA is of the opinion that, to date, no system has demonstrated that it
    meets all FAA standards 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 in the United States. The FAA first certified a
    computed X-ray tomography system for checked luggage in December 1994.
    Thermedics Detection's systems are trace detectors for which no FAA
    certification process for checked baggage, carry-on, or personal
    screening exists to date. Currently, Thermedics Detection is seeking FAA
    approval for Thermedics Detection's EGIS and Ramport systems for use by
    airlines in screening carry-on electronic items and luggage searches,
    however, there can be no assurance that such FAA approvals will be
    obtained. Each airline must seek this approval for each application.
    Although the FAA has provided significant funding to Thermedics Detection


                                       50
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    Thermedics Inc.                                 1997 Financial Statements

                           Forward-looking Statements

    in connection with the development of its explosives-detection
    technology, there can be no assurance that any of Thermedics Detection's
    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 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 purchase or upgrade their security
    systems, including upgrading existing metal-detection equipment. Earnings
    of U.S. air carriers tends 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 personal, 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. The FAA has made purchases of, or placed
    orders for the purchase of, security equipment under this legislation,
    including an order to purchase $5.8 million of Thermedics Detection's
    EGIS systems. There can be no assurance, however, that this legislation
    will not be modified to reduce the funding for advanced explosives
    equipment, that the necessary appropriations will be made to fund further
    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
    further appropriations are made and such equipment is mandated, any of
    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 $13,194,000,
    $10,641,000, and $9,974,000 in 1997, 1996, and 1995, respectively. In
    1997, Thermedics Detection completed the fulfillment of a mandated
    product-line upgrade for The Coca-Cola Bottlers. 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. Further, the Company intends to continue to develop and
    introduce new process detection products for the food, beverage, and
    other markets; however, there can be no assurance that Thermedics


                                       51
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    Thermedics Inc.                                 1997 Financial Statements

                           Forward-looking Statements

    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.

        Potential Impact of Year 2000 on Processing of Date-sensitive
    Information. The Company is currently assessing the potential impact of
    the year 2000 on the processing of date-sensitive information by the
    Company's computerized information systems and on products sold as well
    as products purchased by the Company. The Company believes that its
    internal information systems and current products are either year 2000
    compliant or will be so prior to the year 2000 without incurring material
    costs. There can be no assurance, however, that the Company will not
    experience unexpected costs and delays in achieving year 2000 compliance
    for its internal information systems and current products, which could
    result in a material adverse effect on the Company's future results of
    operations.
        The Company is presently assessing the effect that the year 2000
    problem may have on its previously sold products. The Company is also
    assessing whether its key suppliers are adequately addressing this issue
    and the effect this might have on the Company. The Company has not
    completed its analysis and is unable to conclude at this time that the
    year 2000 problem as it relates to its previously sold products and
    products purchased from key suppliers is not reasonably likely to have a
    material adverse effect on the Company's future results of operations.





























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    Thermedics Inc.                                 1997 Financial Statements

                         Selected Financial Information

    (In thousands except
    per share amounts)     1997(a)     1996(b)    1995(c)     1994(d)    1993
    -------------------------------------------------------------------------

    Statement of Income
      Data:
    Revenues           $307,666   $292,077    $208,041    $183,753  $104,545
    Net income           41,492     29,138      17,174      12,695     7,633
    Earnings per share:
      Basic                1.13        .80         .51         .39       .25
      Diluted              1.07        .75         .48         .38       .25

    Balance Sheet Data:
    Working capital    $309,363   $208,170    $114,340    $131,578  $135,992
    Total assets        536,552    456,699     386,249     306,691   251,874
    Long-term
      obligations       142,771     74,359      45,201      82,551    59,130
    Shareholders'
      investment        227,346    211,582     172,751     136,783   122,186

    ------------
    (a)Reflects a nontaxable gain of $17.1 million from the issuance of
       stock by subsidiaries and the May 1997 issuance of $70.0 million
       principal amount of 4 3/4% subordinated convertible debentures by
       Thermo Cardiosystems.
    (b)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.
    (c)Reflects the December 1995 acquisition of Orion.
    (d)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 Technology,
       Inc.




















                                       53
<PAGE>




    Thermedics Inc.                                 1997 Financial Statements


    Common Stock Market Information
        The Company's common stock is traded on the American Stock Exchange
    under the symbol TMD. The following table sets forth the high and low
    sale prices of the Company's common stock for 1997 and 1996, as reported
    in the consolidated transaction reporting system.

                                       1997                  1996
                                -------------------   ------------------

    Quarter                         High        Low      High        Low
    --------------------------------------------------------------------

    First                      $21 1/4     $16 5/8    $30 1/2    $23 1/4
    Second                      19 7/16     15         31 7/8     24 5/8
    Third                       19 7/8      15 1/8     31 1/8     20 1/8
    Fourth                      20 1/2      15 1/16    26 3/8     17 5/8

        As of January 30, 1998, the Company had 2,358 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 30, 1998, was $15 1/4 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. (symbol 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, (781) 622-1111. A mailing list is maintained to
    enable shareholders whose stock is held in street name, and other
    interested individuals, to receive quarterly reports, annual reports, and
    press releases as quickly as possible. Distribution of printed quarterly
    reports is limited to the second quarter report only. All material will
    be available from Thermo Electron's Internet site
    (http://www.thermo.com/subsid/tmd1.html).

    Stock Transfer Agent
        BankBoston 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:

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







                                       54
<PAGE>




    Thermedics Inc.                                 1997 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
    January 3, 1998, 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 1,
    1998, at 1:30 p.m., at the Hyatt Regency Hotel, Scottsdale, Arizona.




































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