EXHIBIT 13
                             IONICS, INCORPORATED
                       ANNUAL REPORT TO STOCKHOLDERS OF
                         IONICS, INCORPORATED FOR THE
                      FISCAL YEAR ENDED DECEMBER 31, 1997

              (Only pages 17 through 36 and the inside back cover
                      constitute an Exhibit to Form 10-K)









































/177


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

Results of Operations
The financial performance of the Company reflected an 8% growth in
revenues and a 7% improvement in net income in 1997.  The net income
growth included increases in earnings before interest, taxes and
minority interest of 23% and 36% in the Membranes and Related Equipment
and Consumer Products segments, respectively.  The improvement in the
Membranes and Related Equipment segment reflected the acquisition of a
majority interest in Enersave Engineering Systems Sdn Bhd, a Malaysian
corporation (Enersave), improvement in the water desalting and related
equipment business and increased sales of instrumentation.  The
improvement in the Consumer Products segment reflected growth in the
bottled water business.  Earnings before interest, taxes and minority
interest decreased 9% in the Water, Food and Chemical Supply segment due
primarily to decreases in the municipal water and food processing
businesses.

     Total revenues were $352.5 million in 1997, compared with $326.7
million in 1996.  Revenues were higher in all three business segments,
with the largest growth occurring in Membranes and Related Equipment.

     Membranes and Related Equipment revenues in 1997 grew due to
increased sales of water desalting and related equipment and the
acquisition of a majority interest in Enersave.  Growth also resulted
from additional sales of instrumentation, primarily to the
pharmaceutical market, but was partially offset by a reduction in
revenues from the sale of wastewater systems.

     Growth in the Water, Food and Chemical Supply segment reflected an
increase in the ultrapure water supply business, partially offset by
decreased sales of municipal water.  The decrease in municipal water was
primarily a result of the City of Santa Barbara's buy-out of the
desalination plant constructed and maintained by the Company.

     Consumer Products revenues increased during the year primarily
reflecting higher revenues from bottled water sales.  This increase
resulted from growth in the customer base, an increase in consumption by
the existing customer base, particularly in the United Kingdom which
experienced a relatively warm summer and price increases.

     Total revenues were $326.7 million in 1996, compared with $257.3
million in 1995.  Revenues were higher in all three business segments,
with the largest growth occurring in Water, Food and Chemical Supply.

     Membranes and Related Equipment revenues in 1996 grew due to
continuing strength in the sale of ultrapure water systems to the
semiconductor market.  Growth also resulted from additional sales of
instrumentation to the pharmaceutical and semiconductor markets, but was
partially offset by a reduction in revenues from the sale of wastewater
systems, particularly related to zero liquid discharge applications.



/178



     Growth in the Water, Food and Chemical Supply segment was primarily
due to increased revenues related to ownership and operation of
ultrapure water systems.  This growth included revenues from the
acquisitions of Ahlfinger Water Company in November 1995 and Apollo
Ultrapure Water Systems, Inc. in January 1996.  Revenue growth also
occurred in the municipal water supply and food processing businesses
due primarily to the acquisitions of Aqua Design, Inc. in January 1996
and Separation Technology, Inc. (STI) in July 1996.

     Consumer Products revenues increased through the sale of higher
volumes of bottled water by existing Aqua Cool locations and through new
distribution facilities near Cleveland, Ohio and Providence, Rhode
Island.  Revenues also increased in the consumer chemicals business due
to increased sales of automobile windshield wash solution and bleach
products.  Home water product sales also increased in 1996.

     Cost of sales as a percentage of revenues was 67.2%, 67.3% and
67.2% in 1997, 1996 and 1995, respectively.

     Cost of sales as a percentage of revenues decreased during 1997 for
the Membranes and Related Equipment segment and Consumer Products
segment, and increased for the Water, Food and Chemical Supply segment.
The decrease in the Membranes and Related Equipment segment primarily
reflected an improvement in the mix between sales of instrumentation and
ultrapure water equipment.  The increase in cost of sales as a
percentage of revenues in the Water, Food and Chemical Supply segment
primarily reflected a change in the mix of ultrapure water supply
contracts.  The Consumer Products segment decrease reflected modest
bottled water price increases and the improved absorption of fixed
overhead costs resulting from continued expansion of the bottled water
customer base.

     Cost of sales as a percentage of revenues declined during 1996 for
the Membranes and Related Equipment segment and Consumer Products
segment, and increased for the Water, Food and Chemical Supply segment.
The decrease in the Membranes and Related Equipment segment reflected an
improvement in the mix of wastewater treatment contracts and
instrumentation sales, partially offset by a change in the mix of
ultrapure water equipment contracts.  The Consumer Products segment
decrease resulted primarily from the achievement of certain product cost
reductions and an improvement in product mix.

     In the Water, Food and Chemical Supply segment, cost of sales
increased as a percentage of revenues during 1996.  This increase
reflected the acquisition of STI, whose manufacturing costs did not
reflect the synergies believed available through continued integration
with the other businesses in this segment.  This increase also reflected
increased competitive pressure within the industrial bleach market in
the United Kingdom.

     Operating expenses as a percentage of revenues of 21% in 1997
remained substantially consistent with both 1996 and 1995.


/179



      Interest income in 1997 was $1.2 million compared to $1.4 million
in 1996 and $1.2 million in 1995.  Interest expense in 1997 was $0.9
million compared to $0.9 million in 1996 and $0.2 million in 1995.

     The Company's effective tax rate was 33.0% in 1997, 33.0% in 1996
and 33.5% in 1995.  In 1997, continued improvement in the mix of
earnings and tax rates among the different tax jurisdictions in which
the Company operates was partially offset by the loss of benefit from
tax-exempt interest income and a smaller benefit from the Company's
foreign sales corporation.  The decrease in the effective tax rate for
1996 was due primarily to an improvement in the mix of earnings and
effective tax rates among the different tax jurisdictions in which the
Company operates.  This was partially offset by a decrease in the
benefit from tax-exempt interest income, a higher state tax rate
resulting from a change in the composition of domestic income by state
and a proportionately smaller benefit from the Company's foreign sales
corporation.

    Net income increased 6.9% to $28.3 million in 1997 compared to $26.5
million in 1996.  Net income in 1996 was 26.1% higher than 1995 net
income of $21.0 million.

Legal Proceedings
The Company is involved in the normal course of its business in various
litigation matters.  Although the Company is unable to determine at the
present time whether it will have any liability in any of these pending
matters, some of which are in the early stages of pre-trial discovery,
the Company believes generally that it has meritorious defenses and that
none of the pending matters will have an outcome material to the
financial condition or business of the Company.

Financial Condition
At December 31, 1997, the Company had total assets of $406.7 million
compared to total assets of $378.6 million at December 31, 1996 and
$322.0 million at December 31, 1995.  The increase in 1997 reflected an
increase in total cash and cash equivalents and in other assets,
primarily reflecting goodwill arising from the acquisitions of a
majority interest in Enersave and the business of Watertec Engineering
Pty. Ltd. and related companies in Australia (Watertec).  The major
component of the increase in 1996 resulted from expenditures for
property, plant and equipment related to the Company's
bottled water operations, bleach production and distribution facilities,
trailers and other "own and operate" facilities.  In addition, during
both 1997 and 1996, accounts receivable increased, reflecting higher
revenues from capital equipment projects.






/180



    Working capital in 1997 increased by $23.6 million and the Company's
current ratio increased to 2.5 from 2.1 in 1996.  Capital expenditures
totaled $33.5 million, $46.9 million, and $50.9 million in 1997, 1996
and 1995, respectively.  In addition, the Company spent approximately
$11.0 million to acquire Watertec and a majority interest in Enersave.
Funds for these expenditures were provided in each year through cash
from operations, proceeds from stock option exercises and the issuance
of current debt.  In 1997, funds were also provided through the sale of
certain fixed assets, including bleach manufacturing equipment in the
United Kingdom.

    Net cash provided by operating activities increased by $6.3 million
in 1997, due primarily to higher net income and depreciation, a smaller
increase in accounts receivable and inventories, and a smaller decrease
in accounts payable and accrued expenses. Net cash provided by operating
activities increased by $10.4 million in 1996, with higher net income,
depreciation, and income taxes partially offset by a decrease in
accounts payable and accrued expenses.  Net cash used for investing
activities decreased by $11.6 million in 1997 after having increased by
$2.1 million in 1996 from 1995.  In 1997, net cash provided by financing
activities decreased by $6.0 million primarily due to a reduction in
cash obtained from short-term borrowings after remaining substantially
consistent in 1996 with 1995.

     Significant expenditures in 1998 are anticipated to include the
expansion of bottled water operations, own and operate facilities and
other manufacturing facilities and related equipment.

    The Company maintains several lines of credit, including domestic
lines totaling $35 million, which are available to meet working capital
needs.  In addition, the Company has several facilities to accommodate
its foreign trade and exchange requirements.  The Company believes that
its cash of $25.8 million at the beginning of 1998, cash from
operations, lines of credit and foreign exchange facilities are adequate
to meet its currently anticipated needs.

    Inflationary increases in material and labor costs remained moderate
during the last three years.   The Company has worked to offset such
cost increases by redesigning its equipment to reduce costs.  To the
extent permitted by the competitive environment, the Company has raised
prices where appropriate.

    Management has developed a program to prepare the Company's computer
systems and applications for the Year 2000.  The Company expects to
incur internal staff costs as well as consulting and other expenses
related to infrastructure and facilities enhancements necessary to
prepare its systems for the Year 2000.  The Company has conducted a
preliminary assessment of Year 2000-related issues.  Based upon the
results to date, the Company presently believes that, through
replacement or modifications to existing software, hardware and its
facilities, matters relating to the Year 2000 problem will not pose
significant operational problems for the Company and will not have a
material effect on the business or financial condition of the Company.


/181



Forward-Looking Information
The Company's future results of operations, as well as statements
contained in this Management's Discussion and Analysis which are
forward-looking statements, depend upon a number of factors that could
cause actual results to differ materially from management's current
expectations.  Among these factors are business conditions and the
general economy; competitive factors, such as acceptance of new products
and price pressures; risk of nonpayment of accounts receivable; risks
associated with foreign operations; and regulations and laws affecting
business in each of the Company's markets.












































/182



Report of Independent Accountants




To the Board of Directors and Stockholders of Ionics, Incorporated:

     We have audited the accompanying consolidated balance sheets of
Ionics, Incorporated at December 31, 1997 and 1996 and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1997.  These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement.  An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation.  We believe that our audits
provide a reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Ionics, Incorporated as of December 31, 1997 and 1996, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.


                                       /s/COOPERS & LYBRAND L.L.P.


Boston, Massachusetts
February 17, 1998
















/183



<TABLE>
<CAPTION>
Consolidated Statements of Operations

For the years ended December 31
Amounts in Thousands, Except Per Share Amounts        1997       1996       1995
<S>                                               <C>        <C>        <C>
Net revenue:
   Membranes and related equipment                $166,397   $151,030   $135,484
   Water, food and chemical supply                 113,026    109,488     66,510
   Consumer products                                73,046     66,144     55,299
                                                   352,469    326,662    257,293

Costs and expenses:
   Cost of membranes and related equipment         115,305    107,181     97,048
   Cost of water, food and chemical supply          80,205     74,711     43,867
   Cost of consumer products                        41,510     37,956     32,085
   Research and development                          5,410      5,108      4,180
   Selling, general and administrative              67,593     63,118     50,123
                                                   310,023    288,074    227,303

Income from operations                              42,446     38,588     29,990
Interest income                                      1,197      1,396      1,214
Interest expense                                      (947)      (869)      (237)
Equity income                                          526        441        642
Income before income taxes and minority interest    43,222     39,556     31,609
Provision for income taxes                          14,280     13,053     10,584

Income before minority interest                     28,942     26,503     21,025
Minority interest expense                              613          -          -

Net income                                        $ 28,329   $ 26,503   $ 21,025

Earnings per basic share                          $   1.78   $   1.71   $   1.45

Earnings per diluted share                        $   1.73   $   1.65   $   1.39

Shares used in basic earnings per
  share calculations                                15,936     15,542     14,545

Shares used in diluted earnings per share
  calculations                                      16,409     16,106     15,085







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

</TABLE>


/184

                                 -8-


<TABLE>
<CAPTION>
Consolidated Balance Sheets

December 31
Dollars in Thousands, Except Share Amounts                       1997       1996
<S>                                                          <C>        <C>
Assets
Current assets:
   Cash and cash equivalents                                 $ 25,787   $ 12,269
   Short-term investments                                         107          -
   Notes receivable, current                                    3,856      3,496
   Accounts receivable                                         98,275     91,392
   Receivables from affiliated companies                        2,624      2,999
   Inventories                                                 28,910     26,000
   Other current assets                                         6,291      8,266
        Total current assets                                  165,850    144,422
Notes receivable, long-term                                     8,349      7,737
Investments in affiliated companies                             3,983      2,908
Property, plant and equipment, net                            179,957    185,817
Other assets                                                   48,597     37,705
   Total assets                                              $406,736   $378,589

Liabilities and Stockholders' Equity
Current liabilities:
   Notes payable and current portion of long-term debt       $ 12,084   $ 11,513
   Accounts payable                                            27,099     28,988
   Other current liabilities                                   26,227     27,672
   Taxes on income                                                602          -
         Total current liabilities                             66,012     68,173
Long-term debt and notes payable                                  804      2,132
Deferred income taxes                                          17,783     14,422
Other liabilities                                               2,478      1,645
Commitments                                                         -          -
Stockholders' equity:
   Common stock, par value $1, authorized shares: 30,000,000
    in 1997 and 1996; issued and outstanding: 16,001,285 in
    1997 and 15,823,205 in 1996                                16,001     15,823
   Additional paid-in capital                                 154,479    149,337
   Retained earnings                                          158,557    130,228
   Cumulative translation adjustments                          (9,126)    (2,811)
   Unearned compensation                                         (252)      (360)
        Total stockholders' equity                            319,659    292,217
        Total liabilities and stockholders' equity           $406,736   $378,589






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

</TABLE>


/185

                                 -9-


<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows

For the years ended December 31
Dollars in Thousands                                             1997      1996      1995
<S>                                                          <C>       <C>       <C>
Operating activities:
   Net income                                                $ 28,329  $ 26,503  $ 21,025
   Adjustments to reconcile net income to net cash
      provided by operating activities:
      Depreciation and amortization                            27,047    26,162    20,717
      Provision for losses on accounts and notes receivable     1,408     1,011       579
      Deferred income tax provision                             5,571     4,085     4,263
      Compensation expense on restricted stock awards             108       108        72
      Changes in assets and liabilities, net of effects
        of businesses acquired:
        Notes receivable                                       (2,264)   (1,557)   (1,636)
        Accounts receivable                                    (7,865)  (10,863)  (14,474)
        Inventories                                            (2,395)   (3,259)     (300)
        Other current assets                                    2,594       449    (1,425)
        Investments in affiliates                              (1,106)      758       545
        Accounts payable and accrued expenses                  (5,219)   (7,011)     (290)
        Income taxes                                            2,470     4,678     1,816
        Other                                                    (988)      296        28
          Net cash provided by operating activities            47,690    41,360    30,920

Investing activities:
   Additions to property, plant and equipment                 (33,510)  (46,890)  (50,942)
   Disposals of property, plant and equipment                  10,114       887     1,377
   Sale and maturity of short-term investments                      -         -     8,617
   Purchase of long-term investments                                -         -    (3,000)
   Acquisitions, net of cash acquired                         (11,016)        -         -
         Net cash used by investing activities                (34,412)  (46,003)  (43,948)

Financing activities:
   Principal payments on current debt                         (17,077)  (22,259)  (11,524)
   Proceeds from issuance of current debt                      14,937    27,149    15,533
   Principal payments on long-term debt                           (31)   (3,236)        -
   Proceeds from issuance of long-term debt                       363         -         -
   Proceeds from stock option plans                             3,188     5,731     3,529
         Net cash provided by financing activities              1,380     7,385     7,538
Effect of exchange rate changes on cash                        (1,140)       48         3
Net change in cash and cash equivalents                        13,518     2,790    (5,487)
Cash and cash equivalents at end of prior year                 12,269     9,479    14,966
Cash and cash equivalents at end of current year             $ 25,787  $ 12,269  $  9,479





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

</TABLE>

/186

                                -10-


<TABLE>

<CAPTION>
Consolidated Statements of Stockholders' Equity


                                           Common Stock     Additional          Cumulative                 Total
                                                     Par     Paid-in  Retained  Translation  Unearned  Stockholders'
Dollars in Thousands                     Shares     Value    Capital  Earnings  Adjustments Compensation   Equity
<S>                                    <C>         <C>      <C>       <C>       <C>         <C>          <C>
Balance December 31, 1994              13,989,896  $13,990  $125,529   $84,027  $(4,936)        $  -     $218,610
Restatement for pooling                   447,258      447     1,151      (257)       -            -        1,341
Balance January 1, 1995                14,437,154   14,437   126,680    83,770   (4,936)           -      219,951
Stock options exercised                   199,575      199     3,330         -        -            -        3,529
Tax benefit of stock option activity            -        -     1,309         -        -            -        1,309
Translation adjustments, net
   of income taxes of $180                      -        -         -         -    1,265            -        1,265
Issuance for acquisition                  144,679      145     5,748         -        -            -        5,893
Shares issued under restricted stock plan  19,822       20       520         -        -         (540)           -
Amortization of unearned compensation           -        -         -         -        -           72           72
Net income                                      -        -         -    21,025        -            -       21,025

Balance December 31, 1995              14,801,230   14,801   137,587   104,795   (3,671)        (468)     253,044
Restatement for poolings                  554,544      555      (460)   (1,070)       -            -         (975)
Balance January 1, 1996                15,355,774   15,356   137,127   103,725   (3,671)        (468)     252,069
Stock options exercised                   406,956      407     5,324         -        -            -        5,731
Tax benefit of stock option activity            -        -     4,390         -        -            -        4,390
Translation adjustments, net
   of income taxes of $(93)                     -        -         -         -      860            -          860
Issuance for acquisitions                  60,475       60     2,496         -        -            -        2,556
Amortization of unearned compensation           -        -         -         -        -          108          108
Net income                                      -        -         -    26,503        -            -       26,503

Balance December 31, 1996              15,823,205   15,823   149,337   130,228   (2,811)        (360)     292,217
Stock options exercised                   163,214      163     3,025         -        -            -        3,188
Tax benefit of stock option activity            -        -     1,421         -        -            -        1,421
Translation adjustments, net
   of income taxes of $2,690                    -        -         -         -   (6,315)           -       (6,315)
Other activity                             14,866       15       696         -        -            -          711
Amortization of unearned compensation           -        -         -         -        -          108          108
Net income                                      -        -         -    28,329        -            -       28,329

Balance December 31, 1997              16,001,285  $16,001  $154,479  $158,557  $(9,126)       $(252)    $319,659







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

</TABLE>


/187

                                -11-



Notes to Consolidated Financial Statements

Note 1. Significant Accounting Policies

Nature of Operations
The Company is involved worldwide in the manufacture and sale of
membranes and related equipment for the purification, concentration,
treatment and analysis of water and wastewater, in the supply of
purified water, food and chemical products, and in the sale of bottled
water and home water purifiers.  Principal markets include the United
States and Europe as well as other international markets.

Basis of Presentation
Certain prior year amounts have been restated to conform to the
current year presentation with no impact on net income. Consolidated
results have been restated to include the pooling of Sievers
Instruments, Inc. in 1996 (Note 14).

Principles of Consolidation
The consolidated financial statements include the accounts of the
Company, its wholly and majority owned subsidiaries and Aqua Cool
Enterprises, Inc., a controlled affiliate. All significant
intercompany accounts and transactions have been eliminated.

    Investments in affiliated companies, representing non-majority
ownership interests, are accounted for under the equity method.

Revenue Recognition
Product revenues are recorded upon shipment, and service revenues are
recorded as the services are performed. Interest revenues on consumer
water equipment loans are recognized over the life of the loans.
Interest earned on customer notes receivable, totaling $1,380,000,
$1,181,000 and $1,076,000 in 1997, 1996 and 1995, respectively, is
included in revenues.

    Most equipment leases to customers are accounted for as operating
leases wherein rental revenues are recognized over the life of the
lease and the cost of the equipment is depreciated over its useful
life. Some leases are accounted for as sales-type leases wherein the
present value of the lease revenues and costs are recognized at the
time of shipment of the product.

    Revenues from large contracts are recognized using the percentage
completion method of accounting in the proportion that costs incurred
bear to total estimated costs at completion. Losses, if any, are
provided for in the period in which the loss is determined.

Cash Equivalents
Short-term investments with a maturity of 90 days or less from the
date of acquisition are classified as cash equivalents.




/188


                                -12-



Investments
Management determines the appropriate classification of its investment
in debt securities at the time of purchase. Debt securities which the
Company has the ability and positive intent to hold to maturity are
classified accordingly and carried at cost. All other investments are
classified as available for sale and carried at fair value with
unrealized gains and losses, net of tax, reported in a separate
component of stockholders' equity.  The Company is not involved in
activities classified as the trading of investments.

Notes Receivable
Notes receivable have been reported at their estimated realizable
value. The allowance for uncollectible notes receivable totaled
$462,000 and $591,000 at December 31, 1997 and 1996, respectively.

Inventories
Inventories are carried at the lower of cost or market, principally on
the first-in, first-out basis. The Company had no deferred production
costs which exceeded the aggregate estimated cost of long-term sales
contracts.

Property, Plant and Equipment
Property, plant and equipment is recorded at cost. When an asset is
retired or sold, any resulting gain or loss is included in the results
of operations.  Interest capitalized as property, plant and equipment
amounted to $238,000, $1,169,000 and $268,000 in 1997, 1996 and 1995,
respectively. In general, depreciation is computed on a straight-line
basis over the expected lives of the assets, as follows:

Classification                         Depreciation Lives
Buildings and improvements             10 - 40 years
Machinery and equipment,
  including supply equipment            3 - 25 years
Other                                   3 - 12 years

         In certain situations the units of production method is
utilized in order to achieve a more appropriate matching of revenues
and expenses.

         The Company's policy is to depreciate processing plants,
other than leased equipment, over the shorter of their useful lives or
the term of the corresponding supply contracts.

Long-Lived Assets
Impairment losses resulting from an excess of carrying value of long-
term assets over their fair values are recognized as such losses are
identified.

Goodwill
Goodwill is included in other assets and represents the unamortized
difference between acquisition cost and the fair value of net assets
acquired in the purchase of various entities. Goodwill is amortized on
a straight-line basis over its estimated useful life but not in excess

/189

                                -13-



of 40 years. The Company continually evaluates the realizability of
goodwill based upon expectations of non-discounted cash flows and
operating income for each subsidiary having a material goodwill
balance.

Foreign Exchange
Assets and liabilities of foreign affiliates and subsidiaries are
translated at year-end exchange rates, and the related statements of
operations are translated at average exchange rates during the year.
Translation gains and losses are accumulated net of income tax as a
separate component of stockholders' equity.

Some transactions of the Company and its subsidiaries are made in
currencies different from their own. Gains and losses from these
transactions are included in income as they occur. Net foreign
currency transaction gains included in income before income taxes and
minority interest totaled $100,000, $548,000 and $58,000 for 1997,
1996 and 1995, respectively.

Income Taxes
Income tax expense is based on pretax financial accounting income.
Deferred tax assets and liabilities are recognized for the expected
tax consequences of temporary differences between the tax basis of
assets and liabilities and their reported amounts using enacted rates
in effect for the year in which the differences are expected to
reverse.

Earnings Per Share
Basic earnings per share is computed based on the weighted-average
number of shares outstanding after giving retroactive effect to a 2-
for-1 stock split in 1995 for all periods presented. Diluted earnings
per share is computed based on the weighted-average number of common
shares outstanding while giving effect to all potentially dilutive
common shares that were outstanding during the period.

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 and 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.

Comprehensive Income
In 1997, the Financial Accounting Standards Board (FASB) released
Statement of Financial Accounting Standards (FAS) No. 130, "Reporting
Comprehensive Income."  FAS 130 establishes standards for reporting
and display of comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general-purpose
financial statements.  FAS 130 is effective for fiscal years beginning
after December 15, 1997.  The Company intends to adopt this Statement
for interim periods beginning in the first quarter of 1998.  This
Statement is a disclosure-only statement.

/190

                                -14-



<TABLE>
<CAPTION>
Note 2. Consolidated Balance Sheet Details

Dollars in Thousands                     1997      1996
<S>                                    <C>       <C>
Raw materials                          $ 17,183  $ 15,028
Work in process                           8,773     8,120
Finished goods                            2,954     2,852
Inventories                            $ 28,910  $ 26,000

Land                                   $  6,767  $  3,602
Buildings                                34,239    33,157
Machinery and equipment                 236,526   233,077
Other, including furniture,
  fixtures and vehicles                  41,397    36,834
                                        318,929   306,670
Accumulated depreciation               (138,972) (120,853)
Property, plant and
  equipment, net                       $179,957  $185,817

Goodwill                               $ 46,565  $ 35,067
Accumulated amortization                 (5,136)   (3,922)
Other                                     7,168     6,560
Other assets                           $ 48,597  $ 37,705

Customer deposits                      $  3,685  $  7,147
Accrued commissions                       2,370     2,402
Accrued expenses                         20,172    18,123
Other current liabilities              $ 26,227  $ 27,672
</TABLE>
<TABLE>
<CAPTION>
Note 3. Supplemental Schedule of Cash and Non-Cash Flow Information

Dollars in Thousands                    1997       1996      1995
<S>                                    <C>       <C>       <C>
Cash payments for interest and income taxes:
  Interest                             $   634   $ 1,338   $  360
  Taxes                                $ 2,860   $ 4,264   $7,150
Restricted stock compensation
  credited to paid-in capital          $     -   $     -   $ (540)

Liabilities assumed in conjunction with acquisitions:
  Fair value of assets
    purchased                          $19,352   $ 8,452   $6,196
  Book value of
    assets pooled                            -     8,592    2,632
  Retained deficit pooled                    -     1,070      257
  Net cash received (paid)             (11,016)       89      207
  Value of common
    stock issued                            -     (2,530)  (7,491)
Liabilities assumed                    $ 8,336   $15,673   $1,801
</TABLE>

/191

                                -15-



<TABLE>
<CAPTION>
Note 4. Accounts Receivable

Dollars in Thousands                     1997      1996
<S>                                    <C>       <C>
Billed receivables                     $69,157   $68,775
Unbilled receivables                    30,945    24,884
Allowance for doubtful accounts         (1,827)   (2,267)
Accounts receivable                    $98,275   $91,392
</TABLE>
Unbilled receivables represent the excess of revenues recognized on
percentage completion contracts over amounts billed. These amounts
will become billable as the Company achieves contractual milestones.
Substantially all of the unbilled amounts at December 31, 1997 are
expected to be billed during 1998.

    Billed receivables include retainage amounts of $4,233,000 and
$4,378,000 at December 31, 1997 and 1996, respectively. Substantially
all retainage amounts are collectible within one year.

Note 5. Investments in Affiliated Companies

The Company's investments in the following foreign affiliates are
accounted for under the equity method. The principal business
activities of these foreign affiliates involve the production, sale
and distribution of bottled and treated water and the sale of
equipment and replacement parts.
                                                 Ownership
Affiliate                                        Percentage
Aqua Cool Kuwait - Kuwait                          49%
Aqua Cool Saudi Arabia - Saudi Arabia              40%
Ionics-Mega s.r.o. - Czech Republic                49%
Jalal-Ionics, Ltd. - Bahrain                       40%
Yuasa-Ionics Co., Ltd. - Japan                     50%
Aguas Tratadas de
  Cadereyta S.A. de C.V. - Mexico                  20%
Aqua Design Ltd. - Cayman Islands                  39%
Aguas Tratadas de Madero, S.A. de C.V. - Mexico    20%
Zhanjiang RO Co., Ltd. - China                     28%

    The Company's percentage ownership interest in a foreign affiliate
may vary from its interest in the earnings of such affiliate.











/192

                                -16-




         Activity in investments in affiliated companies:
<TABLE>
<CAPTION>
Dollars in Thousands           1997      1996      1995
<S>                          <C>       <C>       <C>
Investments at end
  of prior year              $2,908    $4,874    $5,419
Equity in earnings              526       441       642
Distributions received         (575)   (1,254)   (1,187)
Cumulative translation
  adjustments                    (7)        -         -
Reclassification of Watlington
  Waterworks, Ltd. to other
  assets resulting from
  ownership dilution              -    (1,208)        -
Other investments             1,131        55         -
Investments at end of
 current year                $3,983    $2,908    $4,874
</TABLE>

    At December 31, 1997, the Company's equity in the total assets and
in the total liabilities of its foreign affiliates was $5,255,000 and
$1,272,000, respectively. The Company's equity in the 1997 total
revenues of these affiliates was $5,340,000.

Note 6. Contingent Liabilities

The Company is involved in the normal course of its business in
various litigation matters, some of which are in the early stages of
pre-trial discovery.  The Company believes generally that it has
meritorious defenses and that none of the pending matters will have an
outcome material to the financial condition or business of the
Company.

    The Company was notified in 1992 that it is a potentially
responsible party (PRP) at a Superfund site, Solvent Recovery Services
of New England in Southington, Connecticut (the "SRS Site").  Ionics'
share of assessments to date for site work totals approximately
$55,000. The ultimate site clean-up cost is currently not expected to
exceed $59 million, of which the Company's share would not exceed
$308,000 including the amounts already assessed against the Company.
While it is too soon to predict the scope and cost of the final remedy
that the EPA will select, based upon the large number of PRPs
identified, the Company's small volumetric ranking (approximately
0.5%) and the identities of the larger PRPs, the Company believes that
its liability in this matter will not have a material effect on the
Company or its financial position.






/193

                                -17-



<TABLE>
<CAPTION>
Note 7. Long-Term Debt and Notes Payable

Dollars in Thousands                    1997      1996
<S>                                    <C>       <C>
Borrowings outstanding                 $12,888   $13,645
Less installments due within one year   12,084    11,513
Long-term debt and notes payable       $   804   $ 2,132
</TABLE>

Maturities of borrowings outstanding for the five years ending
December 31, 1998 through 2002 are approximately $12,084,000,
$157,000, $115,000, $93,000 and $74,000, respectively.

    The Company has domestic credit arrangements with various banks
under which it can borrow up to an aggregate of approximately $35
million, at the prime rate (8.5% at December 31, 1997), the money
market rate (7.5% at December 31, 1997) or the London Interbank
Offered Rate plus 1/2% (6.72% at December 31, 1997), at the Company's
option.  The Company had no outstanding borrowings against these lines
of credit at December 31, 1997.

         Included in the credit lines is a $25 million credit line
with a commercial bank which includes a commitment fee of 1/8 of 1%
per annum on the unused average daily amount.

         The Company utilizes short-term bank loans to finance working
capital requirements for certain business units. The Company's various
loan and note agreements contain certain financial covenants typical
to such agreements relating to working capital and to consolidated
tangible net worth. The weighted-average interest rate on these
borrowings at December 31, 1997 and 1996 was approximately 8%.

Note 8. Income Taxes
<TABLE>
<CAPTION>
The components of domestic and foreign income before income taxes and
minority interest were as follows:

Dollars in Thousands                     1997      1996      1995
<S>                                    <C>       <C>       <C>
U.S.                                   $27,450   $29,017   $22,838
Non-U.S.                                15,772    10,539     8,771
Income before
 income taxes and minority interest    $43,222   $39,556   $31,609
</TABLE>






/194

                                -18-



<TABLE>
<CAPTION>
    The provision for income taxes consisted of the following:

Dollars in Thousands                     1997      1996     1995
  <S>                                  <C>       <C>       <C>
  Federal                              $ 5,891   $ 7,919   $ 5,407
  Foreign                                2,276       793       437
  State                                    542       256       477
Current provision                        8,709     8,968     6,321
  Federal                                3,599     1,671     3,164
  Foreign                                  996     1,047       569
  State                                    976     1,367       530
Deferred provision                       5,571     4,085     4,263
Provision for
  income taxes                         $14,280   $13,053   $10,584
</TABLE>

Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes.  At December 31, 1997 the tax effects of the temporary
differences were:

<TABLE>
<CAPTION>
                                         Deferred     Deferred Tax
Dollars in Thousands                     Tax Assets   Liabilities
<S>                                      <C>          <C>
Depreciation                             $     -      $10,616
Goodwill amortization                          -          519
Inventory valuation                        1,584            -
Bad debt reserves                            297            -
Accrued commissions                          464            -
Profit on sales to foreign subsidiaries      870            -
Insurance accruals                           609            -
U.S. tax on unrepatriated earnings             -        6,295
Pensions                                       -          386
Alternative minimum tax                    1,081            -
Foreign withholding taxes on
  undistributed earnings                       -        2,068
Foreign deferred liabilities, net              -        3,186
Tax effect of current translation loss     3,723            -
Net operating loss carryforwards           5,385            -
Miscellaneous                              1,251        1,635
                                          15,264       24,705
Valuation allowance for
  deferred tax assets                     (1,800)           -
Deferred income taxes                    $13,464      $24,705

</TABLE>




/195

                                -19-



<TABLE>
<CAPTION>
The United States statutory corporate tax rate is reconciled to the
Company's effective tax rate as follows:

                             1997        1996         1995
<S>                          <C>         <C>          <C>
U.S. Federal statutory rate  35.0%       35.0%        35.0%
Foreign Sales Corporation    (1.5)       (1.6)        (2.1)
Tax-exempt interest income      -         (.5)        (1.2)
State income taxes, net of
  federal tax benefit         2.3         2.7          1.9
Foreign income taxed at
  different rates            (3.3)       (2.0)           -
Other, net                     .5         (.6)         (.1)
Effective tax rate           33.0%       33.0%        33.5%
</TABLE>
    At December 31, 1997, the Company had unused tax loss carryforward
benefits of $5,385,000 (expiring in fiscal years 2004 to 2009).
Because certain provisions of the tax law may limit the utilization of
these benefits, the Company has established $1,800,000 as a valuation
allowance at December 31, 1997 and 1996. The remaining unreserved
portion is considered to be realizable. $3,585,000 of the net unused
tax loss carryforward benefit has been included in other assets at
December 31, 1997.

    The Company has elected not to provide tax on certain
undistributed earnings of its foreign subsidiaries which it considers
to be permanently reinvested. The cumulative amount of such unprovided
taxes was approximately $2,843,000, $1,538,000 and $682,000 as of
December 31, 1997, 1996 and 1995, respectively.

Note 9. Stockholders' Equity

During 1996, the Company issued 1,062,277 shares (including shares for
Sievers Instruments, Inc.) in conjunction with acquisition-related
activity (Note 14).

         The Company adopted the disclosure-only provision of
Statement of Financial Accounting Standards (FAS) No. 123 "Accounting
for Stock-Based Compensation" in 1996. The fair value of each option
grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions used for grants in
1997, 1996 and 1995: expected volatility of 23.4% in 1997, 23.1% in
1996 and 23.1% in 1995; weighted-average risk-free interest rates of
6.33%, 6.69% and 6.57% in 1997, 1996 and 1995, respectively; and
expected lives of five years.  No dividends are assumed.  The
weighted-average fair value of options granted during 1997, 1996 and
1995 was $15.88, $15.17 and $10.02, respectively.

         At December 31, 1997, the Company had four stock-based
compensation plans which are described below. The Company applies

/196

                                -20-



Accounting Principles Board Opinion 25 in accounting for its plans.
Accordingly, any difference between the option price and the fair
market value of the stock at the date of grant is charged to
operations over the expected period of benefit to the Company. Had
compensation cost for the Company's plans been determined based on the
fair value of the options at the grant dates for awards under those
plans consistent with the method of FAS 123, the Company's net income
and earnings per share would have been adjusted. On a pro forma basis,
net income as reported for 1997 of $28.3 million would have been $26.7
million, 1996 net income of $26.5 million would have been $25.9
million and 1995 net income of $21.0 million would have been
unchanged.  Diluted earnings per share as reported for 1997 of $1.73
would have been $1.63, 1996 diluted earnings per share of $1.65 would
have been $1.61 and 1995 diluted earnings per share of $1.39 would
have been unchanged.  Basic earnings per share as reported for 1997 of
$1.78 would have been $1.67, 1996 basic earnings per share of $1.71
would have been $1.66 and 1995 basic earnings per share of $1.45 would
have been $1.44.  The effects of applying FAS 123 in this pro forma
disclosure are not indicative of future awards, which are anticipated.
FAS 123 does not apply to awards prior to 1995.

         Under its 1979 Stock Option Plan (the "1979 Plan"), options
were granted to officers and other key employees of the Company (only
as non-qualified options since February 1989).  Although the 1979 Plan
provided that options were exercisable at a price of not less than
$1.00 per share, it has been the general policy of the Compensation
Committee of the Board of Directors, which administers the 1979 Plan,
to issue non-qualified options with an exercise price equal to the
fair market value of the stock.  The options are immediately
exercisable, are subject to repurchase rights that lapse over a five-
year period, and have a term of ten years and one day.  Effective May
8, 1997, the 1979 Plan was replaced by the 1997 Stock Incentive Plan,
and no additional options will be granted under the 1979 Plan.  At
December 31, 1997 and 1996, 0 and 132,519 shares, respectively, were
reserved for issuance of additional options under the 1979 Plan.

         Under the 1986 Stock Option Plan for Non-Employee Directors
(the "1986 Plan"), options are granted automatically at a price not
less than the fair market value of the stock at the date of grant.
The options are fully vested after a six-month period and have a term
of ten years and one day.  As of December 31, 1997 and 1996, 82,500
and 98,500 shares, respectively, were reserved for issuance of
additional options under the 1986 Plan.

         The Company has reserved 91,200 shares for options granted in
1990 to certain non-employees in exchange for a previously granted
option to purchase 50% of the shares of a Spanish subsidiary of the
Company which was merged with Ionics Iberica, S.A. in 1992. During
1995, an additional 30,000 options were granted to the same persons in
connection with an increase in production capacity and projected
increases in the sale of water under a long-term water sale agreement
between Ionics Iberica, S.A. and the local water utility. The fair
value of these options is being charged to operations over the ten-
year vesting period.  The options have a term of ten years and one
month.
/197

                                -21-



    Under its 1997 Stock Incentive Plan (the "1997 Plan"), which
became effective on May 8, 1997, incentive stock options, non-
qualified stock options, and long-term performance awards may be
awarded to officers and other key employees as well as to consultants.
The 1997 Plan contains an automatic addition provision under which a
number of shares equal to two percent (2%) of the Company's
outstanding stock will be added to the 1997 Plan at the end of each of
the four fiscal year-ends of the Company following adoption of the
1997 Plan, commencing December 31, 1997.  At December 31, 1997, there
were 1,060,276 shares reserved for issuance of additional options
under the 1997 Plan after giving effect to the automatic addition
provision.  The options vest over a five-year period and have a term
of ten years.

         A summary of the status of the Company's stock option plans
as of December 31, 1997, 1996 and 1995 and changes during the years
ending on those dates is presented below:
<TABLE>
<CAPTION>
                                           1997                 1996                  1995
                                             Weighted-            Weighted-             Weighted-
                                               Average              Average               Average
                                              Exercise             Exercise              Exercise
Options in Thousands                Options      Price   Options      Price    Options      Price
<S>                                 <C>      <C>         <C>      <C>          <C>      <C>
Outstanding at end of prior year      2,200     $28.39     1,989     $20.30      2,185     $19.98
Granted                                  55      45.99       744      42.51         39      27.48
Exercised                              (163)     19.56      (465)     17.15       (204)     18.11
Canceled                                (57)     37.80       (68)     23.06        (31)     21.85
Outstanding at end of current year    2,035     $29.31     2,200     $28.39      1,989     $20.30

Options exercisable at year-end       1,964                2,137                 1,913
</TABLE>
<TABLE>
<CAPTION>
         The following table summarizes the information about stock
options outstanding at December 31, 1997:

Options in Thousands           Options Outstanding         Options Exercisable
                                   Weighted-
                                   Average    Weighted-      Number    Weighted-
                        Number     Remaining  Average      Exercisable Average
Range of              Outstanding  Contract   Exercise         at      Exercise
Exercise Prices       AT 12/31/97   Years      Price        12/31/97    Price
<S>                   <C>          <C>        <C>          <C>         <C>
$ 4.29                          8     1.6       $ 4.29             8     $ 4.29
 11.88  -  15.25              134     2.5        12.16           106      12.13
 19.75  -  27.63            1,148     5.8        22.33         1,124      22.22
 30.38  -  43.13              687     8.7        43.06           668      43.08
 45.63  -  48.25               58     9.0        47.65            58      47.65
$ 4.29  - $48.25            2,035     6.6       $29.31         1,964     $29.44
</TABLE>


/198

                                -22-


         The Company has adopted a restricted stock plan (the "1994
Plan") under which shares of common stock may be granted to officers
and other key employees of the Company. Restrictions on the sale of
such common stock typically lapse over a five-year vesting period. No
shares were issued under the 1994 Plan in 1997 and 1996.  During 1995,
19,822 shares were issued under the 1994 Plan.  The fair value of
$540,000 was recorded as unearned compensation and is being charged to
operations over the vesting period.  280,178 shares remain reserved
for issuance.

         The Company has a Section 401(k) stock savings plan under
which 150,000 shares have been registered with the Securities and
Exchange Commission for purchase on behalf of employees. Shares are
normally acquired for the plan in the open market. Through December
31, 1997, no shares had been issued under the plan.

         The Company has adopted a Renewed Stockholder Rights Plan
designed to protect stockholders against abusive takeover tactics.
Each share of common stock now carries one right. Each right entitles
the holder to purchase from the Company one share of common stock (or
in certain circumstances, to receive cash, property or other
securities of the Company) at a purchase price of $175 subject to
adjustment. In certain circumstances, rights become exercisable for
common stock (or a combination of cash, property or other securities
of the Company) worth twice the exercise price of the right.

          The rights are not exercisable until the occurrence of
certain events as defined in the Renewed Stockholder Rights Plan.  The
rights may be redeemed by the Company at $.01 per right at any time
unless certain events occur. Unless redeemed earlier, the rights,
which have no voting power, expire on August 19, 2007.

          In November 1994, the Company's Board of Directors declared
a 2-for-1 stock split, effected by a 100% stock dividend which was
paid January 6, 1995 to shareholders of record on December 14, 1994.
All share and option amounts, related prices and other stockholders'
equity information have been adjusted for all periods presented to
give retroactive effect to this split.
<TABLE>
<CAPTION>
Note 10. Earnings Per Share Calculations (EPS)

Dollars in Thousands,
Except Per Share Amounts   For the Year Ended 1997       For the Year Ended 1996       For the Year Ended 1995
                           Net              Per Share   Net               Per Share   Net               Per Share
                          Income    Shares    Amount   Income    Shares    Amount    Income    Shares    Amount
<S>                      <C>       <C>      <C>       <C>       <C>       <C>       <C>       <C>       <C>
Basic EPS
  Income available to
  common stockholders    $ 28,329   15,936  $   1.78  $ 26,503   15,542   $   1.71  $ 21,025   14,545   $  1.45

Effect of dilutive
  stock options                 -      473                   -      564                    -      540

Diluted EPS              $ 28,329   16,409  $   1.73  $ 26,503   16,106   $   1.65  $ 21,025   15,085   $  1.39
</TABLE>
/199

                                -23-



The effect of dilutive stock options excludes those stock options for which
the impact would have been antidilutive based on the exercise price of the
options.  At December 31, 1997, 743,000 options were antidilutive.  There
were no antidilutive options at December 31, 1996 and 1995.

Note 11. Operating Leases

The Company leases equipment, primarily for industrial water purification
and bottled water coolers, to customers through operating leases. The
original cost of this equipment was $96,048,000 and $86,656,000 at December
31, 1997 and 1996, respectively. The accumulated depreciation for such
equipment was $35,195,000 and $28,347,000 at December 31, 1997 and 1996,
respectively.

     At December 31, 1997, future minimum rentals receivable under
noncancelable operating leases in the years 1998 through 2002 and later
were approximately $14,848,000, $13,018,000, $11,293,000, $8,876,000,
$7,182,000 and $34,227,000, respectively.

     The Company leases facilities and personal property under various
operating leases. Future minimum payments due under lease arrangements are
as follows: $3,814,000 in 1998, $2,324,000 in 1999, $1,927,000 in 2000,
$1,365,000 in 2001 and $800,000 in 2002. Rent expense under these leases
was approximately $3,928,000, $4,188,000 and $3,538,000 for 1997, 1996 and
1995, respectively.

Note 12. Profit-Sharing and Pension Plans

The Company has a contributory profit-sharing plan (defined contribution
plan) which covered substantially all of the employees of its Bridgeville,
Pennsylvania operations and certain related operations during 1994.
Effective July 1, 1995 all such employees, except those who are members of
the Fabricated Products Group, became members of the Company's defined
benefit pension plan described below. Company contributions to the defined
contribution plan are made from pretax profits, may vary from 8% to 15% of
participants' compensation, and are allocated to participants' accounts in
proportion to each participant's respective compensation. Company
contributions were $253,000, $249,000 and $188,000 in 1997, 1996 and 1995,
respectively.

     The Company also has a contributory defined benefit pension plan
(defined benefit plan) for its Watertown-based employees and employees of
its other domestic divisions and subsidiaries.  Benefits are based on years
of service and the employee's average compensation. The Company's funding
policy is to contribute annually an amount that can be deducted for federal
income tax purposes.

     The following table sets forth the defined benefit plan's funded
status and amounts recognized in the Company's balance sheet at December
31, 1997 and 1996:




/200

                                -24-



<TABLE>
<CAPTION>
Dollars in Thousands                                  1997      1996
<S>                                                <C>        <C>
Actuarial present value of benefit obligations:
  Accumulated benefit obligation,
  including vested benefits of
  $9,943 and $8,996, respectively                  $(11,992)  $(10,003)

  Projected benefit obligation for
  service rendered to date                          (13,591)   (10,883)
Plan assets at fair value                            12,731      8,577
Projected benefit obligation in
  excess of plan assets                                (860)    (2,306)
Unrecognized net loss                                 1,959        993
Unrecognized prior service cost                         485        523
Unrecognized net assets being
  amortized over approximately 17 years                (309)      (362)
Adjustment for additional
  minimum liability                                       -       (273)
Prepaid (accrued) pension cost at
 December 31                                       $  1,275   $ (1,425)
</TABLE>

<TABLE>
<CAPTION>
         Net pension cost included the following components:

Dollars in Thousands                       1997      1996      1995
<S>                                      <C>       <C>        <C>
Service cost                             $1,172    $1,026     $  706
Interest cost                               932       780        658
Return on plan assets                    (1,314)     (908)    (1,157)
Net amortization and deferral               467       265        588
Net periodic pension cost                $1,257    $1,163     $  795
</TABLE>
         The discount rate used in determining the projected benefit
obligation was 7.0% in 1997 and 7.25% in 1996. The rate of increase in
compensation levels used was 5.0% in 1997 and 1996. The expected long-
term rate of return on assets was 9.0%. Plan assets consist primarily of
money market, equity and fixed-income securities and are administered by
an independent trustee.

         The Ionics Section 401(k) stock savings plan is available to
substantially all employees of the Company and its domestic subsidiaries.
Employees may contribute from 1% to 12% of compensation subject to
certain limits. The Company matches 50% of employee contributions
allocated to the Company's common stock up to 6% of their salary. The
Company recognized expense of $749,000, $655,000 and $512,000 in 1997,
1996 and 1995, respectively, under this plan.

         The Company does not provide post-retirement health care to its
employees or any other significant post-retirement benefits other than
those described above.

/201

                                -25-



         The Company will adopt Statement of Financial Accounting
Standards No. 132, "Employers' Disclosures About Pensions and Other Post-
retirement Benefits" in 1998.  This statement changes the current
financial statement disclosure requirements.

Note 13. Financial Instruments

Off-Balance-Sheet Risk
The Company issues letters of credit as guarantees for various
performance and bid obligations. Approximately $27.9 million and $22.0
million of these letters were outstanding at December 31, 1997 and 1996,
respectively. Approximately 75% of the letters of credit outstanding at
December 31, 1997 are scheduled to expire in 1998. These instruments were
executed with creditworthy institutions. The Company periodically enters
into foreign exchange contracts to hedge certain operational and balance
sheet exposures against changes in foreign currency exchange rates.
Because the impact of movements in currency exchange rates on foreign
exchange contracts offsets the related impact on the underlying items
being hedged, these instruments do not subject the Company to risk that
would not otherwise result from changes in currency exchange rates. The
Company had no foreign exchange contracts outstanding at December 31,
1997 and 1996.

Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash equivalents,
investments, trade accounts receivable and notes receivable. The credit
risk of cash equivalents and investments is low as the funds are
primarily invested in Spanish Government securities and with major
financial institutions. The Company's concentrations of credit risk with
respect to trade accounts receivable and notes receivable is considered
low. The Company's customer base is spread across many different
industries and geographies and the Company obtains guaranteed letters of
credit for many of its foreign orders.

Fair Value of Financial Instruments
The carrying amounts of cash equivalents and investments closely
approximate their fair values as these items have relatively short
maturities and are highly liquid. Based on market information, the
carrying amounts of notes receivable and debt approximate their fair
values.

Investments in Securities
Realized gains and losses from the sale of debt and equity securities
during fiscal 1997 and 1996 were not significant.

         Long-term investments, maturing in 1999 and 2001, which the
Company intends to hold to maturity have been recorded at a net cost of
$603,000 and $1,144,000 at December 31, 1997 and 1996, respectively.  At
December 31, 1997, the Company also had short-term investments of
$107,000 which the Company intends to hold to maturity.  The cost of
these investments approximates fair value.


/202

                                -26-



         During 1997, the Company recorded an investment of $645,000 for
the purchase of a portion of the outstanding shares of Agrinord S.r.l.,
an Italian company in the solid waste treatment business.  This
investment is accounted for under the cost method.

         During 1996, the Company's investment in Watlington Waterworks
Limited (Watlington) of Bermuda decreased from 23% to 19% as a result of
the issuance by Watlington of additional shares. Accordingly, the
$1,208,000 carrying value of this investment, previously accounted for
under the equity method, has been reclassified to other assets at
December 31, 1996 and is accounted for under the cost method. This
investment, which approximates the current market value, is considered to
be available for sale.

Note 14. Acquisitions

1997 Purchases

Enersave Engineering Systems Sdn Bhd
In September 1997, the Company acquired a 55% ownership interest in
Enersave Engineering Systems Sdn Bhd (Enersave) for approximately $9.6
million.  An additional payment of up to $2 million will be required
depending upon the achievement of certain future operating results.
Enersave, a Malaysian company with operations in Malaysia, China and
Indonesia, is a leading supplier of water and wastewater treatment
systems and services in Southeast Asia.

         The acquisition was accounted for under the purchase method with
the results of Enersave included from September 1, 1997.  Goodwill of
approximately $9.6 million is being amortized on a straight-line basis
over 30 years.  Pro forma results of operations have not been presented
as the effect of this acquisition on the financial statements was not
material.  Fiscal 1997 revenues for the period prior to September 1997
were approximately $10 million.

Watertec Engineering Pty. Ltd.
Effective September 1, 1997, the Company acquired 100% of the assets and
liabilities of Watertec Engineering Pty. Ltd., as Trustee of Watertec
Engineering Unit Trust and two related corporations (together "Watertec")
for an initial payment of $1.9 million.  An additional payment of up to
1.1 million Australian dollars will be required depending upon the
achievement of certain future operating results.  Watertec is involved in
the manufacture and supply of ozonation systems for water disinfection
and systems for chemical metering.

         The acquisition was accounted for under the purchase method with
the results of Watertec included from September 1, 1997.  Goodwill of
approximately $1.4 million is being amortized over 30 years.  Pro forma
results of operations have not been presented as the effect of this
acquisition on the financial statements was not material.  Fiscal 1997
revenues for the period prior to September 1, 1997 were approximately
$2.3 million.


/203

                                -27-



Prior Years' Poolings
During 1996, the Company completed pooling transactions with Aqua Design,
Inc. (Aqua Design), Apollo Ultrapure Water Systems, Inc. (Apollo) and
Sievers Instruments, Inc. (Sievers) under which 222,977, 331,567 and
447,258 shares of common stock, respectively, were issued in exchange for
more than 90% of the outstanding common stock of each company.  Because the
operating results from prior years for Aqua Design and Apollo were not
material, both individually and in the aggregate, compared to those of the
Company, these transactions were recorded by restatement of retained
earnings as of January 1, 1996 and no restatement of prior-period financial
statements was made.  Aqua Design owns and operates membrane-based seawater
desalination systems to produce drinking and process water primarily for
hotels and municipalities in the Caribbean.  Apollo sells ultrapure water
and related services to a variety of industrial and commercial users
primarily in southern California.  Sievers manufactures instruments
designed to measure extremely low levels of organic contaminants in
ultrapure water for customers in the pharmaceutical, semiconductor and
other industries.

The accompanying financial statements have been restated to include the
accounts and operations of Sievers for all periods beginning as of January
1, 1995, since results of operations prior to this date are immaterial in
relation to the results of the Company as a whole.  Intercompany
transactions between the combining entities, which were not significant,
have been eliminated.

Separate results of the combining entities prior to the combination, which
have been included in the restated results, were as follows:
<TABLE>
<CAPTION>
                             Three Months     Twelve Months
     Dollars in Thousands       Ended             Ended
     (1996 Unaudited)        March 31, 1996  December 31, 1995
     <S>                     <C>             <C>
     Net revenue:
         Ionics                 $74,157         $248,617
         Sievers (Unaudited)      3,686            8,676
                                $77,843         $257,293
     Net income:
         Ionics                 $ 5,572         $ 19,682
         Sievers (Unaudited)        513            1,343
                                $ 6,085         $ 21,025
</TABLE>

Prior Years' Purchases

Separation Technology, Inc.
In July 1996, the Company purchased 100% of the stock of Separation
Technology, Inc. (STI) for approximately $2.4 million through the issuance
of 58,000 shares of common stock.   The results of STI have been included
in the Company's financial statements from July 1, 1996.  Goodwill of
approximately $4.4 million is being amortized on a straight-line basis over
/204

                                -28-



20 years.  Pro forma results of operations have not been presented, as the
effect of this acquisition on the financial statements was not material.
STI is a supplier of membrane-based purification equipment and related
services to the food industry with particular emphasis on dairy and
beverage applications.

Ahlfinger Water Company
On November 2, 1995, the Company acquired substantially all of the assets
and liabilities of Ahlfinger Water Company (Ahlfinger) for $5.9 million
through the issuance of 144,679 shares of common stock.  Ahlfinger, based
in Dallas, is a water treatment service company with industrial and
commercial customers in Dallas and other areas of Texas.  The acquisition
was accounted for under the purchase method, with the results of Ahlfinger
included from November 2, 1995.  Goodwill of $4.7 million is being
amortized on a straight-line basis over 30 years.  Pro forma results of
operations have not been presented, as the effect of this acquisition on
the financial statements was not material.

Note 15. Segment Information

Business Segments
The Company conducts its business in three business segments:

    Membranes and Related Equipment - electrodialysis reversal systems;
reverse osmosis systems; microfiltration systems; ultrafiltration
systems; conventional water and wastewater treatment equipment; other
separations technology products; zero liquid discharge systems;
disinfection equipment including electrolytic systems for the generation
of sodium hypochlorite and ozonation equipment; instruments for analysis;
monitoring and on-line detection of pollution levels; and fabricated
products.

         Water, Food and Chemical Supply - water, food and chemicals
produced by the Company's membrane-based equipment, including desalted
water for municipal and industrial use; ultrapure water for semiconductor
and other industries; reduced mineral whey for food applications; and
bleach and related chemicals.

         Consumer Products - bottled water; over and under-the-sink point
of use devices; carbon filtering media; point-of-entry systems for
treating the entire home water supply; household bleach; and other
cleaning products.

         In 1997, the FASB released Statement of Financial Accounting
Standards (FAS) No. 131, "Disclosures About Segments of an Enterprise and
Related Information."  FAS 131 establishes standards for the way that
public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial
statements.  It also establishes standards for related disclosures about
products and services, geographic areas, and major customers.  FAS 131 is
effective for fiscal years beginning after December 15, 1997.  This
Statement is a disclosure-only statement.

/205

                                -29-



         The following table summarizes the Company's operations by the
three business segments and "Corporate and Other." Corporate and Other
includes corporate-sponsored research and development programs and
certain employee bonuses and insurance costs.
<TABLE>
<CAPTION>
                                                 Membranes  Water, Food            Corporate
                                               and Related and Chemical   Consumer       and
Dollars in Thousands                             Equipment       Supply   Products     Other     Total
<S>                                            <C>         <C>          <C>        <C>        <C>
1997
Revenue - unaffiliated customers                 $166,397      $113,026   $ 73,046  $      -  $352,469
Inter-segment transfers                             2,959         1,172          -    (4,131)        -
Income from operations                             19,161        16,869      9,045    (2,629)   42,446
Equity income (loss)                                  (95)           85        536         -       526
Earnings before interest, taxes and minority
  interest (EBIT)                                  19,066        16,954      9,581    (2,629)   42,972
EBIT % of total EBIT, after allocation
  of Corporate and Other                              42%           37%        21%         -      100%
Identifiable assets                               157,212       115,302    126,608     3,631   402,753
Investments in affiliated companies                 1,086           115      2,782         -     3,983
Depreciation and amortization                       4,127        13,745      8,961       214    27,047
Capital expenditures                                4,759        18,722      9,787       242    33,510

1996
Revenue - unaffiliated customers                 $151,030      $109,488   $ 66,144  $      -  $326,662
Inter-segment transfers                             3,277           761          -    (4,038)        -
Income from operations                             15,482        18,611      6,636    (2,141)   38,588
Equity income                                           -            22        419         -       441
Earnings before interest,taxes and minority
  interest (EBIT)                                  15,482        18,633      7,055    (2,141)   39,029
EBIT % of total EBIT, after allocation
  of Corporate and Other                              38%           45%        17%         -      100%
Identifiable assets                               128,200       125,513    117,947     4,021   375,681
Investments in affiliated companies                    57            30      2,821         -     2,908
Depreciation and amortization                       3,740        15,102      7,075       245    26,162
Capital expenditures                                7,347        16,747     22,628       168    46,890

1995
Revenue - unaffiliated customers                 $135,484      $ 66,510   $ 55,299 $       -  $257,293
Inter-segment transfers                             6,202         2,422          -    (8,624)        -
Income from operations                             12,794        14,802      4,914    (2,520)   29,990
Equity income (loss)                                  (49)           57        634         -       642
Earnings before interest, taxes and minority
  interest (EBIT)                                  12,745        14,859      5,548    (2,520)   30,632
EBIT % of total EBIT, after allocation
  of Corporate and Other                              38%           45%        17%         -      100%
Identifiable assets                               120,699       103,643     95,126    (2,298)  317,170
Investments in affiliated companies                     -         1,218      3,656         -     4,874
Depreciation and amortization                       2,878        11,663      5,973       203    20,717
Capital expenditures                               13,175        15,929     21,688       150    50,942


</TABLE>

/206


                                -30-



Geographic Segments
Revenues are reflected in the segment from which the sales are made.
Transfers between areas are generally made at cost plus a markup which
approximates prices charged to unaffiliated customers. Certain corporate
expenses are included with the elimination of inter-segment profit in the
"Corporate and Eliminations" segment. Identifiable corporate assets, which
are net of eliminations, consist primarily of cash and short-term
investments.

         Included in the United States segment are export sales of
approximately 22%, 18% and 23% for 1997, 1996 and 1995, respectively.
Including these U.S. export sales, the percentages of total revenues
attributable to activities outside the U.S. were 41%, 36% and 39% in 1997,
1996 and 1995, respectively.  Information about the Company's operations by
geographic segment follows:
<TABLE>
<CAPTION>
                                                                     Corporate
                                    United                   Other         and
Dollars in Thousands                States   Europe  International Eliminations     Total
<S>                               <C>       <C>      <C>           <C>          <C>
1997
Revenue - unaffiliated customers  $264,604  $53,984       $33,881     $      -  $352,469
Inter-segment transfers             11,418      747           942      (13,107)        -
Income from operations              30,709    9,628         4,722       (2,613)   42,446
Identifiable assets                276,067   77,920        56,860       (8,094)  402,753

1996
Revenue - unaffiliated customers  $256,486  $48,692       $21,484     $      -  $326,662
Inter-segment transfers             10,255    1,385         3,002      (14,642)        -
Income from operations              32,112    5,279         3,073       (1,876)   38,588
Identifiable assets                281,624   73,505        20,340          212   375,681

1995
Revenue - unaffiliated customers  $206,276  $39,824       $11,193     $      -  $257,293
Inter-segment transfers              8,343    1,655         2,935      (12,933)        -
Income from operations              23,512    5,986         1,360         (868)   29,990
Identifiable assets                235,238   74,161        16,708       (8,937)  317,170
</TABLE>

SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Statement of Operations Data

Dollars in Thousands,
Except Per Share Amounts       1997     %      1996     %      1995     %     1994     %     1993     %
<S>                        <C>      <C>    <C>      <C>    <C>      <C>   <C>      <C>   <C>      <C>
Revenues                   $352,469 100.0  $326,662 100.0  $257,293 100.0 $222,376 100.0 $175,273 100.0
Income before income taxes
  and minority interest      43,222  12.3    39,556  12.1    31,609  12.3   22,717  10.2   19,724  11.3
Net income                   28,329   8.0    26,503   8.1    21,025   8.2   15,448   6.9   13,807   7.9
Earnings per basic share       1.78            1.71            1.45           1.11           1.00
Earnings per diluted share     1.73            1.65            1.39           1.09            .98
</TABLE>
/207

                                -31-



<TABLE>
<CAPTION>
Balance Sheet Data

Dollars in Thousands                      1997       1996       1995       1994       1993
<S>                                   <C>        <C>        <C>        <C>        <C>
Current assets                        $165,850   $144,422   $122,387   $113,477   $109,957
Current liabilities                     66,012     68,173     60,279     54,877     46,082
Working capital                         99,838     76,249     62,108     58,600     63,875
Total assets                           406,736    378,589    322,044    277,164    249,562
Long-term debt and notes payable           804      2,132        182         99        109
Stockholders' equity                   319,659    292,217    253,044    218,610    200,081
</TABLE>
<TABLE>
<CAPTION>
Selected Quarterly Financial Data (Unaudited)

                                          Earnings Earnings                                           Earnings Earnings
Dollars in Thousands,                          Per      Per                                                Per      Per
Except Per                 Gross      Net    Basic  Diluted                             Gross     Net    Basic  Diluted
Share Amounts  Revenues   Profit   Income    Share    Share                 Revenues   Profit  Income    Share    Share
<S>            <C>      <C>       <C>     <C>      <C>      <C>             <C>      <C>      <C>     <C>      <C>
1997                                                        1996
First Quarter  $ 87,102 $ 28,055  $ 6,972    $ .44    $ .43 First Quarter   $ 77,843 $ 25,111 $ 6,085    $ .40    $ .38
Second Quarter   87,111   28,612    7,269      .46      .44 Second Quarter    74,902   25,972   6,440      .42      .40
Third Quarter    85,113   28,067    7,196      .45      .44 Third Quarter     84,511   27,355   6,853      .44      .43
Fourth Quarter   93,143   30,715    6,892      .43      .42 Fourth Quarter    89,406   28,376   7,125      .45      .44
               $352,469 $115,449  $28,329    $1.78    $1.73                 $326,662 $106,814 $26,503    $1.71    $1.65
</TABLE>
<TABLE>
<CAPTION>
Common Stock Price Range

1997                    High        Low        1996                     High        Low
<S>                  <C>        <C>            <C>                   <C>        <C>
First Quarter        $53        $45 1/4        First Quarter         $43 1/2    $38 1/8
Second Quarter        50 1/2     44 5/8        Second Quarter         51 1/4     40 1/2
Third Quarter         46 3/8     40 3/4        Third Quarter          47 7/8     40
Fourth Quarter        44 3/4     33 1/2        Fourth Quarter         50         45 1/2

</TABLE>













/208


                                -32-


           BOARD OF DIRECTORS

           ARTHUR L. GOLDSTEIN *
           Chairman of the Board, President and Chief Executive Officer
           Ionics, Incorporated

           DOUGLAS R. BROWN +
           President and Chief
           Executive Officer,
           Advent International Corp.

           WILLIAM L. BROWN +
           Retired Chairman of the Board,
           The First National Bank of Boston

           ARNAUD DE VITRY DAVAUCOURT +
           Engineering Consultant and Director of Various Organizations

           WILLIAM E. KATZ
           Executive Vice President
           Ionics, Incorporated

           KATHLEEN F.  FELDSTEIN
           President, Economic Studies, Inc.

           ROBERT B. LUICK
           Of Counsel, Sullivan and Worcester, Attorneys

           JOHN J. SHIELDS #*
           General Partner, Boston Capital Ventures

           CARL S. SLOANE #*
           Ernest L. Arbuckle Professor of Business Administration,
           Harvard University Graduate School of Business Administration

           DANIEL I. C. WANG +
           Institute Professor and Director of Biotechnology Process
           Engineering Center, Massachusetts Institute of Technology

           MARK S. WRIGHTON #
           Chancellor
           Washington University

           ALLEN S. WYETT #
           President, Wyett Consulting
           Group, Inc.




           * Member of Executive Committee

           + Member of Audit Committee

           # Member of Compensation Committee

           /209

                                -33-



         CORPORATE OFFICERS

         ARTHUR L. GOLDSTEIN
         Chairman of the Board, President and Chief Executive Officer

         WILLIAM E. KATZ
         Executive Vice President

         JOHN P. BERGERON
         Treasurer

         ROBERT J. HALLIDAY
         Vice President, Finance and Chief Financial Officer

         STEPHEN KORN
         Vice President,
         General Counsel and Clerk

         THEODORE G. PAPASTAVROS
         Vice President,
         Strategic Planning

         A. ERNEST WHITON
         Vice President and Corporate Controller

         PRINCIPAL U.S. OFFICES, AFFILIATES & SUBSIDIARIES

         Aqua Cool Pure Bottled Water
         Watertown, Massachusetts

         Elite New England
         Ludlow, Massachusetts

         General Ionics
         Cuyahoga Falls, Ohio

         Ionics Ahlfinger Water
         Dallas, Texas

         Ionics Apollo Ultrapure
         Pico Rivera, California

         Ionics Aqua Design
         Deerfield Beach, Florida

         Ionics, Incorporated
         Bridgeville, Pennsylvania

         Ionics Pure Solutions
         Phoenix, Arizona

         Ionics Resources Conservation
         Bellevue, Washington

         Ionics Separation Technology
         St. Paul, Minnesota

         /210

                                -34-



         Ionics Sievers Instruments
         Boulder, Colorado

         Ionics Ultrapure Water
         San Jose, California



         CORPORATE HEADQUARTERS

         Ionics, Incorporated
         65 Grove Street
         Watertown, Massachusetts 02172



         PRINCIPAL OVERSEAS OFFICES, AFFILIATES & SUBSIDIARIES

         Aqua Cool Pure Bottled Water
         London England

         Eau et Industrie
         Paris, France

         Elite Chemicals Pty. Ltd.
         Brisbane, Qld. Australia

         Global Water Services, S.A.
         Panama City, Panama

         Ionics Asia-Pacific Pte. Ltd.
         Singapore

         Ionics (Bermuda) Ltd.
         Hamilton, Bermuda

         Ionics Iberica, S.A.
         Grand Canary, Spain

         Ionics, Incorporated
         Hong Kong

         Ionics Italba, S.p.A.
         Milan, Italy

         Ionics Korea, Inc.
         Seoul, Korea

         Ionics (UK) Ltd.
         London, England

         Ionics Watertec Pty. Ltd.
         Brisbane, Qld. Australia

         Enersave Engineering Systems  Sdn. Bhd.
         Kuala Lumpur, Malaysia

         /211

                                -35-



         Yuasa-Ionics Co., Ltd.
         Tokyo, Japan



         INVESTOR INFORMATION

         The Annual Meeting of Ionics' shareholders will be held Thursday,
         May 7, 1998 at 2:00 P.M. at BankBoston, 100 Federal Street,
         Boston, Massachusetts.

         Ionics' common stock is traded on the New York Stock Exchange
         under the symbol ION.  As of March 20, 1998 there were
         approximately 1,700 shareholders of record.  No cash dividends
         were paid in either 1997 or 1996 pursuant to Ionics' current
         policy to retain earnings for use in its business.

         For information or assistance regarding individual stock records,
         transactions or certificates, please call the Transfer Agent's
         Telephone Response Center:  1-800-426-5523 between 9 A.M. and 5
         P.M.

         Ionics' Annual Report on Form 10-K and other corporate
         information may be obtained on Ionics' home page on the
         Worldwide Web at http://www.ionics.com


         A copy of Ionics' Annual Report on Form 10-K, which is filed with
         the Securities and Exchange Commission, will be sent to any
         shareholder upon request directed to Investor Relations, Ionics,
         Incorporated, P.O. Box 9131, Watertown, Massachusetts 02272-9131,
         or by calling (617) 926-2510 ext. 874.


         TRANSFER AGENT & REGISTRAR

         State Street Bank and Trust Company
         Boston, Massachusetts


         AUDITORS

         Coopers & Lybrand L. L. P.
         Boston, Massachusetts


         The Ionics Toolbox and Ionics Total Water Management are
         registered service marks; Covering the Waterfront, The Ionics
         Brand and Ionics Diamond Service are unregistered service marks;
         Aqua Cool, Cloromat, HYgene, Ionics, Ozgen, and Sievers are
         registered trademarks; and Ionics EDR 2020 is an unregistered
         trademark of  Ionics, Incorporated.


         /212

                                -36-