EXHIBIT 13
                           IONICS, INCORPORATED
                     ANNUAL REPORT TO STOCKHOLDERS OF
                       IONICS, INCORPORATED FOR THE
                    FISCAL YEAR ENDED DECEMBER 31, 1998

 (The following sections constitute an Exhibit to Form 10-K:  Management's
 Discussion and Analysis of Results of Operations and Financial Condition; 
Report of Independent Accountants; Consolidated Statements of Operations; 
    Consolidated Balance Sheets; Consolidated Statements of Cash Flow; 
  Consolidated Statements of Stockholders' Equity; Notes to Consolidated 
Financial Statements; Selected Financial Data; Board of Directors; Corporate 
  Officers; Principal U.S. Offices, Affiliates & Subsidiaries; Corporate 
   Headquarters; Principal Overseas Offices, Affiliates & Subsidiaries; 
     Investor Information; Transfer Agent & Registrar; and Auditors).

                   _____________________________________




























/40



                  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
               RESULTS OF OPERATIONS AND FINANCIAL CONDITION

RESULTS OF OPERATIONS

The results of operations described below refer to the activities of the
Company's four business groups which now comprise the reportable segments
of the Company.  See Note 15 to the financial statements for a more
detailed description of the Company's four business group segments.

1998 Compared to 1997

The financial performance of the Company reflected a 0.3% decrease in
revenues and a 24.5% decline in net income in 1998.  The decline in net
income was primarily due to reductions in earnings before interest, taxes
and minority interest (EBIT) of 37.4% and 43.4% in the Equipment Business
Group and the Ultrapure Water Group, respectively.  These reductions were
primarily due to tightness in the capital equipment markets, particularly
in the demand for ultrapure water equipment by the microelectronics
industry.  Partially mitigating these declines were increases in EBIT of
18.3% and 17.0% in the Instrument Business Group and the Consumer Water
Group, respectively. The Instrument Business Group benefited from increased
instrument sales, with the strongest demand coming from the pharmaceutical
industry.  The increased earnings of the Consumer Water Group were largely
driven by the continuing strength of the Company's home and office bottled
water business.

Total revenues were $351.3 million in 1998, compared with $352.5 million in
1997. Revenues were higher in the Consumer Water Group, the Instrument
Business Group and the Ultrapure Water Group while revenues declined in the
Equipment Business Group.

The Equipment Business Group's revenues declined by $16.1 million in 1998
as compared to 1997 because of reduced capital equipment sales; the
expiration of the Santa Barbara water supply contract in early 1997; the
sale of bleach manufacturing equipment in the U.K. in the fourth quarter of
1997; and the consolidation of the Company's food processing business in
early 1998.

The Ultrapure Water Group's revenues increased by 2.5% in 1998.  The
businesses in the Ultrapure Water Group primarily serve the
microelectronics industry, and, to a lesser extent, the power and
pharmaceutical industries. Revenues in 1998 from the microelectronics
industry were down significantly from 1997 revenues, primarily due to a
slowdown in capital spending by that industry.  This decline was offset by
additional revenues in 1998 resulting from the acquisition of a majority
interest in Enersave Engineering Systems Sdn Bhd, a Malaysian corporation
(now Ionics Enersave), in the third quarter of 1997.  The decline in
profits relating to the reduction of revenues from the microelectronics
industry was greater than the profits contributed by Ionics Enersave.

The revenues of the Instrument Business Group increased by 17.5% in 1998
compared to 1997, largely driven by the pharmaceutical industry's increased
purchases of the Company's instruments for measuring total organic carbon
(TOC) levels as a standard for measuring water purity under the United
States Pharmacopoeial Convention's USP 23, adopted in 1998.
/41



The 10.7% increase in revenues in 1998 compared to 1997 of the Consumer
Water Group was due to growth in the Company's bottled water business.  The
bottled water business expanded its customer base in both the United States
and the United Kingdom, while also pursuing product line expansions and
realizing a higher average price per bottle for its primary product.

1997 Compared to 1996

The Company's revenues totaled $352.5 million in 1997, up from $326.7
million in 1996.  Revenues were higher in all four business groups with the
largest growth occurring in the Ultrapure Water Group.

The Equipment Business Group had a slight increase in revenues in 1997 from
1996.  Overall, capital equipment sales for this Group were up in 1997,
driven by strength in demand for desalination equipment which more than
offset reduced revenues from wastewater equipment sales.  This Group's
revenues from supply contracts were down in 1997, primarily as a result of
the City of Santa Barbara's buy-out of the desalination plant constructed
and maintained by the Company.

Sales for the Ultrapure Water Group increased 14.5% in 1997 compared to
1996 as a result of the Company's acquisition in September 1997 of Ionics
Enersave and from revenue recognized on ultrapure water contracts booked in
late 1996 and early 1997.

Revenues for the Instrument Business Group and the Consumer Water Group
increased 18.8% and 10.4%, respectively, in 1997 compared to 1996.
Instrument Business Group sales were up primarily due to sales to the
pharmaceutical industry, while Consumer Water Group sales grew as a result
of strong performance by the bottled water business.  The bottled water
business was particularly strong in the U.K., where the Company benefited
from its market leadership position and warm summer temperatures.

Cost of Sales and Operating Expense Comparisons

Cost of sales as a percentage of revenues was 67.4%, 67.2% and 67.3% in
1998, 1997 and 1996, respectively.

Cost of sales as a percentage of revenues decreased during 1998 compared to
1997 for the Equipment Business Group and Consumer Water Group and
increased for the Ultrapure Water Group and Instrument Business Group.  The
decrease in the Equipment Business Group primarily reflected an improvement
in its product mix.  The Consumer Water Group decrease reflected an overall
improvement in prices in the home water business.  The increase in the
Ultrapure Water Group resulted from the continued competitive environment
in the microelectronics industry for ultrapure water capital equipment. The
Instrument Business Group increase reflected increased spending associated
with manufacturing and service department operations.

Cost of sales as a percentage of revenues increased during 1997 compared to
1996 for the Equipment Business Group and decreased for the Ultrapure Water
Group, the Instrument Business Group, and the Consumer Water Group.  The
/42



increase in the Equipment Business Group primarily reflected more
competitive market conditions in the equipment and supply businesses.  The
decrease in the Ultrapure Water Group primarily reflected a more favorable
mix of ultrapure water supply contracts.  The decrease in the Instrument
Business Group reflected lower material costs due to a change in the mix of
instruments sold.  The decrease in the Consumer Water Group reflected
modest bottled water price increases and the improved absorption of fixed
overhead costs resulting from continued expansion of the bottled water
consumer base.

Operating expenses as a percentage of revenues were 23.6% in 1998, an
increase from 20.7% in 1997 and 20.9% in 1996.  The increase in operating
expenses as a percentage of revenues in 1998 compared to 1997 was primarily
due to a decrease in Equipment Business Group revenues which historically
have disproportionately lower selling expenses as a percentage of such
revenues than do revenues from some of the other business groups.
Additionally, the Company experienced revenue growth in the Instrument
Business Group and Consumer Water Group which historically have
disproportionately higher selling costs as a percentage of revenues than do
some of the other business groups.  Operating expenses also increased in
1998 due to expenses associated with the Company's Y2K program, increased
legal expenses, and expanded marketing initiatives, as well as the
Company's continued commitment to investment in its research and
development programs.  Operating expenses as a percentage of revenues in
1997 of 20.7% were substantially consistent with the 20.9% experienced in
1996.

Interest and Taxes

Interest income was $1.1 million, $1.2 million and $1.4 million in 1998,
1997 and 1996, respectively.  Interest expense was $0.3 million, $0.9
million and $0.9 million in 1998, 1997 and 1996, respectively.

The Company's effective tax rate was 32.5% in 1998, 33.0% in 1997 and 33.0%
in 1996.  The reduction of the rate in 1998 compared to 1997 was due to the
Company's foreign sales corporation providing a proportionately larger
benefit than in prior years.  While the effective tax rate for 1997 was
unchanged from 1996, the underlying changes in 1997 reflected improvement
in the mix of earnings and tax rates among the different tax jurisdictions,
and a lower state tax rate, resulting from a change in the composition of
domestic income by state.  These reductions were offset by the loss of
benefit from tax-exempt interest and a smaller benefit from the Company's
foreign sales corporation.

Net income decreased 24.5% to $21.4 million in 1998 compared to $28.3
million in 1997.  Net income in 1997 was 6.9% higher than 1996 net income
of $26.5 million.

FINANCIAL CONDITION

At December 31, 1998, the Company had total assets of $452.1 million
compared to total assets of $406.7 million at December 31, 1997 and $378.6
million at December 31, 1996. The increase in 1998 reflected an increase in
/43



property, plant and equipment which included expansion of the Company's
bottled water operations, manufacturing and "own and operate" facilities.
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 Ionics Enersave and the business
of Watertec Engineering Pty. Ltd. and related companies in Australia (now
Ionics Watertec).  In addition, during both 1998 and 1997, accounts
receivable increased, reflecting higher revenues from capital equipment
projects in the latter parts of those years.

Working capital in 1998 increased by $1.3 million over 1997, and the
Company's current ratio decreased to 2.2 from 2.5 in 1997. Capital
expenditures totaled $42.2 million, $33.5 million, and $46.9 million in
1998, 1997 and 1996, respectively. In 1997, the Company spent approximately
$11.0 million to acquire Ionics Watertec and a majority interest in Ionics
Enersave.  Funds for these expenditures were provided in each year by cash
from operations, issuance of current debt and proceeds from stock option
exercises.  In 1997, funds were also provided through the sale of certain
fixed assets, including bleach manufacturing equipment in the U.K.  

Net cash provided by operating activities decreased by $1.9 million in 1998
compared to 1997, due primarily to lower net income and an increase in
accounts receivable partially offset by an increase in accounts payable.  
Net cash provided by operating activities increased by $6.3 million in 1997
over 1996, 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 used by investing activities increased by $5.8 million in 1998
over 1997 after having decreased by $11.6 million in 1997 from 1996.

In 1998, net cash used by financing activities totaled $2.8 million, a
change of $4.1 million from the $1.4 million that was provided by financing
activities in 1997.  In 1997, net cash provided by financing activities
decreased by $6.0 million as compared to 1996.  The change in both 1998 and
1997 was primarily due to a reduction in cash obtained from short-term
borrowings.

Significant expenditures in 1999 are anticipated to include investments in
additional "own and operate" facilities and in the continued expansion of
bottled water operations.

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
$28.8 million at the beginning of 1999, cash from operations, lines of
credit and foreign exchange facilities are adequate to meet its currently
anticipated needs.
/44



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.

YEAR 2000 READINESS DISCLOSURE AND RELATED INFORMATION

The Company's State of Readiness
The Company has undertaken a program to assure that its computer software
and systems (including information technology (IT) and manufacturing
systems), facilities and products will be able to distinguish 21st century
dates from 20th century dates (so-called "Year 2000 (Y2K) Compliance or
Compliant").  The Company's program is divided into the following three
phases:

Phase One - Inventory and Planning
The Company completed this phase in July 1998.  In this phase, the Company
inventoried all hardware and software that potentially is susceptible to
Y2K problems, prepared plans for assessing compliance and completing
remediation, and prepared vendor compliance letters.

Phase Two - Assessment
In this phase, the Company is assessing which of its systems and products
are Y2K Compliant.  The Company has requested compliance statements from
hardware and software vendors, supply manufacturers and service trading
partners and has received responses from many vendors and has not
discovered any significant compliance problems.  This phase also includes
the planning for remediation of non-compliant systems.  The Company
anticipates the completion of this phase by the end of the first quarter of
1999.

Phase Three - Remediation and Testing
In this phase, the Company will deploy plans for elimination, upgrade,
replacement or modification of non-compliant systems and products and test
compliance.  The Company has scheduled completion of this phase by the
third quarter of 1999.

The Company's core operating (IT and manufacturing) system for its
headquarters operations is not yet Y2K Compliant.  The Company is currently
pursuing a remediation plan for this system, has made significant progress,
and expects to have it completed by mid-1999.  The Company's bottled water
accounting system in the United States is not yet fully Y2K Compliant.  The
Company has purchased a new integrated distribution and accounting system,
which management believes will significantly enhance its bottled water
operations. This new system is Y2K Compliant and implementation is
scheduled for completion by the third quarter of 1999. Individual bottled
water business locations are running this new system as it is implemented,
which the Company believes may reduce the risks associated with potential
Y2K non-compliance should implementation not be fully completed by the end
of 1999.
/45



The Company's other IT systems are not uniform across all operations and
locations.  The systems for all non-headquarters operations have been
reviewed. The Company is currently implementing new Y2K Compliant IT
systems at two major locations in the U.S. Completion of implementation of
these systems is expected by mid-1999.  The Company has either completed
remediation or implemented new IT systems which are Y2K Compliant at its
other significant non-headquarters operations.

Remediation or replacement of IT systems at other locations is under way
and is expected to be completed by mid-1999.  The Company believes that
failure of these systems to become Y2K Compliant would be unlikely to have
a material impact on the Company due to the relatively small size of these
operations and the opportunity to perform relevant tasks manually.

The Company's assessment plan includes assessment of Y2K Compliance of non-
information technology (non-IT) components including the Company's
membrane-related equipment, "own and operate" equipment, other products,
manufacturing equipment and facilities.  Substantial progress has been made
in these areas and completion of such assessment is expected in the first
quarter of 1999.

The Company is obtaining compliance statements from vendors of both IT and
non-IT systems and is revising its vendors' status on an on-going basis
based upon information it is receiving.  The Company is working with its
most important vendors to resolve remediation and compliance problems as
they are identified.

Costs to Address Y2K Issues
The Company's assessment and remediation of Y2K Compliance issues is
anticipated to cost approximately $1.5 million, excluding the cost of new
systems implementation.  Expenses to date of approximately $750,000 are
consistent with such expectations.  The Company does not currently expect
that actual Y2K expenses finally incurred will materially exceed its
estimate.

Risk of the Company's Y2K Issues
If the Company fails to achieve Y2K Compliance in all its systems, the
Company could lose the ability to process certain of its customers' orders,
manufacture products or provide services to customers until compliance is
achieved or a means to work around the failure is implemented.  However,
most of the Company's businesses process a small number of relatively large
transactions, mitigating the short-term dependence on information systems.
Also, because the Company's systems are not uniform across the Company, it
is anticipated that any failure would not be system-wide.  Furthermore, a
failure to fill an order may not necessarily result in complete loss of the
order.  Some orders could be filled through alternative methods within a
relatively short period.  Nevertheless, any disruption in order
fulfillment, manufacturing or the provision of services to customers could
result in some loss of revenue or claims against the Company.  Moreover,
there is uncertainty as to whether the Company may experience any
disruption in these areas as a result of uncertainty concerning the Y2K
readiness of third-party vendors.  If disruption in any of these areas
resulting from Y2K non-compliance is greater than anticipated, the loss of
revenue could be material.
/46



Contingency Plans
The Company plans to complete contingency plans by mid-1999 to deal with
possible failures in systems which it determines may not achieve Y2K
Compliance on a timely basis.

FORWARD-LOOKING INFORMATION

Derivative Instruments
The Company had $318,000 of foreign exchange contracts outstanding at
December 31, 1998.  These contracts are immaterial to the Company and as
they were used to hedge foreign currency denominated transactions, any
change in the fair value of the contracts would be offset by changes in the
underlying value of the transactions. The Company has no other derivative
financial instruments, or other financial and commodity instruments for
which fair value disclosure would be required under SFAS No. 119.  The
Company holds no investment securities which would require disclosure of
market risk.

Market Risk
The Company's primary market risk exposures are in the areas of interest
rate risk and foreign currency exchange rate risk.  The Company's
investment portfolio of cash equivalents is subject to interest rate
fluctuations, but the Company believes this risk is immaterial due to the
short-term nature of these investments.  At December 31, 1998, the Company
had $6.9 million of short-term debt and $1.5 million of long-term debt
outstanding.  The short-term debt was issued under various working capital
lines and due to its short-term maturities, a hypothetical 10% decrease in
the Company's weighted average short-term borrowing rate at December 31,
1998 would not have materially affected the year-end carrying value of the
debt.  The Company's exposure to currency exchange rate fluctuations has
been and is expected to remain modest due to the fact that the operations
of its international subsidiaries are primarily conducted in their
respective local currencies.

Safe Harbor Statement under Private Securities Litigation Reform Act of 1996
The Company's future results of operations and certain statements contained
in this report, including, without limitation, "Management's Discussion and
Analysis of Results of Operations and Financial Condition," constitute
forward-looking statements. Such statements are based on management's current
views and assumptions and involve risks, uncertainties and other 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; the ability of the Company to achieve Y2K Compliance in
accordance with its current program including the ability of the Company to
ascertain and plan for compliance issues of third-party vendors; risks
involved in litigation; regulations and laws affecting business in each of
the Company's markets; market risk factors, as described above under
"Derivative Instruments" and "Market Risk;" and other risks and uncertainties
described from time to time in the Company's filings with the Securities and
Exchange Commission.
/47



Report of Independent Accountants

To the Board of Directors and Stockholders of Ionics, Incorporated:
 
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, consolidated statements of
stockholders' equity, and consolidated statements of cash flows, present
fairly, in all material respects, the financial position of Ionics,
Incorporated (the "Company") at December 31, 1998 and December 31, 1997,
and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.  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 of these statements in accordance with generally
accepted auditing standards which 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, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation.  We believe that our audits provide a reasonable
basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
Boston, Massachusetts
February 19, 1999


























/48


<TABLE>
Consolidated Statements of Operations
_____________________________________
For the years ended December 31
_______________________________

<CAPTION>

Amounts in Thousands, Except Per Share Amounts                 1998          1997          1996
                                                               ____          ____          ____
<S>                                                        <C>           <C>           <C>
Revenues:
    Equipment Business Group                               $129,751      $145,844      $144,652
    Ultrapure Water Group                                   111,349       108,601        94,846
    Consumer Water Group                                     80,884        73,046        66,144
    Instrument Business Group                                29,342        24,978        21,020
                                                           ________      ________      ________

                                                            351,326       352,469       326,662
                                                           ________      ________      ________
Costs and expenses:
    Cost of sales of Equipment Business Group                92,826       104,638       100,889
    Cost of sales of Ultrapure Water Group                   87,039        80,964        71,981
    Cost of sales of Consumer Water Group                    45,261        41,510        37,956
    Cost of sales of Instrument Business Group               11,716         9,908         9,022
    Research and development                                  6,635         5,410         5,108
    Selling, general and administrative                      76,299        67,593        63,118
                                                           ________      ________      ________
                                                            319,776       310,023       288,074
                                                           ________      ________      ________

Income from operations                                       31,550        42,446        38,588
Interest income                                               1,058         1,197         1,396
Interest expense                                               (331)         (947)         (869)
Equity income                                                   606           526           441
                                                           ________      ________      ________

Income before income taxes and minority interest             32,883        43,222        39,556
Provision for income taxes                                   10,680        14,280        13,053
                                                           ________      ________      ________

Income before minority interest                              22,203        28,942        26,503
Minority interest expense                                       817           613             -
                                                           ________      ________      ________
Net income                                                 $ 21,386      $ 28,329      $ 26,503
                                                           ========      ========      ========

Earnings per basic share                                   $   1.33      $   1.78      $   1.71
                                                           ========      ========      ========

Earnings per diluted share                                 $   1.31      $   1.73      $   1.65
                                                           ========      ========      ========
Shares used in basic earnings per share calculations         16,077        15,936        15,542
Shares used in diluted earnings per share calculations       16,357        16,409        16,106

The accompanying notes are an integral part of these financial statements.
</TABLE>
/49


<TABLE>
                                                                                                      Consolidated Balance Sheets
                                                                                                      ___________________________
December 31
___________
<CAPTION>
Dollars in Thousands, Except Share Amounts                                                               1998           1997
__________________________________________                                                               ____           ____
<S>                                                                                                   <C>           <C>
Assets
Current assets:
    Cash and cash equivalents                                                                         $ 28,770      $ 25,787
    Short-term investments                                                                                 359           107
    Notes receivable, current                                                                            4,144         3,856
    Accounts receivable                                                                                111,844        98,275
    Receivables from affiliated companies                                                                2,329         2,624
    Inventories                                                                                         31,549        28,910
    Other current assets                                                                                 8,098         6,291
                                                                                                      ________      ________
         Total current assets                                                                          187,093       165,850

Notes receivable, long-term                                                                              8,824         8,349
Investments in affiliated companies                                                                      7,057         3,983
Property, plant and equipment, net                                                                     195,683       179,957
Other assets                                                                                            53,466        48,597
                                                                                                      ________      ________
         Total assets                                                                                 $452,123      $406,736
                                                                                                      ========      ========


Liabilities and Stockholders' Equity
Current liabilities:
    Notes payable and current portion of long-term debt                                               $  6,873      $ 12,084
    Accounts payable                                                                                    37,361        27,099
    Other current liabilities                                                                           38,052        26,227
    Taxes on income                                                                                      3,648           602
                                                                                                      ________      ________
         Total current liabilities                                                                      85,934        66,012
                                                                                                      

Long-term debt and notes payable                                                                         1,519           804
Deferred income taxes                                                                                   17,036        17,783
Other liabilities                                                                                        2,036         2,478
Commitments                                                                                                  -             -
Stockholders' equity:
    Common stock, par value $1, authorized shares: 55,000,000 in 1998 and 30,000,000 in 1997; 
     issued and outstanding: 16,116,649 in 1998 and 16,001,285 in 1997                                  16,117        16,001
    Additional paid-in capital                                                                         157,571       154,479
    Retained earnings                                                                                  179,943       158,557
    Accumulated other comprehensive income                                                              (7,889)       (9,126)
    Unearned compensation                                                                                 (144)         (252)
                                                                                                      ________      ________
         Total stockholders' equity                                                                    345,598       319,659
                                                                                                      ________      ________
         Total liabilities and stockholders' equity                                                   $452,123      $406,736
                                                                                                      ========      ========
The accompanying notes are an integral part of these financial statements.
</TABLE>

/50


<TABLE>
Consolidated Statements of Cash Flows
_____________________________________
<CAPTION>
For the years ended December 31
Dollars in Thousands                                                                         1998         1997          1996
                                                                                         ________     ________      ________
<S>                                                                                      <C>          <C>           <C>
Operating activities:
    Net income                                                                           $ 21,386     $ 28,329      $ 26,503
    Adjustments to reconcile net income to net cash provided by operating activities:
         Depreciation and amortization                                                     27,214       27,047        26,162
         Provision for losses on accounts and notes receivable                              1,319        1,408         1,011
         Deferred income tax provision                                                      2,478        5,571         4,085
         Compensation expense on restricted stock awards                                      108          108           108
         Changes in assets and liabilities, net of effects of businesses acquired:
         Notes receivable                                                                    (168)      (2,264)       (1,557)
         Accounts receivable                                                              (14,695)      (7,865)      (10,863)
         Inventories                                                                       (2,773)      (2,395)       (3,259)
         Other current assets                                                              (1,461)       2,594           449
         Investments in affiliates                                                         (2,815)      (1,106)          758
         Accounts payable and accrued expenses                                             20,267       (5,219)       (7,011)
         Income taxes                                                                        (218)       2,470         4,678
         Other                                                                             (4,851)        (988)          296
                                                                                         ________     ________      ________
           Net cash provided by operating activities                                       45,791       47,690        41,360
                                                                                         ________     ________      ________

Investing activities:
    Additions to property, plant and equipment                                            (42,196)     (33,510)      (46,890)
    Disposals of property, plant and equipment                                              1,882       10,114           887
    Sale and maturity of short-term investments                                               137            -             -
    Acquisitions, net of cash acquired                                                          -      (11,016)            -
                                                                                         ________     ________      ________
           Net cash used by investing activities                                          (40,177)     (34,412)      (46,003)
                                                                                         ________     ________      ________

Financing activities:
    Principal payments on current debt                                                    (15,339)     (17,077)      (22,259)
    Proceeds from issuance of current debt                                                  9,716       14,937        27,149
    Principal payments on long-term debt                                                       (8)         (31)       (3,236)
    Proceeds from issuance of long-term debt                                                  419          363             -
    Proceeds from stock option plans                                                        2,447        3,188         5,731
                                                                                         ________     ________      ________
           Net cash (used)/ provided by financing activities                               (2,765)       1,380         7,385
                                                                                         ________     ________      ________
Effect of exchange rate changes on cash                                                       134       (1,140)           48
                                                                                         ________     ________      ________
Net change in cash and cash equivalents                                                     2,983       13,518         2,790
Cash and cash equivalents at end of prior year                                             25,787       12,269         9,479
                                                                                         ________     ________      ________
Cash and cash equivalents at end of current year                                         $ 28,770     $ 25,787      $ 12,269
                                                                                         ========     ========      ========

The accompanying notes are an integral part of these financial statements.
</TABLE>
/51


<TABLE>
<CAPTION>
                                                                                  Consolidated Statements of Stockholders' Equity
                                                                                  _______________________________________________
                                                                                             Accumulated
                                                      Common Stock     Additional               Other                    Total
                                                               Par       Paid-in  Retained  Comprehensive   Unearned   Stockholders'
Dollars in Thousands                                Shares     Value     Capital  Earnings      Income    Compensation    Equity
                                                    ______     _____   __________ ________  _____________ ____________ ____________
<S>                                                 <C>        <C>     <C>        <C>       <C>           <C>          <C>
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

Comprehensive income:
    Net income                                               -       -         -    26,503         -            -        26,503
    Translation adjustments, net of tax of $(93)             -       -         -         -       860            -           860
                                                                                                                       ________
Total comprehensive income                                                                                               27,363
                                                                                                                       ________

Stock options exercised                                406,956     407      5,324        -         -            -         5,731
Tax benefit of stock option activity                         -       -      4,390        -         -            -         4,390
Issuance for acquisitions                               60,475      60      2,496        -         -            -         2,556
Amortization of unearned compensation                        -       -          -        -         -          108           108
                                                    __________ _______   ________ ________   _______        _____      ________
Balance December 31, 1996                           15,823,205  15,823    149,337  130,228    (2,811)        (360)      292,217

Comprehensive income:
    Net income                                               -       -          -   28,329         -            -        28,329
    Translation adjustments, net of tax of $2,690            -       -          -        -    (6,315)           -        (6,315)
                                                                                                                       ________
Total comprehensive income                                                                                               22,014
                                                                                                                       ________

Stock options exercised                                163,214     163      3,025        -         -            -         3,188
Tax benefit of stock option activity                         -       -      1,421        -         -            -         1,421
Other activity                                          14,866      15        696        -         -            -           711
Amortization of unearned compensation                        -       -          -        -         -          108           108
                                                    __________ _______   ________ ________   _______        _____      ________
Balance December 31, 1997                           16,001,285  16,001    154,479  158,557    (9,126)        (252)      319,659

Comprehensive income:
    Net income                                              -        -          -   21,386         -            -        21,386
    Translation adjustments, net of tax of $(619)           -        -          -        -     1,237            -         1,237
                                                                                                                       ________
Total comprehensive income                                                                                               22,623
                                                                                                                       ________

Stock options exercised                                115,364     116      2,331        -         -            -         2,447
Tax benefit of stock option activity                         -       -        761        -         -            -           761
Amortization of unearned compensation                        -       -          -        -         -          108           108
                                                    __________ _______   ________ ________   _______        _____      ________

Balance December 31, 1998                           16,116,649 $16,117   $157,571 $179,943   $(7,889)       $(144)     $345,598
                                                    ========== =======   ======== ========   =======        =====      ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
/52


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 reclassified to conform to the current
year presentation with no impact on net income. 

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 $1,470,000, $1,380,000 and
$1,181,000 in 1998, 1997 and 1996, 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.

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.
/53



Notes Receivable
Notes receivable have been reported at their estimated realizable value.
The allowance for uncollectible notes receivable totaled $363,000 and
$462,000 at December 31, 1998 and 1997, respectively.

Inventories
Inventories are carried at the lower of cost or market, principally on the
first-in, first-out basis. 

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 $616,000, $238,000 and $1,169,000 in 1998, 1997 and 1996, respectively.
In general, depreciation is computed on a straight-line basis over the
expected lives of the assets, as follows:
<TABLE>
<CAPTION>
         Classification                                        Depreciation Lives
         ______________                                        __________________
         <C>                                                   <S>
         Buildings and improvements                                 10 - 40 years
         Machinery and equipment, including supply equipment         3 - 25 years
         Other                                                       3 - 12 years
</TABLE>
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.

Asset Impairment
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, which generally is a
period ranging from 10 to 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.
/54


       
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 (losses)/gains included in income before income taxes and
minority interest totaled $(28,000), $100,000 and $548,000 for 1998, 1997
and 1996, 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. 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 1998, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 130, "Reporting Comprehensive Income."  SFAS No. 130 establishes
standards, for disclosure purposes only, for the reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements.  

Segment Information
In 1998, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 131, "Disclosures About Segments of an Enterprise and Related
Information."  SFAS No. 131 supersedes SFAS No. 14, "Financial Reporting
for Segments of a Business Enterprise," replacing the "industry segment"
approach with the "management" approach.  The management approach utilizes
the Company's internal management and reporting structure as the basis for
determining the Company's reportable segments.

Pensions and Other Post-Retirement Benefits
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
132, "Employers' Disclosures About Pensions and Other Post-Retirement
Benefits," in 1998.  SFAS No. 132 is for disclosure purposes only and does
not change benefit plan accounting.  It standardizes the disclosure
requirements for pensions and post-retirement benefits to the extent
practicable and requires additional information on changes in benefit
obligations and the fair value of plan assets.
/55



Derivative Instruments and Hedging Activities
In 1998, the Financial Accounting Standards Board (FASB) released Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities."  SFAS No. 133 standardizes
accounting for derivative instruments and for hedging activities.  This
Statement is effective for fiscal years beginning after June 15, 1999.  The
Company intends to adopt this Statement for interim periods beginning in
the first quarter of 2000.  This Statement should not have a material
effect on the Company's financial statements.
<TABLE>       
Note 2. Consolidated Balance 
         Sheet Details
<CAPTION>

Dollars in Thousands                         1998        1997
                                             ____        ____
<S>                                    <C>         <C>
Raw materials                          $   19,164   $  17,183
Work in process                             8,523       8,773
Finished goods                              3,862       2,954
                                       __________   _________
Inventories                            $   31,549   $  28,910
                                       ==========   =========

Land                                   $    8,194   $   6,767
Buildings                                  41,594      34,239
Machinery and equipment                   259,885     236,526
Other, including furniture,
  fixtures and vehicles                    44,267      41,397
                                       __________   _________
                                          353,940     318,929
Accumulated depreciation                 (158,257)   (138,972)
                                       __________   _________
Property, plant and equipment, net     $  195,683   $ 179,957
                                       ==========   =========

Goodwill                               $   53,377   $  46,565
Accumulated amortization                   (6,831)     (5,136)
Other                                       6,920       7,168
                                       __________   _________
Other assets                           $   53,466   $  48,597
                                       ==========   =========

Customer deposits                      $    3,965   $   3,685
Accrued commissions                         2,203       2,370
Accrued expenses                           31,884      20,172
                                       __________   _________
Other current liabilities              $   38,052   $  26,227
                                       ==========   =========
</TABLE>
/56


<TABLE>
Note 3.  Supplemental Schedule of 
         Cash and Non-Cash Flow Information
<CAPTION>
Dollars in Thousands                                    1998       1997         1996
                                                        ____       ____         ____
<S>                                                 <C>        <C>          <C>
Cash payments for interest 
  and income taxes:
  Interest                                          $    685   $    634     $  1,338
  Taxes                                             $  8,481   $  2,860     $  4,264
Liabilities assumed in 
  conjunction with acquisitions:
  Fair value of assets purchased                    $      -   $ 19,352     $  8,452
  Book value of assets pooled                              -          -        8,592
  Retained deficit pooled                                  -          -        1,070
  Net cash (paid)/received                                 -    (11,016)          89
  Value of common stock issued                             -          -       (2,530)
                                                    ________   ________     ________
Liabilities assumed                                 $      -   $  8,336     $ 15,673
                                                    ========   ========     ========
</TABLE>
<TABLE>
Note 4.  Accounts Receivable
<CAPTION>
Dollars in Thousands                                   1998        1997
                                                    _______     _______
<S>                                               <C>          <C>
Billed receivables                                 $ 74,059     $69,157
Unbilled receivables                                 40,313      30,945
Allowance for doubtful accounts                      (2,528)     (1,827)
                                                   ________     _______
Accounts receivable                                $111,844     $98,275
                                                   ========     =======
</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, 1998 are
expected to be billed during 1999.
       
Billed receivables include retainage amounts of $3,654,000 and $4,233,000
at December 31, 1998 and 1997, respectively.  Substantially all of the
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 or treated water and the sale of equipment and replacement
parts.
/57



<TABLE>
<CAPTION>
                                                             Ownership
Affiliate                                                    Percentage
_________                                                    __________
<S>                                                          <C>
Agrinord S.r.l. - Italy                                         50%
Aguas Tratadas de Cadereyta S.A. de C.V. - Mexico               20%
Aguas Tratadas de Madero, S.A. de C.V. - Mexico                 20%
Aqua Cool Kuwait - Kuwait                                       49%
Aqua Cool Saudi Arabia - Saudi Arabia                           40%
Aqua Design Ltd. - Cayman Islands                               39%
Jalal-Ionics, Ltd. - Bahrain                                    40%
Watlington Waterworks, Ltd. - Bermuda                           20%
Yuasa-Ionics Co., Ltd. - Japan                                  50%
</TABLE>       
The Company's percentage ownership interest in a foreign affiliate may
vary from its interest in the earnings of such affiliate.
<TABLE>
Activity in investments in affiliated companies:
<CAPTION>
Dollars in Thousands                                   1998        1997           1996
                                                    _______     _______       ________
<S>                                                <C>         <C>           <C>
Investments at end
  of prior year                                      $3,983      $2,908        $ 4,874
Equity in earnings                                      606         526            441
Distributions received                                 (396)       (575)        (1,254)
Cumulative translation       
  adjustments                                           172          (7)             -
Reclassification of Watlington
 Waterworks from/(to) other
 assets resulting from change in
 ownership interest                                   1,208           -         (1,208)
Additional investments                                1,484       1,131             55
                                                     ______      ______        _______
Investments at end of
 current year                                        $7,057      $3,983        $ 2,908
                                                     ======      ======        =======
</TABLE>
At December 31, 1998, the Company's equity in the total assets and in the
total liabilities of its foreign affiliates was $10,133,000 and $3,076,000,
respectively. The Company's equity in the 1998 total revenues of these
affiliates was $5,570,000.

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 $60,000. The ultimate site clean-up
cost is currently not expected to exceed $59 million, of which the 
/58



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.

The Attorney General of the Commonwealth of Massachusetts is conducting an
investigation into certain former operations of a division of the Company
during portions of the years 1991 through 1995.  The Company is cooperating
with this investigation of possible violations of environmental statutes
and regulations that relate to one facility that ceased operations in 1995.
The Company cannot predict the outcome of this matter, but it may result in
administrative, civil or criminal charges and/or monetary payments.

On March 27, 1998, the Company was served with a summons and complaint in
connection with a lawsuit now captioned United States Filter Corporation,
U.S. Filter/Ionpure, Inc., IP Holding Company, Millipore Corporation and
Millipore Investment Holdings Limited v. Ionics, Incorporated, filed in the
U.S. District Court, District of Massachusetts (Boston).  Plaintiffs allege
that the Company is infringing a certain reissue patent, which issued on
March 10, 1998, by making, selling, offering to sell and using the
Company's electrodeionization (EDI) systems within the United States.  The
Company was recently notified that plaintiffs are seeking to add to their
complaint claims of infringement of certain earlier-issued patents.  The
Company, which pioneered the development of the EDI process over 30 years
ago and holds a number of patents related to EDI technology, believes that
it has valid defenses to the plaintiffs' infringement claims and intends
vigorously to defend itself in this litigation, which is in the early
discovery stages.
<TABLE> 
Note 7.   Long-Term Debt 
          and Notes Payable
<CAPTION>
Dollars in Thousands                                    1998        1997
                                                      ______     _______
<S>                                                   <C>        <C>
Borrowings outstanding                                $8,392     $12,888
Less installments due within one year                  6,873      12,084
                                                      ______     _______
Long-term debt and notes payable                      $1,519     $   804
                                                      ======     =======
</TABLE>
Maturities of borrowings outstanding for the five years ending December 31,
1999 through 2003 are approximately $6,873,000, $659,000, $149,000,
$125,000 and $98,000, 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 (7.75% at December 31, 1998), the money market rate (5.5% at December
31, 1998) or the London Interbank Offered Rate plus 1/2% (5.56% at December
31, 1998), at the Company's option. The Company had no outstanding
borrowings against these lines of credit at December 31, 1998 and 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.
/59



The Company utilizes other 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, 1998 and 1997 was approximately 10% and 8%, respectively.

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

<TABLE>       
<CAPTION>
Dollars in Thousands                                   1998        1997          1996
                                                    _______     _______       _______
<S>                                                 <C>         <C>           <C>
U.S.                                                $21,468     $27,450       $29,017
Non-U.S.                                             11,415      15,772        10,539
                                                    _______     _______      ________
Income before income taxes 
  and minority interest                             $32,883     $43,222       $39,556
                                                    =======     =======       =======
</TABLE>
<TABLE>
The provision for income taxes consisted of the following:
<CAPTION>
Dollars in Thousands                                   1998        1997         1996         
                                                    _______     _______      _______
<S>                                                 <C>         <C>          <C>
  Federal                                           $ 4,925     $ 5,891      $ 7,919
  Foreign                                             2,386       2,276          793
  State                                                 891         542          256
                                                    _______     _______      _______
Current provision                                     8,202       8,709        8,968
                                                    _______     _______      _______
  Federal                                             2,317       3,599        1,671
  Foreign                                              (116)        996        1,047
  State                                                 277         976        1,367
                                                    _______     _______      _______
Deferred provision                                    2,478       5,571        4,085
                                                    _______     _______      _______
Provision for income taxes                          $10,680     $14,280      $13,053
                                                    =======     =======      =======
</TABLE>

/60


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, 1998, the tax effects of the temporary differences were:
<TABLE>
<CAPTION>
                                                       Deferred   Deferred Tax
Dollars in Thousands                                 Tax Assets    Liabilities
                                                     __________   ____________
<S>                                                  <C>          <C>
Depreciation                                            $     -        $14,683
Goodwill amortization                                         -            673
Inventory valuation                                       1,764              -
Bad debt reserves                                           351              -
Accrued commissions                                         570              -
Profit on sales to foreign subsidiaries                     870              -
Insurance accruals                                          765              -
U.S. tax on unrepatriated earnings                            -          5,252
Alternative minimum tax                                   1,526              -
Foreign withholding taxes on
  undistributed earnings                                      -          2,070
Foreign deferred liabilities, net                             -          3,208
Tax effect of currency translation loss                   3,104              -
Net operating loss carryforwards                          4,845              -
Miscellaneous                                             1,936          1,953
                                                        _______        _______
                                                         15,731         27,839
Valuation allowance for deferred tax assets              (1,800)             -
                                                        _______        _______
Deferred income taxes                                   $13,931        $27,839
                                                        =======        =======
</TABLE>
<TABLE>
The United States statutory corporate tax rate is reconciled to the Company's effective tax
rate as follows:

<CAPTION>
                                                             1998        1997         1996
                                                           ______      ______       ______
<S>                                                        <C>         <C>          <C>
U.S. Federal statutory rate                                 35.0%       35.0%        35.0%
Foreign Sales Corporation                                   (2.1)       (1.5)        (1.6)
Tax-exempt interest income                                   -           -            (.5)
State income taxes, net of
  federal tax benefit                                        2.3         2.3          2.7
Foreign income taxed at
  different rates                                           (3.0)       (3.3)        (2.0)
Other, net                                                    .3          .5          (.6)
                                                           _____      ______       ______
Effective tax rate                                          32.5%       33.0%        33.0%
                                                           =====      ======       ======
</TABLE>
At December 31, 1998, the Company had unused tax loss carryforward
benefits of $4,845,000 (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, 1998 and 1997. The remaining unreserved portion is
considered to be realizable. $3,045,000 of the net unused tax loss
carryforward benefit has been included in other assets at December 31,
1998.
/61



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 $3,932,000, $2,843,000 and $1,538,000 as of December 31,
1998, 1997 and 1996, 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 SFAS 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
1998, 1997 and 1996: expected volatility of 27.3% in 1998, 23.4% in 1997
and 23.1% in 1996; weighted-average risk-free interest rates of 5.41%,
6.33% and 6.69% in 1998, 1997 and 1996, respectively; and expected lives
of five years. No dividends are assumed. The weighted-average fair value
of options granted during 1998, 1997 and 1996 was $10.43, $15.88 and
$15.17, respectively.

At December 31, 1998, the Company had the stock-based compensation plans
described below. The Company applies 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 SFAS No. 123, the Company's net
income and earnings per share would have been adjusted. On a pro forma
basis, net income as reported for 1998 of $21.4 million would have been
$19.3 million, 1997 net income of $28.3 million would have been $26.7
million and 1996 net income of $26.5 million would have been $25.9
million. Diluted earnings per share as reported for 1998 of $1.31 would
have been $1.18, 1997 diluted earnings per share of $1.73 would have been
$1.63 and 1996 diluted earnings per share of $1.65 would have been $1.61.
Basic earnings per share as reported for 1998 of $1.33 would have been
$1.20, 1997 basic earnings per share of $1.78 would have been $1.67 and
1996 basic earnings per share of $1.71 would have been $1.66. The effects
of applying SFAS No. 123 in this pro forma disclosure are not indicative
of future awards, which are anticipated. SFAS No. 123 does not apply to
awards prior to 1995.

Under the 1979 Stock Option Plan (the "1979 Plan"), stock options (only
non-qualified stock options after February 1989) were granted to officers
and other key employees of the Company.  Options granted under the 1979
Plan 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 (the "1997 Plan"), and no additional options will be
granted under the 1979 Plan. At December 31, 1998 and 1997, respectively,
no shares were reserved for issuance of additional options under the 1979
Plan.
/62



Under the 1997 Plan, 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,
1998 and 1997, there were 526,373 and 1,060,276 shares, respectively,
reserved for issuance of additional options under the 1997 Plan after
giving effect to the automatic addition provision.  Options granted under
the 1997 Plan vest over a five-year period and have a term of ten years.

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 become
fully exercisable after a six-month period, are exercisable only during
certain "window" periods, and have a term of ten years and one day. As of
December 31, 1998 and 1997, 62,500 and 82,500 shares, respectively, were
reserved for issuance of additional options under the 1986 Plan.

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 1998, 1997 or 1996.  A total of 280,178 shares
remain reserved for issuance.

On August 19, 1998, the Company adopted the 1998 Non-Employee Directors'
Fee Plan ("Fee Plan").  The Fee Plan permits non-employee directors to
elect to receive payment of their annual retainer fee in cash or in common
stock. The valuation of the common stock is based on the last reported
sales price of the common stock on the New York Stock Exchange on the
trading date next preceding the date of the Board meeting at which payment
will be made. Annual retainer fees are paid in two equal installments
during the year.

A summary of the status of the Company's stock option plans as of December
31, 1998, 1997 and 1996 and changes during the years ending on those dates
is presented below:
<TABLE>
<CAPTION>
                                                   1998                     1997                   1996
                                   ____________________     ____________________   ____________________
                                              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      2,035      $29.31        2,200      $28.39      1,989      $20.30
Granted                                 956       29.81           55       45.99        744       42.51
Exercised                              (115)      21.25         (163)      19.56       (465)      17.15
Canceled                                (80)      33.48          (57)      37.80        (68)      23.06
                                    _______   _________      _______   _________    _______   _________
Outstanding at end of current year    2,796      $29.70        2,035      $29.31      2,200      $28.39

Options exercisable at year-end       1,814                    1,964                  2,137   
</TABLE>
/63


<TABLE>
The following table summarizes the information about stock options outstanding at December 31, 1998:

<CAPTION>
Options in Thousands                      Options Outstanding                Options Exercisable
                                                Weighted-
                                                 Average      Weighted-                 Weighted-
                                     Number     Remaining      Average       Number      Average
Range of                           Outstanding  Contract      Exercise     Exercisable  Exercise
Exercise Prices                    at 12/31/98    Years         Price      at 12/31/98    Price
                                   ___________  ________      ________     ___________  ________
<S>                                <C>          <C>           <C>          <C>          <C>
$ 4.29                                   3        0.6         $ 4.29           3        $ 4.29
 11.88 -   15.25                       132        1.5          12.16         114         12.14
 19.75 -   29.50                     1,932        7.1          25.75         984         22.18
 30.38 -   44.38                       671        7.8          43.09         655         43.11
 45.63 -   48.25                        58        8.0          47.65          58         47.65
________________                     _____        ___         ______       _____        ______
$ 4.29 -  $48.25                     2,796        7.0         $29.70       1,814        $29.89
</TABLE>
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, 1998, 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.



















/64


<TABLE>
Note 10. Earnings Per Share Calculations (EPS)
<CAPTION>
Dollars in Thousands, 
Except Per Share Amounts                 For the Year Ended 1998         For the Year Ended 1997         For the Year Ended 1996
                                      _____________________________   _____________________________   _____________________________
                                          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               $21,386   16,077        $1.33   $28,329   15,936       $1.78    $26,503   15,542        $1.71
   Effect of dilutive stock options         -      280                      -      473                      -      564             
                                      _______   ______        _____   _______   ______       _____    _______   ______        _____
Diluted EPS                           $21,386   16,357        $1.31   $28,329   16,409       $1.73    $26,503   16,106        $1.65
                                      =======   ======        =====   =======   ======       =====    =======   ======        =====
</TABLE>
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. The number of options that were antidilutive at December 31, 1998
and 1997 were 729,000 and 743,000, respectively.  There were no
antidilutive options at December 31, 1996.

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 $102,498,000 and $96,048,000 at
December 31, 1998 and 1997, respectively. The accumulated depreciation for
such equipment was $42,539,000 and $35,195,000 at December 31, 1998 and
1997, respectively.

At December 31, 1998, future minimum rentals receivable under noncancelable
operating leases in the years 1999 through 2003 and later were
approximately $19,555,000, $16,648,000, $14,124,000, $11,574,000,
$9,282,000 and $42,005,000, respectively.

The Company leases facilities and personal property under various operating
leases. Future minimum payments due under lease arrangements are as
follows:  $3,017,000 in 1999, $2,313,000 in 2000, $1,682,000 in 2001,
$1,225,000 in 2002 and $1,168,000 in 2003. Rent expense under these leases
was approximately $4,428,000, $3,928,000 and $4,188,000 for 1998, 1997 and
1996, respectively.

Note 12. Profit-Sharing and       
         Pension Plans
       
The Company has a contributory profit-sharing plan (defined contribution
plan) which covers employees of the Company who are members of the
Bridgeville, Pennsylvania Fabricated Products division. 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 $254,000, $253,000 and
$249,000 in 1998, 1997 and 1996, respectively.

The Company also has a contributory defined benefit pension plan for its
other domestic employees.  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.
/65



The following table sets forth the defined benefit plan's funded status and
amounts recognized in the Company's balance sheets at December 31, 1998 and
1997:
<TABLE>
<CAPTION>
Dollars in Thousands                                1998        1997
____________________                            ________    ________
<S>                                   <C>       <C>         <C>
Change in Benefit Obligation                    
Benefit obligation as of prior year-end         $ 13,591    $ 10,883
Service cost                                       1,347       1,172
Interest cost                                        987         932
Actuarial (gain)/loss                               (161)      1,449
Expenses paid                                       (117)       (114)
Benefits paid                                       (351)       (731)
                                                ________    ________
Projected benefit obligation as of year-end     $ 15,296    $ 13,591
                                                ========    ========

Change in Plan Assets
Fair value of plan assets as of prior year-end  $ 12,731    $  8,577
Actual return on plan assets                       1,132       1,314
Employer contributions                               750       3,685
Expenses paid                                       (117)       (114)
Benefits paid                                       (351)       (731)
                                                ________    ________
Fair value of plan assets as of year-end        $ 14,145    $ 12,731
                                                ========    ========

Funded Status
Funded status as of year-end                    $ (1,151)   $   (860)
Unrecognized transition asset                       (256)       (309)
Unrecognized prior service cost                      449         485
Unrecognized net actuarial loss                    1,817       1,959
                                                ________    ________
Prepaid benefit cost as of year-end             $    859    $  1,275
                                                ========    ======== 
</TABLE>
<TABLE>
The expense of the defined benefit plan was as follows:
<CAPTION>
Dollars in Thousands                                              1998       1997      1996
                                                              ________  _________  ________
<S>                                                           <C>       <C>        <C>
Components of Net Periodic Benefit Cost
Service cost                                                  $  1,347  $   1,172  $  1,026
Interest cost                                                      987        932       780
Expected return on plan assets                                  (1,153)      (879)     (654)
Amortization of transition asset                                   (53)       (53)      (53)
Amortization of prior service cost                                  37         37        37
Recognized net actuarial loss                                        1         48        27
                                                              ________  _________  ________
Net periodic benefit cost                                     $  1,166  $   1,257  $  1,163
                                                              ========  =========  ========
</TABLE>


/66


The Company determined the defined benefit plan's funded status and amounts
recognized in the Company's balance sheet and the expense of the defined
benefit plan using the following assumptions:  expected return on plan
assets of 9.0% in 1998, 1997 and 1996; rate of compensation increase of
4.75% in 1998 and of 5.0% in 1997 and 1996; and discount rate of 6.75% in
1998, 7.0% in 1997 and 7.25% in 1996.

The Ionics Section 401(k) Stock Savings Plan is available to substantially
all U.S. employees of the Company.  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 $778,000, $749,000 and
$655,000 in 1998, 1997 and 1996, 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.

Note 13.  Financial Instruments

Off-Balance-Sheet Risk
The Company issues letters of credit as guarantees for various performance
and bid obligations. Approximately $30.1 million and $27.9 million of these
letters were outstanding at December 31, 1998 and 1997, respectively.
Approximately 83% of the letters of credit outstanding at December 31, 1998
are scheduled to expire in 1999. 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 $318,000 of foreign
exchange contracts outstanding at December 31, 1998 and no foreign exchange
contracts outstanding at December 31, 1997.

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 U.S. money market investments and in Spanish Government
securities. 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 1998 and 1997 were not significant.

/67       


Long-term investments, maturing in 2001 and 2003, which the Company intends
to hold to maturity have been recorded at a net cost of $1,640,000 and
$603,000 at December 31, 1998 and 1997, respectively. At December 31, 1998
and 1997, the Company also had short-term investments of $359,000 and
$107,000, respectively, which the Company intends to hold to maturity. The
cost of these investments approximates fair value. 
       
Note 14.  Acquisitions

Prior Years' Purchases

Enersave Engineering Systems Sdn Bhd
In September 1997, the Company acquired a 55% ownership interest in
Enersave Engineering Systems Sdn Bhd (now Ionics Enersave) for
approximately $9.6 million. An additional payment of up to $2 million may
be required depending upon the achievement of certain future operating
results. 
       
The acquisition was accounted for under the purchase method with the
results of Ionics Enersave included from September 1, 1997. Goodwill of
approximately $11.8 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.  Ionics Enersave, a Malaysian company with
operations in Malaysia, China and Indonesia, is a supplier of water and
wastewater treatment systems and services in Southeast Asia.

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 Ionics
Watertec) for an initial payment of $1.9 million. An additional payment of
$305,000 was made in 1998 based upon the achievement of certain operating
results. 

The acquisition was accounted for under the purchase method with the
results of Ionics Watertec included from September 1, 1997. Goodwill of
approximately $1.7 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. Ionics Watertec is involved in the manufacture and supply of
ozonation systems for water disinfection and systems for chemical metering.

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
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.
/68



Prior Years' Poolings
During 1996, the Company completed pooling transactions with Aqua Design,
Inc. (Ionics Aqua Design), Apollo Ultrapure Water Systems, Inc. (Ionics
Apollo) and Sievers Instruments, Inc. (Ionics 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 Ionics Aqua Design and
Ionics 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.  Ionics Aqua Design owns and
operates membrane-based seawater desalination systems used to produce
drinking and process water primarily for hotels and municipalities in the
Caribbean. Ionics Apollo sells ultrapure water and related services to a
variety of industrial and commercial users primarily in southern
California.  Ionics Sievers manufactures instruments designed to measure
extremely low levels of organic contaminants in ultrapure water.

Subsequent Business Combinations
In separate transactions subsequent to December 31, 1998, the Company
acquired M2 Innovative Solutions, Inc. (M2), Aquarelle SA (Aquarelle), and
Agar Technologies Process and Environmental Control, Ltd. (Agar).  The
Company paid cash for the stock of these companies.  The operating results
and purchase prices of these companies were not material individually or in
the aggregate relative to the assets and operations of the Company.  These
transactions will be accounted for as purchases.
       
M2, now called Ionics Life Sciences, is a supplier of ultrapure water
products and services, including validated pharmaceutical systems, to the
life sciences industry.  Aquarelle is a French company in the five-gallon
bottled water market.  Agar is an Israeli company which produces
instruments that monitor, detect and measure oil on water surfaces.
       
Note 15. Segment Information

In 1998, the Company adopted SFAS No. 131.  At the end of 1998, the Company
changed from three reportable segments to four reportable "business group"
segments corresponding to a "business group" structure, summarized below,
which was put into place in the latter part of 1998.  Segment information
for prior years has been restated to reflect this change. 
       
Equipment Business Group - equipment, supply, "own and operate" and related
services for seawater desalination, brackish water desalination, water and
wastewater treatment and food and chemical processing, for municipalities
and communities, and for the petrochemical, nuclear and electric utilities,
pulp and paper, chemical processing and related industries.
       
Ultrapure Water Group - equipment, supply, "own and operate" and related
services for the production of ultrapure water for the semiconductor, power
and pharmaceutical industries.
/69


       
Consumer Water Group - equipment and supply services for the consumer
market including 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.

Instrument Business Group - instruments for the analysis and on-line
monitoring of certain constituents, impurities or contaminants in water for
industrial and municipal customers.

The accounting policies of the four business group segments are the same as
those described in "Significant Accounting Policies."  The Company
evaluates the performance of each business group segment and considers
allocation of resources to it based on earnings before interest, taxes, and
minority interest (EBIT), and the evaluation of EBIT with respect to
capital employed.

The business group structure reflects the segmentation of the product
lines, services, and markets within defined areas of management
responsibility.  Four business group managers, one for each of the
reportable segments, are directly accountable to, and maintain regular
contact with, the chief operating decision maker, the Chief Executive
Officer, to discuss operating activities, financial results, forecasts and
plans.

The table on the following page summarizes the Company's operations by the
four business group segments and "Corporate."  Corporate includes research
and development expenses not allocated to the business groups and certain
corporate administrative and insurance costs. 

Geographic Areas
Revenues are reflected in the country from which the sales are made.  Long-
lived assets include all long-term assets except for notes receivable.  No
foreign country's revenues to unaffiliated customers or long-lived assets
were material.  

Included in the United States segment are export sales of approximately
23%, 22% and 18% for 1998, 1997 and 1996, respectively.  Including these
U.S. export sales, the percentages of total revenues attributable to
activities outside the U.S. were 47%, 41% and 36% in 1998,1997 and 1996,
respectively.   
<TABLE>
Information about the Company's operations by geographic area follows: 
<CAPTION>
                                          United                     
Dollars in Thousands                      States      International     Total
_____________________________________________________________________________
<S>                                     <C>           <C>            <C>
1998
Revenue - unaffiliated customers        $242,363           $108,963  $351,326
Long-lived assets                        170,528             85,678   256,206
_____________________________________________________________________________
1997
Revenue - unaffiliated customers        $264,604           $ 87,865  $352,469
Long-lived assets                        156,020             76,517   232,537
_____________________________________________________________________________
1996
Revenue - unaffiliated customers        $256,486           $ 70,176  $326,662
Long-lived assets                        153,420             73,010   226,430
_____________________________________________________________________________
</TABLE>

/70<TABLE>


<CAPTION>
                                                              Equipment  Ultrapure  Consumer   Instrument
                                                               Business      Water     Water     Business
Dollars in Thousands                                              Group      Group     Group        Group Corporate      Total
______________________________________________________________________________________________________________________________
<S>                                                           <C>        <C>        <C>         <C>       <C>        <C>
1998
Revenue - unaffiliated customers                              $ 129,751  $ 111,349  $ 80,884    $  29,342 $       -  $ 351,326
Inter-segment transfers                                           3,916        437         -        1,673    (6,026)         -
Income from operations                                           11,129      7,668    10,686        5,408    (3,341)    31,550
Equity income                                                        78          -       528            -         -        606
Earnings before interest, taxes and minority interest (EBIT)     11,207      7,668    11,214        5,408    (3,341)    32,156
Interest income                                                       -          -         -            -         -      1,058
Interest expense                                                      -          -         -            -         -       (331)
Income before income taxes and minority interest                      -          -         -            -         -     32,883
Capital employed                                                158,189     88,715   122,382       26,879   (42,175)   353,990
Identifiable assets                                             178,197    102,292   135,880       12,587    16,110    445,066
Investments in affiliated companies                               4,081          -     2,976            -         -      7,057
Depreciation and amortization                                    12,604      6,117     7,701          524       268     27,214
Capital expenditures                                             17,685     14,536     8,369        1,310       296     42,196
==============================================================================================================================
1997
Revenue - unaffiliated customers                              $ 145,844  $ 108,601  $ 73,046    $  24,978 $       -  $ 352,469
Inter-segment transfers                                           3,086        804         -          685    (4,575)         -
Income from operations                                           17,811     13,649     9,045        4,570    (2,629)    42,446
Equity income (loss)                                                 85        (95)      536            -         -        526
Earnings before interest, taxes and minority interest (EBIT)     17,896     13,554     9,581        4,570    (2,629)    42,972
Interest income                                                       -          -         -            -         -      1,197
Interest expense                                                      -          -         -            -         -       (947)
Income before income taxes and minority interest                      -          -         -            -         -     43,222
Capital employed                                                147,791     89,111   106,617       26,643   (37,615)   332,547
Identifiable assets                                             157,207     90,649   132,305       12,101    10,491    402,753
Investments in affiliated companies                               1,201          -     2,782            -         -      3,983
Depreciation and amortization                                    12,208      5,250     8,960          415       214     27,047
Capital expenditures                                             11,386     11,532     9,787          563       242     33,510
==============================================================================================================================
1996
Revenue - unaffiliated customers                              $ 144,652  $  94,846  $ 66,144    $  21,020 $       -  $ 326,662
Inter-segment transfers                                             923        425         -          568    (1,916)         -
Income from operations                                           18,135     12,431     6,636        3,527    (2,141)    38,588
Equity income                                                        22          -       419            -         -        441
Earnings before interest, taxes and minority interest (EBIT)     18,157     12,431     7,055        3,527    (2,141)    39,029
Interest income                                                       -          -         -            -         -      1,396
Interest expense                                                      -          -         -            -         -       (869)
Income before income taxes and minority interest                      -          -         -            -         -     39,556
Capital employed                                                157,275     68,569   101,248       26,075   (47,305)   305,862
Identifiable assets                                             167,906     66,809   119,164       11,849     9,953    375,681
Investments in affiliated companies                                  87          -     2,821            -         -      2,908
Depreciation and amortization                                    13,945      4,245     6,995          312       665     26,162
Capital expenditures                                             16,120      7,699    22,316          587       168     46,890
==============================================================================================================================
</TABLE>
/71


<TABLE>
SELECTED FINANCIAL DATA
_______________________
Statement of Operations Data
<CAPTION>
Dollars in Thousands,
Except Per Share Amounts          1998        %      1997      %        1996      %        1995      %        1994      %
_________________________________________________________________________________________________________________________
<S>                           <C>       <C>      <C>       <C>      <C>       <C>      <C>       <C>      <C>       <C>
Revenues                      $351,326    100.0  $352,469  100.0    $326,662  100.0    $257,293  100.0    $222,376  100.0
Income before income taxes
   and minority interest        32,883      9.4    43,222   12.3      39,556   12.1      31,609   12.3      22,717   10.2
Net income                      21,386      6.1    28,329    8.0      26,503    8.1      21,025    8.2      15,448    6.9
Earnings per basic share          1.33               1.78               1.71               1.45               1.11  
Earnings per diluted share        1.31               1.73               1.65               1.39               1.09  
</TABLE>

<TABLE>
Balance Sheet Data
<CAPTION>
Dollars in Thousands                                 1998       1997        1996      1995       1994
_____________________________________________________________________________________________________
<S>                                              <C>        <C>        <C>        <C>        <C>
Current assets                                   $187,093   $165,850    $144,422  $122,387   $113,477
Current liabilities                                85,934     66,012      68,173    60,279     54,877
Working capital                                   101,159     99,838      76,249    62,108     58,600
Total assets                                      452,123    406,736     378,589   322,044    277,164
Long-term debt and notes payable                    1,519        804       2,132       182         99
Stockholders' equity                              345,598    319,659     292,217   253,044    218,610
</TABLE>
<TABLE>
Selected Quarterly Financial Data (Unaudited)
<CAPTION>
                                              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>
1998                                                             1997
First Quarter   $ 78,974   $ 28,285 $ 6,008     $  .37   $  .37  First Quarter   $ 87,102   $ 28,055 $ 6,972     $ .44     $ .43
Second Quarter    80,267     26,821   4,620        .29      .28  Second Quarter    87,111     28,612   7,269       .46       .44
Third Quarter     88,876     27,999   5,183        .32      .32  Third Quarter     85,113     28,067   7,196       .45       .44
Fourth Quarter   103,209     31,379   5,575        .35      .34  Fourth Quarter    93,143     30,715   6,892       .43       .42
________________________________________________________________________________________________________________________________
                $351,326   $114,484 $21,386     $ 1.33   $ 1.31                  $352,469   $115,449 $28,329     $1.78     $1.73
================================================================================================================================
</TABLE>
<TABLE>
Common Stock Price Range
<CAPTION>
1998                   High       Low                      1997                  High       Low
_____________________________________________________________________________________________________
<S>                    <C>        <C>                      <C>                   <C>        <C>
First Quarter          $45 13/16  $37 7/8                  First Quarter         $53        $45 1/4  
Second Quarter          45 1/2     34 13/16                Second Quarter         50 1/2     44 5/8
Third Quarter           37         22 1/2                  Third Quarter          46 3/8     40 3/4
Fourth Quarter          35 1/8     22 1/2                  Fourth Quarter         44 3/4     33 1/2  

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</TABLE>
<TABLE>
<CAPTION>
                                                  PRINCIPAL U.S. OFFICES,
BOARD OF DIRECTORS      CORPORATE OFFICERS        AFFILIATES & SUBSIDIARIES
<S>                     <C>                       <C>
ARTHUR L. GOLDSTEIN +   ARTHUR L. GOLDSTEIN       Aqua Cool Pure Bottled
Chairman of the Board,  Chairman of the Board,    Watertown, Massachusetts
President and           President and             
Chief Executive Officer Chief Executive Officer   Elite New England
Ionics, Incorporated                              Ludlow, Massachusetts
                        WILLIAM E. KATZ           
DOUGLAS R. BROWN *      Executive Vice President  General Ionics
President and Chief                               Cuyahoga Falls, Ohio
Executive Officer,      John P. Bergeron          
Advent International    Vice President and        Ionics Ahlfinger Water Company
Corp.                   Treasurer                 Dallas, Texas
                                                  
WILLIAM L. BROWN *      Edward J. Cichon          Ionics Apollo Ultrapure
Retired Chairman        Vice President,             Water Systems, Inc.
of the Board            Equipment Business Group  Pico Rivera, California
The First National                                
Bank of Boston          ROBERT J. HALLIDAY        Ionics Aqua Design, Inc.
                        Vice President, Finance   Tampa, Florida
ARNAUD DE VITRY         and Chief Financial       
D'AVAUCOURT *           Officer                   Ionics, Incorporated
Engineering Consultant                            Bridgeville, Pennsylvania
                        STEPHEN KORN              
WILLIAM E. KATZ         Vice President,           Ionics Life Sciences, Inc.
Executive Vice          General Counsel and       North Wales, Pennsylvania
President               Clerk                     
Ionics, Incorporated                              Ionics Pure Solutions
                        THEODORE G. PAPASTAVROS   Phoenix, Arizona
KATHLEEN F. FELDSTEIN*  Vice President,           
President               Strategic Planning        Ionics Resources Conservation Company
Economic Studies, Inc.                            Bellevue, Washington
                                                  
JOHN J. SHIELDS #+                                Ionics Sievers Instruments,
General Partner                                   Boulder, Colorado
Boston Capital Ventures                           
                                                  Ionics Ultrapure Water Corporation
CARL S. SLOANE #+                                 San Jose, California
Ernest L. Arbuckle                                
Professor of Business                             
Administration,                                   
Harvard University                                
Graduate School of                                
Business Administration                           
                                                  
MARK S. WRIGHTON #                                
Chancellor                                        
Washington University                             CORPORATE HEADQUARTERS
                                                  
ALLEN S. WYETT #           [LOGO] COVERING THE    Ionics, Incorporated        
President, Wyett                  WATERFRONT      65 Grove Street             
Consulting Group, Inc.            50 YEARS        Watertown, Massachusetts  02472-2882
                                  IONICS                                      
+ Member of Executive Committee
* Member of Audit Committee
# Member of Compensation Committee
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<TABLE>
<CAPTION>
PRINCIPAL OVERSEAS OFFICES, AFFILIATES & SUBSIDIARIES

<S>                           <C>                          <C>
Aqua Cool Pure Bottled Water  Ionics Asia-Pacific Pte Ltd. Ionics Italba, S.p.A. Ionics Watertec Pty. Ltd.
London, England               Singapore                    Milan, Italy          Brisbane, Australia 

Ionics France                 Ionics (Bermuda) Ltd.        Ionics Korea, Inc.    Ionics Enersave Engineering
Paris, France                 Hamilton, Bermuda            Seoul, Korea          Kuala Lumpur, Malaysia

Elite Chemicals Pty. Ltd.     Ionics Iberica, S.A.         Ionics (UK) Ltd.      Yuasa-Ionics Co., Ltd.
Brisbane, Australia           Grand Canary, Spain          London, England       Tokyo, Japan
</TABLE>
<TABLE>
<CAPTION>
INVESTOR INFORMATION                                        TRANSFER AGENT & REGISTRAR                                  
<S>                                                         <C>
The Annual Meeting of Ionics' shareholders will be held     State Street Bank and Trust Company
Thursday, May 6, 1999 at 9:30 A.M. at BankBoston,           Boston, Massachusetts
100 Federal Street, Boston, Massachusetts

Ionics' common stock is traded on the New York Stock 
Exchange under the symbol ION.  As of March 19, 1999 
there were approximately 1,400 shareholders of record.      AUDITORS
No cash dividends were paid in either 1998 or 1997          
pursuant to Ionics' current policy to retain earnings for   PricewaterhouseCoopers L.L.P.
use in its business.                                        Boston, Massachusetts


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, 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 02471-9131, or by calling
(617) 926-2510 ext. 874.

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