<PAGE>
 
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-Q
                                        

          [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

                        SECURITIES EXCHANGE ACT OF 1934

                 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
                                        
                                ---------------

                         COMMISSION FILE NUMBER 1-9678

                                ---------------


                             ARCO CHEMICAL COMPANY
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)



          DELAWARE                                        51-0104393
(STATE OR OTHER JURISDICTION OF             (I.R.S. EMPLOYER IDENTIFICATION NO.)
 INCORPORATION OR ORGANIZATION)

        3801 WEST CHESTER PIKE                           (ZIP CODE)
     NEWTOWN SQUARE, PENNSYLVANIA                        19073-2387
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

                                ---------------

                                 (610) 359-2000
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

                                ---------------

                                 NOT APPLICABLE
             (FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, 
                         IF CHANGED SINCE LAST REPORT)


  INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES  X  NO 
    ---    ---   

  NUMBER OF SHARES OF COMMON STOCK, $1.00 PAR VALUE, OUTSTANDING AS OF MARCH 31,
1998: 97,242,729.

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<PAGE>
 
                         PART I.  FINANCIAL INFORMATION

                ITEM 1.  ARCO CHEMICAL COMPANY AND SUBSIDIARIES
                 CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

                       CONSOLIDATED STATEMENTS OF INCOME
                  (Millions of Dollars, Except Per Share Data)

<TABLE>
<CAPTION>
 
 
                                                Three Months Ended
                                                     March 31,
                                                -------------------
                                                 1998       1997
                                                -------  ----------
<S>                                             <C>      <C>
 
Sales and other operating revenues               $ 934       $1,029
Costs and other operating expenses                 720          844
                                                 -----       ------
   Gross profit                                    214          185
 
Selling, general and administrative expenses        52           68
Research and development                            17           21
                                                 -----       ------
   Operating income                                145           96
 
Interest expense                                    18           22
Other (income) expense, net                         (8)           1
                                                 -----       ------
   Income before income taxes                      135           73
 
Provision for income taxes                          43           25
                                                 -----       ------
 
   Net income                                    $  92       $   48
                                                 =====       ======
 
 
Earnings per share:
  Basic                                          $ .95       $  .50
                                                 =====       ======
  Diluted                                        $ .95       $  .50
                                                 =====       ======
 
Cash dividends paid per share                    $ .70       $  .70
                                                 =====       ======
</TABLE>

                            See accompanying notes.

<PAGE>
 
                            See accompanying notes.
                             ARCO CHEMICAL COMPANY
                          CONSOLIDATED BALANCE SHEETS
                             (Millions of Dollars)


                                               March 31,  December 31,
                                                 1998        1997
                                                 ----        ----
                                     ASSETS 


Current assets:
   Cash and cash equivalents                    $   39      $   29
   Accounts receivable, net                        614         612
   Inventories                                     467         484
   Prepaid expenses and other current assets        29          21
                                                ------      ------
      Total current assets                       1,149       1,146
                                                         
Investments and long-term receivables               61          64
Property, plant and equipment, net               2,495       2,534
Deferred charges and other assets (net of                
   accumulated amortization of $115 in 1998              
   and $113 in 1997)                               364         372
                                                ------      ------
                                                         
      Total assets                              $4,069      $4,116
                                                ======      ======

 
                      LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
   Notes payable                                     $  110   $   98
   Long-term debt due within one year                    23       23
   Accounts payable                                     265      304
   Taxes payable                                         58       56
   Other accrued liabilities                            275      278
                                                     ------   ------
      Total current liabilities                         731      759
                                                     ------   ------
 
Long-term debt                                          773      792
Other liabilities and deferred credits                  225      215
Deferred income taxes                                   332      338
Minority interest                                       206      219
 
Stockholders' equity:
   Common stock                                         100      100
   Additional paid-in capital                           881      880
   Retained earnings                                    926      902
   Foreign currency translation                         (33)     (14)
   Treasury stock, at cost                              (72)     (75)
                                                     ------   ------
      Total stockholders' equity                      1,802    1,793
                                                     ------   ------
 
      Total liabilities and stockholders'  equity    $4,069   $4,116
                                                     ======   ======
 
                            See accompanying notes.

                                      -2-
<PAGE>
 
                             ARCO CHEMICAL COMPANY
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Millions of Dollars)
 
                                                     Three Months Ended
                                                          March 31,
                                                     ------------------
                                                        1998    1997
                                                       ------  ------

Cash flows from operating activities
      Net income                                         $ 92   $  48
      Adjustments to reconcile net income to net cash
          provided by operating activities:
            Depreciation and amortization                  52      57
            Changes in working capital accounts           (40)    (37)
            Other                                          14      (2)
                                                         ----   -----
 
      Net cash provided by operating activities           118      66
                                                         ----   -----
 
  Cash flows from investment activities
      Capital expenditures                                (44)    (60)
      Proceeds from asset sales                             -      20
      Other                                                 4       5
                                                         ----   -----
 
      Net cash used in investment activities              (40)    (35)
                                                         ----   -----
 
Cash flows from financing activities
      Dividends paid                                      (68)    (68)
      Repayment of long-term debt                         (14)   (158)
      Proceeds from issuance of long-term debt              -     158
      Net proceeds from notes payable                      10      21
      Other                                                 4       4
                                                         ----   -----
 
      Net cash used in financing activities               (68)    (43)
                                                         ----   -----
 
Effect of exchange rate changes on cash                     -      (4)
                                                         ----   -----
 
Net increase in cash and cash equivalents                  10     (16)
 
Cash and cash equivalents at beginning of year             29      70
                                                         ----   -----
 
Cash and cash equivalents at end of period               $ 39   $  54
                                                         ====   =====

                            See accompanying notes.

                                      -3-
<PAGE>
 
                             ARCO CHEMICAL COMPANY
                CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                             (Millions of Dollars)

 
                                             Three Months Ended
                                                 March 31,
                                            -------------------
                                             1998        1997
                                            -------     -------
Net income                                   $  92        $  48
 
Foreign currency translation, net of tax       (19)         (40)
                                             -----        -----
 
Comprehensive income                         $  73        $   8
                                             =====        =====
 
                            See accompanying notes.

                                      -4-
<PAGE>
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
                                        

NOTE A.  BASIS OF PRESENTATION

         The foregoing financial information is unaudited and has been prepared
from the records of ARCO Chemical Company (the Company).  In the opinion of
management, the financial information reflects all adjustments (consisting only
of items of a normal recurring nature) necessary for a fair statement of
financial position and results of operations in conformity with generally
accepted accounting principles.  Certain amounts in 1997 have been reclassified
for comparative purposes.  These interim financial statements should be read in
conjunction with the consolidated financial statements for the year ended
December 31, 1997.


NOTE B.  GEOGRAPHIC INFORMATION

         The Company is an international manufacturer of intermediate chemicals
and specialty chemical products, which it principally markets to other
industrial concerns. The Company operates in one industry segment. The
geographic distribution of the Company's markets is indicated by the table
below. In addition to total revenues by origin (point of sale), the Company has
also presented total revenues by destination (customer location). Intercompany
sales between geographic areas are excluded.

 
                                 Three Months Ended
                                      March 31,
                                 ------------------
                                    1998      1997
                                  ------    ------
                                (Millions of Dollars)

Total revenues (by destination)
      United States                 $477    $  531
      Europe                         251       264
      Other foreign                  206       234
                                    ----    ------
            Total                   $934    $1,029
                                    ====    ======
 
Total revenues (by origin)
      United States                 $567    $  639
      Europe                         281       292
      Other foreign                   86        98
                                    ----    ------
            Total                   $934    $1,029
                                    ====    ======
Pretax earnings
      United States                 $136    $   91
      Europe                          15         2
      Other foreign                    2         2
      Interest expense               (18)      (22)
                                    ----    ------
            Total                   $135    $   73
                                    ====    ======


         Pretax earnings include royalty charges made to foreign operations for
the use of Company technology.

                                      -5-
<PAGE>
 
NOTE C.    INVENTORIES

         Inventories at March 31, 1998 and December 31, 1997 comprised the
following categories:
 
                                          1998  1997
                                          ----  ----
                                     (Millions of Dollars)

     Finished goods                       $329  $336
     Work-in-process                        51    45
     Raw materials                          44    58
     Materials and supplies                 43    45
                                          ----  ----
 
           Total                          $467  $484
                                          ====  ====


NOTE D.  PROPERTY, PLANT AND EQUIPMENT, NET

         Property, plant and equipment, at cost, and related accumulated
depreciation at March 31, 1998 and December 31, 1997 were as follows:
 
                                          1998    1997
                                        ------  ------
                                    (Millions of Dollars)

     Property, plant and equipment      $4,124  $4,149
     Less:  accumulated depreciation     1,629   1,615
                                        ------  ------
 
           Total                        $2,495  $2,534
                                        ======  ======


NOTE E.  CONTINGENCIES

         The Company and its subsidiaries are involved in a number of lawsuits,
all of which have arisen in the ordinary course of the Company's business.  The
Company is unable to predict the outcome of these matters, but does not believe,
based upon currently available facts, that the ultimate resolution of such
matters will have a material adverse effect on the consolidated financial
statements of the Company.

         The Company is subject to other loss contingencies pursuant to federal,
state, local, and foreign environmental laws and regulations.  These
contingencies include possible obligations to remove or mitigate the effects on
the environment of the past disposal or release of certain chemical substances
at various sites (remediation costs).  The Company continues to evaluate the
amount of these remediation costs and periodically adjusts its reserve for
remediation costs and its estimate of additional environmental loss
contingencies based on progress made in determining the magnitude, method and
timing of the remedial actions that may be required by government authorities
and an evaluation of the Company's potential liability in relation to the
liability and financial resources of any other potentially responsible parties.

         At March 31, 1998, the Company's environmental liability totaled $43
million, which reflected the Company's latest assessment of potential future
remediation costs associated with existing sites.  A significant portion of the
liability is related to the Beaver Valley plant site, located in Monaca,
Pennsylvania.   The Company sold the Beaver Valley plant assets to NOVA
Chemicals Inc. (NOVA) on September 30, 1996, but retained ownership of the land
at the Beaver Valley plant site, substantial portions of which were leased to
NOVA.  On 

                                      -6-
<PAGE>
 
October 20, 1997, the Company, Beazer East, Inc. (Beazer) and the Pennsylvania
Department of Environmental Protection (PADEP) entered into a consent agreement
that acknowledged the completion of remedial investigations and conditionally
approved the proposed remediation methods at the Beaver Valley plant site, all
pursuant to a 1994 work plan previously agreed to by the Company and PADEP.
Following execution of the consent agreement, the Company transferred to NOVA
title to the previously leased portions of the land at the Beaver Valley plant
site. The Company continues to retain responsibility for remediation of the
land. Final approval of the remediation methods is subject to PADEP's approval
of risk assessment studies to be submitted by the Company in the near future.
The Company has an agreement with Beazer whereby Beazer has agreed to pay for
approximately 50 percent of the Beaver Valley plant site remediation costs. The
Company and Beazer have reached an agreement with the U.S. government whereby
the government will pay 28.5 percent of the costs incurred by the Company and
Beazer for remediation of substantial portions of the Beaver Valley site.

         The remainder of the liability is related to four other plant sites and
one federal Superfund site for amounts ranging from $2 million to $13 million
per site.  The Company is involved in administrative proceedings or lawsuits
relating to a minimal number of other Superfund sites.  However, the Company
estimates, based on currently available information, that potential loss
contingencies associated with these sites, individually and in the aggregate,
are not significant.  Substantially all amounts accrued are expected to be paid
out over the next five to ten years.

         The Company relies upon remedial investigation/feasibility studies
(RI/FS) at each site as a basis for estimating remediation costs at the site.
The Company has completed RI/FS or preliminary assessments at most of its sites.
However, selection of the remediation method and the cleanup standard to be
applied are, in most cases, subject to approval by the appropriate government
authority.  Accordingly, the Company may have possible loss contingencies in
excess of the amounts reserved to the extent the scope of remediation required,
the final remediation method selected and the cleanup standard applied vary from
the assumptions used in estimating the liability.  The Company estimates that
the upper range of these possible loss contingencies should not exceed the
amount accrued by more than $65 million.

         The extent of loss related to environmental matters ultimately depends
upon a number of factors, including technological developments, changes in
environmental laws, the number and ability to pay of other parties involved at a
particular site and the Company's potential involvement in additional
environmental assessments and cleanups.  Based upon currently known facts,
management believes that any remediation costs the Company may incur in excess
of the amounts accrued or disclosed above would not have a material adverse
impact on the Company's consolidated financial statements.

         The Company and the Atlantic Richfield Company (ARCO) are parties to an
agreement whereby the Company has indemnified ARCO against certain claims or
liabilities that ARCO may incur relating to ARCO's former ownership and
operation of the oxygenates and polystyrenics businesses of the Company,
including liabilities under laws relating to the protection of the environment
and the workplace and liabilities arising out of certain litigation.  ARCO has
indemnified the Company with respect to claims or liabilities and other matters
of litigation not related to the assets or businesses reflected in the
consolidated financial statements.  ARCO has also indemnified the Company for
certain federal, foreign, state, and local taxes that might be assessed upon
audit of the operations of the Company included in its consolidated financial
statements for periods prior to the July 1, 1987 formation of the Company.

                                      -7-
<PAGE>
 
NOTE F.  EARNINGS PER SHARE

         In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings Per
Share." SFAS No. 128 required companies to adopt its provisions in financial
statements issued for periods ending after December 15, 1997 and required
restatement of all prior earnings per share ("EPS") data presented.  Basic EPS
is based on the average number of common shares outstanding during each period.
Diluted EPS includes the effect of outstanding stock options.
 
                                        Three Months Ended March 31,
                                           1998               1997
                                         --------           --------
                                     Shares     EPS     Shares     EPS
                                    --------  -------  --------  -------
                                    (Millions, except per share amounts)
  Earnings per Share:
      Basic.......................      97.2    $0.95      96.8    $0.50
      Dilutive effect of options..       0.1        -       0.1        -
                                        ----  -------      ----  -------
      Diluted.....................      97.3    $0.95      96.9    $0.50
                                        ====  =======      ====  =======
 

NOTE G.  SUPPLEMENTAL CASH FLOW INFORMATION

         Following is supplemental cash flow information for the three months
ended March 31, 1998 and 1997:
 
                                                            1998      1997
                                                           ------    ------
                                                          (Millions of Dollars)
Changes in working capital-increase (decrease) in cash:
      Accounts receivable                                    $(13)     $(48)
      Inventories                                              13        (6)
      Prepaid expense and other current assets                 (9)      (11)
      Accounts payable                                        (33)        1
      Taxes payable                                             3        16
      Other accrued liabilities                                (1)       11
                                                             ----      ----
      Changes in working capital accounts                    $(40)     $(37)
                                                             ====      ====
 
      The above changes exclude the effects of foreign exchange rate changes.
 
Cash paid during the period for:
      Interest (net of amount capitalized)                   $ 16      $ 17
                                                             ====      ====
      Income taxes                                           $ 20   $     -
                                                             ====   =======
                                                        

                                      -8-
<PAGE>
 
NOTE H.  RESTRUCTURING PROGRAM

         During the third quarter 1997, the Company recorded a pretax charge of
$175 million related to a previously announced restructuring program, which
included a review of all operations and assets.  Activities related to the
restructuring program are expected to continue through the end of 1998.  The
restructuring charge included $75 million of personnel-related costs and $23
million of exit costs.  Other charges included $77 million related to the review
of assets.

         Personnel costs included severance, pension enhancements, and other
ancillary costs for the reduction of approximately 630 employees worldwide in
manufacturing, commercial, research, and administrative activities.  Severance
payments and other ancillary costs, which will be paid from Company funds,
accounted for $54 million of the accrued liability.  Certain of these payments
can be deferred at the election of employees, and the Company estimates that
such payments will take place over the next two to three years.  Exit costs
included costs of canceling long-term contracts and leases related to certain
production, sales and administrative facilities, including $7 million related to
the write down of production assets.  Through March 31, 1998, approximately 380
employees have been terminated and approximately $19 million of severance and
ancillary costs have been paid out and charged against the accrued liability.
There were no payments of exit costs.


NOTE I.  COMPREHENSIVE INCOME

          In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," which requires prominent disclosure of comprehensive
income, as defined, including comparative disclosure in interim financial
statements.

                                      -9-
<PAGE>
 
                ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS


                                    OVERVIEW

         The Company manufactures and markets intermediate chemicals and
specialty products, operating in a single industry segment.  It conducts
business primarily in the Americas, Europe, and the Asia Pacific region.
 
         Each of the Company's two principal manufacturing processes yields its
key product, propylene oxide (PO), and one of two co-products, styrene monomer
(SM) or tertiary butyl alcohol (TBA).  The Company also manufactures numerous
derivatives of PO and TBA.  Among these are polyols, a key derivative of PO, and
methyl tertiary butyl ether (MTBE), a principal derivative of TBA.  MTBE is used
in oxygenated fuels and as an octane additive.  The Company also manufactures
and markets toluene diisocyanate (TDI).  TDI and polyols are combined in the
manufacture of polyurethanes.

         Net income for the first quarter 1998 was $92 million compared with $48
million in the first quarter 1997.  The $44 million improvement was primarily
attributable to higher core product  volumes and the Company's cost reduction
program.  First quarter 1998 core product margins also improved as lower
feedstock costs were only partly offset by lower sales prices.
 

                             RESULTS OF OPERATIONS

PRODUCT VOLUMES

         Sales and other operating revenues included the sales and processing
volumes of the Company's core products and co-products for the first quarter
1998 and 1997 as set forth below.  Core products included PO, PO derivatives,
and TDI.
 
                                             1998    1997
                                            -----   -----
                                             (Millions)
 
     Core products (pounds)                 1,071   1,002
     Co-products:
       SM (pounds)                            699     708
       TBA and derivatives (gallons)          250     260

       The reported SM volumes included quantities processed for PO/SM II equity
partners (SM equity volumes) under long-term processing arrangements.  The SM
equity volumes were 216 million and 200 million pounds in the 1998 and 1997
periods, respectively.


REVENUES

         Revenues of $934 million in the first quarter 1998 decreased nine
percent compared to revenues of $1,029 million in the first quarter 1997,
reflecting lower average sales prices and lower co-product volumes, partly
offset by higher core product volumes. Average sales prices were generally lower
in 1998, reflecting a combination of lower feedstock costs, ongoing competition
in PO derivatives and TDI markets, the negative effects of a stronger U.S.
dollar on foreign sales, lower prices in Asian markets, and lower prices for co-
products,

                                      -10-
<PAGE>
 
MTBE and SM. MTBE prices were affected by significantly lower gasoline prices in
the 1998 period, while SM prices were affected by industry capacity increases in
the face of weaker demand, primarily in Asia. Core product volumes increased
seven percent in the first quarter 1998 versus the prior year period, reflecting
higher PO volumes and stronger demand for certain PO derivatives in the United
States and Western Europe, partly offset by lower volumes in Asian markets.
Weaker demand in Asian markets also affected SM export volumes. As a result,
total SM volumes declined slightly versus the 1997 period. TBA and derivatives
volumes decreased four percent, mainly due to lower contractual MTBE sales.


GROSS PROFIT

         Gross profit of $214 million in the first quarter 1998 increased $29
million compared to gross profit of $185 million in the 1997 first quarter,
primarily due to higher core product volumes and, to a lesser extent, fixed cost
reductions.  First quarter 1998 core product margins also improved as feedstock
costs decreased more than sales prices.  However, a significant portion of the
margin improvement in core products was offset by margin decreases in co-
products.  Gross profit as a percent of sales increased to 22.9 percent in the
first quarter 1998 compared to 18.0 percent in the 1997 period.
 

OTHER

         In total, selling, general and administrative and research and
development expense decreased $20 million, primarily due to the Company's cost
reduction program.  Other income of $8 million in 1998 compared to expense of $1
million in 1997.  The $9 million improvement is primarily due to lower foreign
exchange losses in the 1998 period.



                              FINANCIAL CONDITION


LIQUIDITY AND CAPITAL RESOURCES


         As of March 31, 1998, the Company had $39 million in cash and cash
equivalents compared with $29 million at December 31, 1997. The Consolidated
Statement of Cash Flows for the quarter ended March 31, 1998 shows that net cash
flows provided by operating activities were $118 million, whereas net cash flows
used by investment and financing activities were $40 million and $68 million,
respectively.

          Investment activities for the first quarter 1998 included capital
expenditures of $44 million.  On March 2, 1998, the Company's Board of Directors
gave approval to move forward with a new world-scale butanediol (BDO II) plant
in Rotterdam, the Netherlands, with an annual capacity of 250 million pounds.
The BDO II plant, in addition to the new PO 11 PO/SM plant in Rotterdam and a
number of capacity additions at existing facilities, are part of the Company's
five-year capacity expansion program.  The Company has revised estimates of the
cost of its five-year capital program from $2.3 billion to $2.0 billion,
reflecting expected cost savings and efficiencies in the execution of the
program.

          Financing activities for the first quarter 1998 included the payment
of a dividend of $.70 per share, totaling $68 million.  On April 16, 1998, the
Board of Directors declared a dividend of $.70 per share on the Company's common
stock, payable June 5, 1998.



                                      -11-
<PAGE>
 
          In April 1998, the Company entered into foreign currency forward and
"zero-cost" range forward option contracts, with maturities ranging from 1998
through 2001, in order to minimize its foreign exchange exposure relating to the
planned BDO II plant construction in Rotterdam, the Netherlands. The total
notional amount of foreign currency contracts outstanding, including such
contracts, is approximately $580 million. The hypothetical loss in future cash
flows of these new derivative instruments as of the date of their acquisition,
assuming a hypothetical change of 10 percent versus the contractual exchange
rates, was $17 million. Sensitivity analysis was used for this purpose, and
assumed strengthening of the U.S. dollar versus the Netherlands guilder.

          The Company maintains a credit agreement under which it can borrow
amounts up to $500 million.  At March 31, 1998, the Company had no outstanding
borrowing against the credit agreement, which is used to back up the Company's
commercial paper borrowing.

          It is expected that future cash requirements for capital expenditures,
dividends and debt repayments will be met by cash generated from operating
activities and additional borrowing.


FINANCIAL ACCOUNTING STANDARDS NOT YET ADOPTED

          In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The statement will be
effective for the Company's 1998 annual financial statements. SFAS No. 131
established standards for reporting information about operating segments and
related disclosures about products and services, geographic areas and major
customers.  SFAS No. 131 supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise."  The Company currently reports one segment
under SFAS No. 14 guidelines.  It is still reviewing the impact SFAS No. 131
will have on its reportable operating segments.  SFAS No. 131 affects disclosure
only and will not affect reported earnings, cash flow or financial position.

          In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use."  SOP 98-1 establishes
criteria for determining which costs of developing or obtaining internal-use
computer software should be charged to expense and which should be capitalized.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities."  SOP 98-5 requires costs of start-up activities and organization
costs to be charged to expense as incurred.   SOP 98-1 and 98-5 will affect the
Company beginning in calendar year 1999; the Company does not plan to adopt them
earlier.  The Company does not anticipate that adoption of the new SOPs will
have a material effect on its consolidated financial statements.

                                      -12-
<PAGE>
 
                          PART II.  OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

         Reference is made to the disclosures on page 9 of the Company's 1997
Annual Report on Form 10-K.



ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits:

   10.1  ARCO Chemical Company 1998 Long-Term Incentive Plan, effective as of
         February 19, 1998.

   10.2  ARCO Chemical Company Change of Control Plan, effective as of 
         February 19, 1998.

   12    Computation of the Ratio of Earnings to Fixed Charges

   27    Financial Data Schedule for the three months ended March 31, 1998.



(b)  Reports on Form 8-K:

   None.

                                      -13-
<PAGE>
 
                                   SIGNATURE

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                                       ARCO CHEMICAL COMPANY
                                            (Registrant)


                                       /s/ Van Billet
                                       ------------------------------------
                                                   (Signature)

                                       Van Billet
                                       Vice President
                                       and Controller
                                       (Duly Authorized Officer and
                                       Chief Accounting Officer)
 
Dated: April 29, 1998

                                      -14-
<PAGE>
 
                                 EXHIBIT INDEX


 
Exhibit
Number                           Description
-------                          -----------

 10.1       ARCO Chemical Company 1998 Long-Term Incentive Plan, effective as 
            of February 19, 1998.

 10.2       ARCO Chemical Company Change of Control Plan, effective as of
            February 19, 1998.

 12         Computation of the Ratio of Earnings to Fixed Charges

 27         Financial Data Schedule for the three months ended
            March 31, 1998.