<PAGE>   1

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

[X]      Annual Report Pursuant to Section 13 or 15(d) of the Securities 
         Exchange Act of 1934

         For the Fiscal Year Ended December 31, 1997

[  ]     Transition Report Pursuant to Section 13 or 15(d) of the Securities 
         Exchange Act of 1934

                        Commission file number 333-17961
                          ARISTECH CHEMICAL CORPORATION
             (Exact name of Registrant as specified in its charter)

        Delaware                                      25-1534498
(State of Incorporation)                (I.R.S. Employer Identification Number)

              600 Grant Street, Pittsburgh, Pennsylvania 15219-2704
                    (Address of principal executive offices)

                  Registrant's Telephone Number: (412) 433-2747

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None


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 [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

Aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 18, 1998: Not determinable.

Common Stock outstanding at March 18, 1998: 14,908 shares.

Documents Incorporated By Reference: None



<PAGE>   2


                                      INDEX
<TABLE>
<S>           <C>                                                                 <C>

PART I
   Item 1.    Business..........................................................   3
   Item 2.    Properties........................................................  15
   Item 3.    Legal Proceedings.................................................  15
   Item 4.    Submission of Matters to a Vote of Security Holders...............  15

PART II
   Item 5.    Market for Registrant's Common Equity and Related
              Stockholder Matters...............................................  15
   Item 6.    Selected Financial Data...........................................  15
   Item 7.    Management's Discussion and Analysis of Financial Condition
              and Results of Operations.........................................  16
   Item 7A.   Quantitative and Qualitative Disclosures About Market Risk........  20
   Item 8.    Financial Statements..............................................  20
   Item 9.    Changes in and Disagreements with Accountants
              On Accounting and Financial Disclosure............................  38

PART III
   Item 10.   Directors and Executive Officers of the Registrant................  38
   Item 11.   Executive Compensation............................................  41
   Item 12.   Security Ownership of Certain Beneficial Owners and Management....  45
   Item 13.   Certain Relationships and Related Transactions....................  45

PART IV
   Item 14.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K..  46

SIGNATURES
</TABLE>


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                                     PART I

ITEM 1.   BUSINESS

The Company

     Aristech Chemical Corporation ("Aristech") was incorporated under the laws
of the State of Delaware on October 14, 1986, and began doing business on
December 4, 1986.

     On October 1, 1997, Aristech formed a joint venture with Mitsubishi Rayon
Co., Ltd. ("MRC") to manufacture and sell acrylic sheet and decorative surfacing
products. Aristech's former acrylic sheet division was reorganized as Aristech
Acrylics LLC ("AALLC"), a Kentucky limited liability company in which Aristech
holds a 90% ownership interest. Dianal America, Inc. ("DAI"), a wholly-owned
U.S. subsidiary of MRC holds a 10% ownership interest in AALLC.

     The "Company" refers to Aristech and Avonite, Inc. (a New Mexico
corporation and a 60% owned consolidated subsidiary, hereinafter "Avonite" for
on and after July 1, 1996) and AALLC (for on and after October 1, 1997).

General

     The Company is a producer and marketer of chemical and polymer products
with total annual rated production capacity in excess of three billion pounds.
The Company's product base includes phenol and related products, phthalic
anhydride ("PA"), 2-ethylhexanol ("2-EH"), plasticizers, polypropylene and
acrylic and polyester sheet. These products provide the Company with a
diversified revenue base. While many of the Company's products are considered
commodities, the Company's production of polypropylene and acrylic sheet has
been increasingly directed toward more specialized, higher margin products.
There is significant vertical integration among the Company's products,
providing the Company with supplies of certain of its raw materials. The Company
also has a diverse customer base, with no customer during 1997 accounting for
more than 9% of revenues. End-use markets for the Company's products include
automotive components, home and office construction, appliances, modular
tubs/showers, whirlpools, spas, apparel, packaging, medical supplies, signs and
a wide range of consumer products.

     The Company operates in a single business segment. Each of the Company's
product lines has its own dedicated sales force responsible for domestic sales.
Sales for export markets, which accounted for approximately 20% of total sales
in 1997, are either handled directly, through distributors or with independent
representatives. The following table sets forth certain information concerning
sales of the Company's principal classes of products, chemicals and polymers,
for the past five years. A description of these classes of products follows the
table.

<TABLE>
<CAPTION>
                                       SALES DATA
                                     (IN MILLIONS)
                                       YEAR ENDED
                --------------------------------------------------------
                  1997        1996        1995         1994        1993
                -------     -------     --------     -------     -------
<S>             <C>         <C>         <C>          <C>        <C>

Chemicals       $ 510.3     $ 520.9     $  595.0     $ 437.3     $ 371.2
Polymers          387.1       385.7        428.3       508.2       417.3
                -------     -------     --------     -------     -------
Total Sales     $ 897.4     $ 906.6     $1,023.3     $ 945.5     $ 788.5
                =======     =======     ========     =======     =======

</TABLE>




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PLANT PROFILE

The following table lists the products produced by the Company and the locations
of the plants at which such products are produced.

<TABLE>
<CAPTION>
PRODUCT                       ANNUAL CURRENT                TYPICAL END                         PLANT
PRODUCED                      RATED CAPACITY                USE PRODUCT                        LOCATIONS
--------                      --------------                -----------                        ---------
<S>                          <C>                  <C>                                      <C>

CHEMICALS
Phenol                       700 Million Lbs.      Phenolic Resins and Bisphenol A          Haverhill, OH
Acetone                      434 Million Lbs.      Solvent, Acrylic Plastic, and            Haverhill, OH
                                                   Bisphenol A
Alphamethylstyrene           52 Million Lbs.       Automotive Plastics and Resins           Haverhill, OH
Cumene
   Hydroperoxide             16 Million Lbs.       Polymerization Catalyst                  Haverhill, OH
Bisphenol A                  215 Million Lbs.      Engineering Plastics, Epoxy              Haverhill, OH
                                                   Resins and Flame Retardants
Aniline                      150 Million Lbs.      Polyurethane Foams and Rubber            Haverhill, OH
                                                   Chemicals
Diphenylamine                25 Million Lbs.       Rubber Chemicals                         Haverhill, OH
Phthalic Anhydride           265 Million Lbs.      Plasticizers, Unsaturated Polyester      Pasadena, TX
                                                   Resins, Alkyd Paints and Molding
                                                   Resins
2-Ethylhexanol               280 Million Lbs.      Plasticizers, Acrylates, Resins,         Pasadena, TX
                                                   Surfactants, Defoamers and Lube
                                                   and Oil Additives
Plasticizers                 210 Million Lbs.      Flexible Vinyl                           Neville Island, PA


POLYMERS
Polypropylene                828 Million Lbs.      Automotive Parts, Fibers, Battery        LaPorte, TX and
                                                   Casings, Consumer and Medical            Neal, WV
                                                   Products, Packaging Films,
                                                   Strapping and Housewares
AALLC-Acrylic Sheet          75 Million Lbs.       Outdoor Signs, Lighting Fixtures,        Florence, KY
                                                   Modular Tub and Shower Units,
                                                   Spas, Whirlpools, Vanity and
                                                   Kitchen Countertops and Exterior
                                                   Wall Cladding
Avonite - Solid              2.5 Million           Vanity and Kitchen Countertops,          Belen, NM
Surface Sheet                Square Feet           Wall Cladding and Other
                             (84,000 sheets)       Decorative Architectural
                                                   Applications

</TABLE>


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<PAGE>   5


CHEMICALS

     The chemicals produced and marketed by Aristech are phenol and related
products, PA, 2-EH and plasticizers.

     Phenol and Related Products

     Phenol and related products consist of phenol, acetone, alphamethylstyrene
("AMS"), cumene hydroperoxide ("CHP"), bisphenol A ("BPA"), aniline and
diphenylamine ("DPA"). These products are organic chemical intermediates with a
variety of end uses, primarily in products targeted for the automotive, consumer
and construction industries. Aristech's products in this category are produced
with processes using licensed technology, except for CHP and DPA technologies
which were developed by Aristech.

     Phenol. The largest single use of phenol is as a feedstock for BPA. Other
important uses are phenolic resins for plywood, chipboard and industrial
abrasives. Phenol, when used as a chemical intermediate, becomes a component of
nylon, herbicides, pharmaceuticals and pesticides. Aristech uses phenol as a
feedstock for the production of BPA and aniline. Competition is based primarily
on price.

     The main raw material for phenol is cumene, which is first oxidized to form
CHP and then cleaved to produce phenol, acetone and AMS. Cumene is obtained by
Aristech from several sources under supply agreements, and is also available on
the spot market. An expansion in the phenol unit was completed in the fourth
quarter of 1997, increasing production capacity by 70 million pounds annually.
Aristech also obtains phenol through arms'-length purchases from Mitsubishi
Chemical Corporation ("MCC") to supplement its own production.

     In 1997, Aristech sold approximately 48% of its total production of phenol
into the merchant market. Exports of phenol represented approximately 23% of
Aristech's total phenol trade sales in 1997. Aristech is in the process of
expanding the Haverhill, Ohio plant. The new unit, when completed, is expected
to be capable of producing 242 million pounds of phenol bringing the total
phenol capacity to 942 million pounds in late 1999.

     Acetone. Acetone is used as a solvent for paints, varnishes, lacquers and
vinyl resins, and as a raw material for a wide range of chemicals such as methyl
methacrylate ("MMA"), BPA, diacetone alcohol and others. Approximately 9% of
Aristech's acetone production was used as a raw material for the production of
MMA for AALLC in 1997, with the remainder being sold to the merchant market.
Aristech's phenol unit expansion resulted in increased acetone production
capacity by 44 million pounds annually. Aristech is in the process of expanding
the Haverhill, Ohio plant. The new unit, when completed, is expected to be
capable of producing 150 million pounds of acetone bringing the total acetone
capacity to 584 million pounds in late 1999.

     AMS. High-purity AMS, a low volume product, is used to increase heat
distortion temperature and provide strength in ABS resins. Capital expansions
increased AMS production capability by nearly 50% in 1997. Aristech's production
is sold in the merchant market or hydrogenated to cumene.

     BPA. BPA is an organic chemical intermediate that is produced from phenol
and acetone. BPA is consumed mainly in the production of polycarbonate and epoxy
resins, but increasing amounts are used to produce flame retardants, polysulfone
resins, phenoxy resins and polyester resins. The feedstocks for BPA are
internally produced phenol and acetone. A significant portion of Aristech's BPA
production was sold overseas in 1997, particularly in Japan, Israel, Korea and
Italy.

     CHP. CHP is an intermediate compound extracted from the phenol and acetone
facilities and purified using a process developed by Aristech's research group.
CHP is sold in the domestic market primarily for use as a polymerization
catalyst.

     Aniline. Aniline is predominantly consumed in the production of MDI-based
rigid polyurethane foams and coating resins. Polymeric isocyanates have been
growth products used in construction (mainly as building insulation) and in the
automotive industry. Aniline is also consumed in the production of rubber,
photographic developers, agricultural chemicals and dyes. Aniline is produced
from internally produced phenol and 


                                       5
<PAGE>   6

purchased ammonia which is available from nearby sources. Aristech is one of two
companies in the world that produces aniline from phenol.

     DPA. DPA is utilized in rubber processing chemicals as well as in
pharmaceutical intermediates, dyes and as a stabilizer for petroleum and plastic
products. Aristech produces DPA by its own proprietary process from internally
produced aniline. Aristech is one of two domestic producers of DPA selling to
the merchant market.

     PA

     PA is a commodity intermediate chemical used in the manufacture of organic
chemical products, such as plasticizers, unsaturated polyester resins, alkyd
paint and molding resins. PA is manufactured from orthoxylene, a petrochemical
commodity purchased from a number of sources. Approximately 30% of PA production
in 1997 was used by Aristech to make plasticizers. The remainder of the output
of PA is sold by Aristech in the merchant market. Since PA is a commodity,
competition is based primarily on price. PA is produced at Aristech's facility
on the Houston Ship Channel at Pasadena, Texas, near raw material sources.

     2-EH

     2-EH is a commodity intermediate chemical used in the manufacture of
organic chemical products. Plasticizers are the major market for 2-EH and
account for almost half of total 2-EH consumption. The feedstocks for 2-EH are
propylene and natural gas. Aristech has entered into supply contracts for
natural gas and propylene, but both are also available on the spot market.
Approximately 30% of 2-EH output in 1997 was consumed by Aristech in the
production of plasticizers. The remainder of the output of 2-EH is sold by
Aristech in the merchant market, principally for export. Competition is based
primarily on price. 2-EH is produced at Aristech's facility on the Houston Ship
Channel at Pasadena, Texas.

     Plasticizers

     Plasticizers are organic esters produced primarily in high volume commodity
grades. Plasticizers are used principally in the manufacture of flexible
polyvinyl chloride ("PVC") plastic products. PVC products are sold into a wide
variety of applications, including consumer (rainwear, toys and boots), housing
(flooring and wall coverings), automotive (seat and dashboard covers and vinyl
roofs) and industrial (wire and cable insulation).

     Plasticizers are made from a variety of dibasic acids (primarily PA) and
alcohols, including 2-EH. Aristech produces its own supply of PA and 2-EH that
are used in large volumes in plasticizers.

     Aristech produces a complete line of plasticizers, for both general and
specialized applications, all of which are sold into the merchant market.
Competition is based primarily on price. Aristech manufactures plasticizers
utilizing well-developed batch process technology at its facility located on the
Ohio River at Neville Island, Pennsylvania.

POLYMERS
     Polymers consist of Aristech's polypropylene products, AALLC's acrylic
sheet products, and Avonite's polyester sheet products.

     Polypropylene

     Polypropylene is a thermoplastic resin produced by Aristech in both
commodity and specialty grades. The major markets for polypropylene are:
synthetic fibers used in carpet backing, carpet face yarns, upholstery fabrics,
geotextiles and disposable diapers; automotive applications, including battery
cases and interior trim parts; packaging films for food and non-food
applications; injection-molded caps and closures; medical applications (syringes
and vials); and a wide range of other consumer products.

     Propylene is the principal raw material used in the production of
polypropylene. The LaPorte, Texas plant obtains its supply of chemical and
polymer grade propylene primarily via pipeline under agreements with Mobil Oil
Corporation ("Mobil") and Equistar Chemicals LP, and the remainder on the spot
market. The Neal, West Virginia plant is supplied with refinery grade propylene
via pipeline from the nearby refinery of 



                                       6
<PAGE>   7

Ashland Inc. ("Ashland") and refinery and chemical grade propylene by rail from
other producers in the northern tier of the United States and Canada. Both
plants operate propylene splitters which permit the upgrading of lower cost
refinery and chemical grade propylene to polymer grade feedstocks.

     Aristech sells substantially all of its output of polypropylene to the
merchant market. Exports, primarily to the Far East, represented approximately
10% of polypropylene sales in 1997. Imports are not a significant factor in the
domestic market.

     Aristech is one of 12 producers of polypropylene in the United States.
Competition among producers of commodity grade polypropylene is primarily on the
basis of price, as well as quality and service. In specialty grades, competition
is based primarily on product development, quality and service. To help direct
Aristech's product mix toward the more specialized, higher margin products, a
technical services group provides assistance to customers to develop specialty
formulations to meet their specific product requirements. A new polypropylene
technical center was opened in November, 1997, in Pittsburgh, Pennsylvania,
further strengthening Aristech's commitment to customer service and focus on
specialty products. Control of raw materials supply and cost, utilization of the
latest production technology, and proximity to markets are also important
competitive factors.

     The Neal, West Virginia plant utilizes Spheripol-technology developed by
Montedison S.p.A. and licensed from Technipol B.Y. The LaPorte, Texas plant
utilizes licensed high-yield catalyst technology. The LaPorte, Texas plant is in
the process of being expanded. The expansion, when completed in late 1999, is
expected to add 550 million pounds of annual capacity.

     On February 12, 1998, Aristech and MCC entered into a nonbinding memorandum
of understanding which contemplates the formation of a joint venture in the
polypropylene business in the United States. MCC is, among other things, a
Japan-based producer and seller of polypropylene. MCC is also a shareholder in
Aristech. (See Item 12). No definitive agreement has been reached with respect
to the proposed joint venture and there can be no assurance as to the ultimate
terms of the proposed joint venture, the timing of its formation or whether it
will be consummated.

     Acrylic Sheet

     AALLC produces acrylic sheet. Acrylic sheet is a polymeric product produced
in specialty and general purpose grades. Applications include bathtubs, modular
tubs/showers, spas, whirlpool units, glazing, skylights, sign facia, vanity and
kitchen countertops and other decorative uses.

     The primary feedstock for acrylic sheet is MMA, which is currently obtained
through third party toll conversion using acetone produced at Aristech's
Haverhill, Ohio plant.

     All sales of acrylic sheet are in the merchant market. AALLC has positioned
itself as a specialty producer with emphasis on solid surface, plumbingware, spa
and sign applications with approximately 85% of the acrylic sheet sales
occurring in these specialty market segments during 1997.

     AALLC produces acrylic sheet using the continuous cast method. This process
permits AALLC to produce cross-linked sheet products of significantly greater
widths and lengths than are obtainable from the more commonly used cell-cast or
extrusion methods. AALLC's acrylic sheet is produced at its Florence, Kentucky
plant which is equipped with three continuous casters. Design, operation and
maintenance of the continuous casters represent significant proprietary
technology of AALLC. AALLC is one of five domestic producers of cast acrylic
sheet products and one of two which use the continuous cast method.

     Avonite

     Avonite produces premium solid surface polyester sheet under the tradename
Avonite(R). Avonite(R) is used for countertops, wall cladding and other
decorative architectural applications. Avonite's production facility is in
Belen, New Mexico. Avonite produces its sheet from unsaturated polyester resins
purchased in the highly competitive resin market. In addition, Avonite purchases
and resells certain of AALLC's Acrystone(R) acrylic solid surface sheet
products.



                                       7
<PAGE>   8

ORDER BACKLOG

     Normally, significant customer orders are placed during the same month that
shipment is requested and orders placed for future delivery are subject to
revision or cancellation. For these reasons, the Company does not consider order
backlog to be a meaningful indication of future business activity for its
businesses.

EMPLOYEE RELATIONS

     The Company employs approximately 1,620 people. The operating personnel at
Neal, West Virginia, Neville Island, Pennsylvania and AALLC's Florence, Kentucky
facilities are represented by the Oil, Chemical and Atomic Workers International
Union, the United Steelworkers of America, and the International Chemical
Workers, respectively. Historically, operations have generally not been
interrupted by strikes. The Company's other facilities are not represented by
unions.

RESEARCH AND DEVELOPMENT

     The Company's research and development activities are conducted at research
centers at Monroeville, Pennsylvania and Pittsburgh, Pennsylvania, and augmented
by product development and technical service groups directly attached to the
polypropylene and plasticizers businesses and AALLC. Expenditures for these
activities were $13.8 million in 1997, $13.0 million in 1996, and $11.9 million
in 1995.

PATENTS AND TRADEMARKS

     The Company possesses a substantial body of technical know-how and trade
secrets and owns approximately 96 United States patents applicable to all phases
of its business, including product formulations and production processes. The
Company considers its know-how, trade secrets and patents important to the
conduct of its business although no individual item is considered to be material
to the business. Certain plants use technology licensed from others. Royalty
expense on these licenses amounted to $3.9 million in 1997, $3.0 million in
1996, and $2.6 million in 1995. AALLC also has licensed its Acrysteel(R)
technology to MRC. Aristech is entitled to receive royalties under certain
circumstances for two stage cleavage technology used in the production of phenol
and acetone, which is licensed by a third party to MCC.

ENVIRONMENTAL, HEALTH AND SAFETY MATTERS

     The Company (and the industry in which it competes) is subject to pervasive
environmental laws and regulations concerning the production of chemicals,
emissions to the air, discharges to waterways and the generation, handling,
storage, transportation, treatment and disposal of waste materials and is also
subject to other Federal and state laws and regulations regarding health and
safety matters. These laws and regulations are constantly evolving and it is
impossible to predict accurately the effect these laws and regulations will have
on the Company in the future.

     Each of the Company's production facilities has permits and licenses
regulating air emissions and water discharges. Each of these production
facilities that requires permits for the treatment, storage or disposal of
hazardous waste has interim or final permits. Some permits and licenses,
including all for hazardous waste treatment, storage or disposal, require that
the holder meet financial responsibility criteria. The Company meets the
financial responsibility criteria required for holding hazardous waste permits
and licenses by meeting the requirements of a financial test mechanism under
applicable state or federal regulation.

     It is the Company's policy to comply with all applicable environmental,
health and safety laws and regulations. Nonetheless, in the course of conducting
its business, regulatory compliance issues can arise with regard to the
Company's operations or its products. In addition, environmental laws and
regulations establish requirements for recordkeeping and other administrative
efforts. Resolving such issues and satisfying recordkeeping and other
administrative requirements can require the Company to incur ongoing operating
costs and/or make capital expenditures to achieve or maintain compliance with
such laws and regulations. The Company has expended substantial funds for such
compliance in the past, and expects to continue to do so. Future requirements
arising from new laws and regulations can also give rise to additional
compliance costs. 



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<PAGE>   9


The Company is unable to predict the magnitude of its aggregate future
compliance costs. Violations of environmental permits or licenses could result
in substantial sanctions, which could be civil, criminal, or both. Violations
could also result in the revocation of such permits or licenses. In addition,
the operation of any chemical manufacturing plant entails risk of adverse
environmental effect, including exposure to chemical products and by-products
from the Company's operations.

     In some cases, compliance can only be achieved by capital expenditures. In
1997, the Company spent $2.9 million for environmentally related capital
expenditures. Based upon preliminary estimates of capital expenditures for
environmental projects at existing facilities and without any detailed
engineering or other technical planning, the Company broadly estimates that
expenditures for 1998 and 1999 will total $2.5 million in the aggregate.

     The Company's facilities for many years have shipped waste materials to
third party sites for treatment and/or disposal. As a result of these practices,
the Company is currently involved in investigative or cleanup projects under the
Comprehensive Environmental Response Compensation and Liability Act ("CERCLA")
or comparable state laws at 25 sites. Based on currently available information,
the Company has reserved $4.7 million in the aggregate for its share of costs
associated with certain of these sites. No amount has been reserved for a
majority of such sites, since amounts are included only when costs are
reasonably estimable. At eleven of the sites, either the regulatory agency has
indicated that no further action will be required or the Company has settled out
as a de minimis party. It is possible that the Company may be involved in future
investigations and cleanups of other sites to which the Company sent waste
materials. The Company cannot predict such future liabilities with accuracy.

     The Resource Conservation and Recovery Act ("RCRA") requires the Company to
estimate the closure and post-closure costs for its hazardous waste treatment,
storage and disposal facilities. The Company estimates total closure and
post-closure costs for its existing facilities, and any former facilities for
which the Company contractually retained liability, to be approximately $9.7
million. The Company revises these costs at least annually to reflect inflation,
and at other times to address changed conditions. The Company has closed
hazardous waste management facilities at its Linden, New Jersey and Florence,
Kentucky facilities and at its former facility at Colton, California. The
Company is awaiting regulatory acceptance of these closures and it is not known
whether additional closure requirements will be imposed.

     The New Jersey Industrial Sites Recovery Act requires that Aristech
investigate site conditions at its former manufacturing facility in Linden, New
Jersey (currently operated as a warehouse and distribution facility) to assess
the type and extent of contamination that may be present. Aristech has submitted
a Remedial Investigation/Remedial Action Plan (the "Plan") to the New Jersey
Department of Environmental Protection (the "NJDEP") with respect to this
facility. Aristech has performed certain remedial actions pursuant to the Plan
with the approval of the NJDEP at a cost of approximately $150,000. The
remaining remedial actions proposed by the Plan, currently estimated to cost
$675,000, have not been approved by the NJDEP. Aristech cannot predict whether
the NJDEP will approve the remainder of the Plan as proposed, whether additional
cleanup conditions, if any, may be imposed, or the costs of any such additional
cleanup conditions.

     Aristech has been investigating an area of its former Colton, California
facility at the request of the Santa Ana Regional Water Quality Control Board
("Water Board"). Soil sampling has revealed residual contamination and
groundwater monitoring wells have been installed. In October 1997, the Water
Board requested that Aristech and the owner of a neighboring facility conduct an
off-site, downgradient investigation of the groundwater. Aristech and the owner
of the neighboring facility have agreed to this request. Aristech estimates its
share of the investigation requested by the Water Board to be approximately
$50,000. It is not possible to estimate the costs of further investigation or
cleanup at this time.

     RCRA can also impose corrective action requirements at facilities where
hazardous waste treatment, storage and disposal occurs or has occurred.
Corrective action requirements include investigation, and remedial action for
impacted soils and groundwater. While preliminary investigations have occurred
at some of the Company's facilities, it is not possible to predict the timing or
extent of the remedial actions which ultimately might be required.

                                       9
<PAGE>   10

     Some studies suggest that certain industrial chemicals, including
phthalates and BPA, mimic the effect of hormones in people and animals, and
adversely influence the reproductive process. Some phthalate esters have been
implicated in unverified screening tests. Aristech believes that this effect is
not associated with its phthalate ester product line, based on the results of
independent and industry sponsored testing. BPA has also been implicated by the
same screening tests. To address this allegation, Aristech and the other United
States BPA producers have established an extensive reproductive health testing
program that Aristech believes will demonstrate that BPA does not cause
estrogenic effects in animals or humans. Newly enacted legislation associated
with the safety of drinking water and the food supply contains requirements for
performing estrogenicity screens. While BPA and certain phthalate esters will
most likely be targeted by these requirements, Aristech believes that voluntary
testing completed or currently underway will mitigate or obviate the need for
additional estrogenicity testing.

     Certain plasticizers, particularly DEHP (di-ethylhexyl phthalate, also
known as dioctyl phthalate, or DOP) have been under public attention and close
scrutiny by health and environmental agencies during recent years. While there
are no government regulations in force or proposed that restrict their
marketing, sale or use, public perception may eventually affect a segment of the
market for DOP and other plasticizers.

     The chemical industry was formerly subject to the tax imposed on petroleum
and chemical feedstocks under CERCLA, which last expired December 31,1995. The
reauthorization of this tax is anticipated but not expected to be retroactive.
As under previous law, it is expected that a portion of this tax liability may
be passed on to customers.

     The Company's domestic competitors are subject to the same environmental,
health and safety laws and regulations and the Company believes that its issues
and potential expenditures are comparable to those faced by its major domestic
competitors. As noted in the discussion of individual product lines, the markets
for most of the Company's products are very price competitive. Therefore, future
environmentally related capital expenditure requirements, liabilities and costs
could be a major factor in the Company's future sales and income, since it may
not always be possible to pass costs on to customers.

DISPOSITION OF CERTAIN BUSINESSES

COAL CHEMICALS BUSINESS

     In March 1996, Aristech sold to Koppers Industries, Inc. ("Koppers")
substantially all of its assets related to the production and sale of coal
chemicals (the "Coal Chemicals Business"), and Koppers assumed certain of the
liabilities in connection with the Coal Chemicals Business. Aristech agreed to
indemnify Koppers against liabilities arising from (i) breaches of Aristech's
representations, warranties and covenants contained in the asset purchase
agreement and (ii) claims relating to the Coal Chemicals Business arising out of
events occurring prior to the sale. The representations and warranties expired
on September 30, 1997, and any claim by Koppers for indemnification for breach
of the expired representations and warranties had to be made by an October 15,
1997 deadline. No such claims were made.

     Under a reorganization agreement dated October 14, 1986, under which the
Coal Chemicals Business was transferred from USX Corporation ("USX") to
Aristech, USX generally retained responsibility for pre-1986 environmental
conditions on the properties. Koppers generally assumed (with certain
exceptions) all environmental compliance, toxic exposure, environmental damage
and environmental response cost liabilities arising after 1986 with respect to
the Coal Chemicals Business. Aristech retained, and agreed to indemnify Koppers
for, liabilities arising from specific listed environmental "incidents,"
although Aristech is not aware of any asserted or overtly threatened claims
likely to lead to material liabilities related to any of the enumerated
incidents.

     Aristech also agreed to retain liabilities related to: (i) claims of
personal injury arising from exposure to regulated substances released between
December 4, 1986 and the sale; (ii) claims of property value diminution arising
from releases to the air of regulated substances by Aristech occurring between
December 4, 1986 and the sale (but only if those claims are asserted within 24
months of the sale); (iii) claims related to the shipment, treatment or disposal
of regulated substances at off-site locations during the period of Aristech's
operations of the facilities; and (iv) enforcement actions and penalties
relating to violations of environmental laws resulting from operations of the
business or use of the property during the period of Aristech's ownership. As of
the date of this filing, Aristech is not aware of any actual or threatened claim
for indemnification arising under these provisions.


                                       10
<PAGE>   11

POLYESTER BUSINESS

     In April 1995, Aristech sold to Ashland substantially all of its assets
related to the manufacture and sale of unsaturated polyester resins ("UPR") and
maleic anhydride ("MA") and the distribution of UPR and other polyester products
(collectively, the "Polyester Business"). Ashland also assumed certain of
Aristech's liabilities in connection with the Polyester Business. Aristech
retained ownership of the land underlying the production facility for the
Polyester Business located at Neville Island, Pennsylvania. Aristech continues
to manufacture plasticizers at Neville Island. Ashland generally purchased all
physical assets at the Neville Island facility primarily used in the production
of UPR and MA, and Aristech retained those primarily used to manufacture
plasticizers. Aristech granted to Ashland an irrevocable easement for the land
beneath the structures transferred to Ashland and certain areas around and
between those structures, and each party granted the other rights to permit
access to and maintenance of the other party's assets, as necessary.

     Ashland and Aristech also entered into a services agreement whereby each
agreed to supply the other with certain services related to the other party's
operations at the Neville Island facility. The prices charged for such services
are generally designed to approximate the supplier's cost of providing the
services. The services agreement contains a mutual release and indemnification
provision whereby each party, as a recipient of services, releases and
indemnifies the other, as a service provider, from and against claims arising
from the acts of the service provider's employees or claims asserted by such
employees in connection with the furnishing of services under the agreement.

     Aristech agreed to indemnify Ashland against liabilities arising from (i)
breaches of Aristech's representations, warranties and agreements contained in
the asset purchase agreement and related documents and (ii) Aristech's operation
of the Polyester Business prior to the sale. Most of Aristech's representations
and warranties have expired. Aristech's indemnification obligations for breach
of any representation or warranty (whether or not expired) are capped at $30
million. The parties' respective obligations with respect to environmental
matters are not covered by the foregoing provisions.

     With respect to environmental matters, Aristech: (1) retained liability for
any claims that might be asserted regarding previous shipments of regulated
substances from the business to off-site treatment and disposal facilities; (2)
agreed to indemnify Ashland from enforcement proceedings or penalties arising
from alleged violations of environmental laws resulting from business operations
that may have occurred prior to the closing; and (3) agreed to make certain
modifications of the incinerator at the Jacksonville, Arkansas site to assure
compliance with applicable air quality permit requirements and performance
criteria.

     With respect to the Neville Island facility: (1) Aristech agreed (subject
to a number of limitations) to indemnify Ashland against claims arising from
pre-closing environmental contamination conditions, if any, and any
contamination caused by future releases from Aristech's operations; (2) Ashland
agreed to indemnify Aristech from environmental conditions arising from future
releases caused by Ashland; and (3) an allocation arrangement is established
under which responsibility for an environmental condition may be shared. Because
an environmental assessment has not been completed at the Neville Island
facility, the nature and extent of potential environmental contamination has not
been ascertained.

     With respect to the other UPR and MA production facilities, Aristech agreed
to indemnify Ashland for any required investigation and remediation of: (1)
certain former waste management units at the Colton, California site; (2)
phosphate contamination in groundwater at the Bartow, Florida site, caused by
nearby mining operations; and (3) contamination in a former waste pond at
Bartow. Aristech also agreed to complete closure of certain listed former waste
management units at those production facilities, and to be responsible for
certain additional assessments or investigations of specifically identified
areas affected by various former solid waste management units and
previously-removed underground storage tanks. Aristech has reserved $50,000 for
the estimated costs of completing the presently required investigations and
closure work, although any estimate of the costs associated with work required
in the future cannot be made until further investigations have been completed.
As to remediation of environmental conditions arising from previous solid waste
units, Aristech and Ashland agreed to share such expenses in excess of an annual
deductible amount, under a sliding scale that reduces Aristech's share from 100%
to 0% over 25 years. With respect to other 



                                       11
<PAGE>   12


environmental conditions (including presently unknown and unidentified
conditions), Aristech agreed to share with Ashland costs of additional
investigations and remedial actions, with Aristech's share of such costs based
on a sliding scale which decreases over a 21-year period. Those obligations to
indemnify Ashland are subject to an annual deductible amount of $20,000 per
facility and $40,000 in the aggregate.

     As to the distribution facilities (all of which were leased properties),
Aristech retained liability for pre-closing environmental conditions, if any,
only until the expiration of the then pending leases. The last of those leases
will expire on October 30, 1998. Special provisions govern the allocation of
responsibilities at the leased Ankeny, Iowa distribution facility, as to
contamination resulting from the former operations of the Albaugh Chemical
Company, to the extent that such matters are not covered under an
indemnification provided by the lessor of that property.

     All of Aristech's indemnification obligations relating to environmental
conditions at the former UPR and MA business facilities, including Neville
Island, are subject to a cap of $34.0 million, which value is escalated on a
quarterly basis based upon the producer price index.

     Mitsubishi Corporation ("MC") entered into a letter agreement with Ashland
to provide certain assurances to Ashland with respect to Aristech's
environmental indemnification obligations to Ashland. The letter agreement
prohibits MC, in its capacity as a controlling stockholder of Aristech, from (i)
dissolving Aristech or (ii) causing Aristech to transfer assets such that the
value of its remaining tangible assets falls below $40.0 million, unless MC
provides to Ashland reasonable security or other financial assurance regarding
such obligations. The letter agreement expires the earliest of (i) April 28,
2020, (ii) effectuation by Aristech of a public offering of its equity
securities, (iii) MC and its subsidiaries ceasing to own over 50% of Aristech's
outstanding equity securities and (iv) Aristech becoming the subject of a
bankruptcy proceeding.

     Also in connection with the sale, Ashland and Aristech entered into supply
contracts for the purchase and sale of MA (the "MA Supply Contract"), PA (the
"PA Supply Contract") and 2-EH (the "2-EH Supply Contract"). The MA Supply
Contract obligates Aristech to purchase from Ashland all of its annual North
American consumption requirement of MA for the facilities and businesses owned
by Aristech as of April 28,1995. The PA Supply Contract obligates Ashland to
purchase from Aristech all of Ashland's North American consumption requirement
of PA for the facilities and businesses owned by Ashland as of April 28, 1995.
The 2-EH Supply Contract requires Ashland to purchase from Aristech the 2-EH
used by Ashland to produce UPR. The MA and PA Supply Contracts terminate on
April 28, 2000, subject to the parties' obligation to negotiate in good faith
the terms and conditions of an additional 60 month supply agreement. The 2-EH
Supply Contract has a term expiring on December 31, 1999 and continuing from
year to year thereafter unless terminated by prior notice of either party.

OLEFINS BUSINESS

     In January 1988, Aristech sold to Mobil certain assets of Aristech's
Olefins operations (the "Olefins Business") and Mobil assumed certain
liabilities in connection with the Olefins Business. Mobil assumed no
pre-existing environmental liabilities related to the Olefins Business. Aristech
has agreed to indemnify Mobil for environmental liabilities related to the
Olefins Business existing on or prior to the sale. As of December 31, 1997,
there were no pending or threatened claims for indemnification arising under
these provisions. With respect to environmental claims arising from actions of
parties other than Aristech and USX prior to the ownership of the Olefins
Business by USX, Aristech's indemnification obligations expired in November
1992, since Mobil made no demand for such indemnification within five years of
the closing. The maximum aggregate liability of Aristech for indemnification of
Mobil for environmental claims is $5.0 million. Mobil agreed to indemnify
Aristech for all environmental liabilities related to actions taken or the
failure to take actions by Mobil relating to the Olefins Business on or after
the sale.



                                       12
<PAGE>   13


                           FORWARD LOOKING INFORMATION


     In addition to the other information contained in this Report on Form 10-K,
the following factors should be considered carefully. Information contained in
this report contains "forward-looking statements" which can be identified by the
use of forward-looking terminology such as "believes," "expects," "may," "will,"
"should," "projected," "contemplates" or "anticipates" or the negative thereof
or other variations thereon or comparable terminology or by discussions of
strategy. See, e.g., "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business." No assurance can be given
that the future results covered by the forward looking-statements will be
achieved. The following matters constitute cautionary statements identifying
important factors with respect to such forward-looking statements, including
certain risks and uncertainties that could cause actual results to vary
materially from the future results covered in such forward-looking statements.
Other factors, such as the general state of the economy, could also cause actual
results to vary materially from the future results covered in such
forward-looking statements.

     ABILITY TO PASS THROUGH FEEDSTOCK PRICE INCREASES AND PRICE VOLATILITY. Raw
materials account for approximately two-thirds of the Company's total production
cost. As a result, the Company's ability to pass on increases in feedstock costs
to customers has a significant impact on operating results. The ability to pass
on increases in feedstock costs is, to a large extent, related to market
conditions. While the Company generally has been able to pass increases in
feedstock costs on to customers, there can be no assurance that the Company will
be able to do so in the future. The Company's ability to pass on increases in
feedstock costs is particularly subject to uncertainty with respect to the
Company's commodity products. Substantial increases in capacity which have
occurred recently or are anticipated in certain of the commodity and specialty
chemical markets in which the Company participates can be expected to affect
such ability. In addition, prices of feedstock can be subject to significant
price fluctuations. Increases in costs may not be accompanied by corresponding
increases in selling prices for the Company's products in all instances,
regardless of market conditions. See Item 7 "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

     DEPENDENCE ON SIGNIFICANT SUPPLIERS. A number of the Company's raw material
suppliers provide the Company with a significant amount of its feedstocks, and
if one significant supplier or a number of significant suppliers were unable to
meet their obligations under present supply contracts, or if such contracts
could not be renewed or replaced upon expiration, feedstock costs incurred by
the Company could rise significantly.

     CYCLICALITY OF INDUSTRIES. A substantial portion of the Company's sales are
to customers that manufacture products having end-use applications in the
automotive, housing or construction industries, and such manufacturers are
significantly affected by cyclical fluctuations in those industries. It is
anticipated that reductions in the business levels of these industries would
impact negatively on the Company's sales and profits.

     COMPETITIVE INDUSTRY. The Company faces competition from a substantial
number of global and regional competitors, some of which have greater financial,
research and development, production and other resources than the Company.
Although competitive factors vary among the Company's product lines, in general
the Company's competitive position is based primarily on selling prices, product
quality, manufacturing technology, access to raw materials, proximity to markets
and customer service and support. The Company's competitors can be expected in
the future to improve technologies, expand capacity, and, in certain product
lines, develop and introduce new products. While there can be no assurances of
its ability to do so, the Company believes that it will have sufficient
resources to maintain its current position.

     POTENTIAL LIABILITIES RELATING TO ENVIRONMENTAL, HEALTH AND SAFETY
REGULATIONS. The chemical industry is subject to numerous federal, state and
local laws relating to the storage, handling, emission, transportation,
manufacture and use of chemicals, the discharge of materials into the
environment and the maintenance of safe conditions in the workplace. United
States chemical manufacturers, including the Company, have expended substantial
funds for compliance with such laws and regulations. Future legislation and
regulations could impose additional costs on the industry. Company production
facilities require permits and licenses that are subject to renewal or
modification. Violations of such permits or licenses could result in substantial
sanctions, which could be civil, criminal, or both. Violations could also result
in the revocation of such permits or 


                                       13
<PAGE>   14

licenses. In addition, the operation of any chemical manufacturing plant entails
risk of adverse environmental effect, including exposure to chemical products or
by-products from the Company's operations. The Company is also involved in
investigative or cleanup projects at waste disposal sites owned by other
parties. The Company has agreed to indemnify certain third parties against
certain claims or liabilities, including liabilities under laws relating to the
protection of the environment and the workplace, relating to assets acquired or
divested by the Company. The markets for most of the Company's products are very
price competitive. Therefore, future environmentally related capital expenditure
requirements, liabilities and costs could be a major factor in the Company's
future sales and income, since it may not always be possible to pass costs on to
customers. See "Business--Environmental, Health and Safety Matter" and
"--Disposition of Certain Businesses."

     RELIANCE ON CONTINUED OPERATION AND SUFFICIENCY OF MANUFACTURING
FACILITIES. The Company's revenues are dependent on the continued operation of
its various manufacturing facilities. Although presently all operating plants
are considered to be in good condition, the operation of manufacturing plants
involves many risks, including the breakdown, failure or substandard performance
of equipment, power outages, the improper installation or operation of
equipment, natural disasters and the need to comply with directives of
governmental agencies. Except for polypropylene, each of the Company's product
lines is manufactured at only a single facility and production could not be
transferred to another site. The occurrence of material operational problems,
including but not limited to the above events, may adversely affect the
profitability of the Company during the period of such operational difficulties.
See "Business--Plant Profile."

     EFFECT OF PLANNED MAINTENANCE TURNAROUNDS. In addition to its routine
repair and maintenance activities, the Company has a program of planned
maintenance turnarounds under which certain facilities are temporarily taken out
of production for repairs and maintenance. To the degree that the cost of
planned maintenance turnarounds is not evenly spread over the program's normal
two-year cycle, year-to-year and quarterly variations in the income can result.
Subject to regulatory inspections and maintaining the Company's safety
standards, the timing of maintenance turnarounds is largely at the discretion of
management. In determining the schedule of maintenance turnarounds, management
considers, among other things, the level of product demand, catalyst life and
the operating performance of the production facility. See Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--General."




                                       14
<PAGE>   15



ITEM 2.   PROPERTIES

     The location and general character of the principal plants and other
important physical properties of the Company are described in Item 1. The plants
are located on properties which are held in fee simple. The executive offices,
research facility at Monroeville, Pennsylvania, polypropylene technical center,
sales offices and warehouses are leased from third parties. The plants and other
facilities have been constructed or acquired from time to time over a period of
years and vary in age and operating efficiency. The Company considers its
properties to be in suitable condition for their intended use and purpose.

ITEM 3.   LEGAL PROCEEDINGS

     The Company becomes involved from time to time in various claims and
lawsuits incidental to the ordinary course of its business.

     Aristech is a defendant in a patent infringement suit filed by Phillips
Petroleum Company ("Phillips") in 1987, in the United States District Court for
the Southern District of Texas, captioned Phillips Petroleum Company v. Aristech
Chemical Corporation, Civil Action No. H87-3445. The complaint alleges
infringement of two patents related to the production of polypropylene, which
have since expired. Aristech and Phillips each filed motions for summary
judgment which were referred to a Special Master. The Special Master issued a
lengthy recommendation to find in Aristech's favor, and Phillips filed a motion
to reject the Special Master's recommendation. A hearing on this motion was held
on October 21, 1996. On November 13, 1996, the District Court granted Aristech's
motion for summary judgment and entered that order on November 19, 1996. A final
judgment was entered in Aristech's favor on December 23, 1996. Phillips is
appealing the judgment. Aristech believes that the outcome of this matter will
not have a material adverse effect on Aristech.

     The Company becomes involved from time to time in proceedings involving
environmental matters. See "Environmental, Health and Safety Matters" above.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

                                                PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     There is not an established public trading market for Aristech's shares of
common stock. Aristech paid cash dividends of $8.3 million and $20.0 million
during the years ended December 31, 1997 and 1996, respectively. At December 31,
1997, there were four holders of Aristech's common stock (See Item 12).

ITEM 6.  SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>

                                                                                  YEAR ENDED DECEMBER 31
(IN MILLIONS EXCEPT PER SHARE DATA)                  1997         1996         1995         1994         1993
                                                   --------     --------     --------     --------     ---------
<S>                                                 <C>         <C>          <C>          <C>           <C>   
INCOME STATEMENT DATA
Sales                                              $  897.4     $  906.6     $1,023.3     $  945.5     $  788.5
Net Income (Loss) From Continuing Operations            8.0         33.3         60.2          0.1        (39.7)

BALANCE SHEET DATA
Total Assets                                       $1,097.5     $1,013.8     $1,090.0     $1,183.4     $1,134.9
Long-term Obligations Due After One Year              365.7        309.9        623.2        763.6        695.9

Cash Dividends Declared per Common Share           $    558     $  1,990     $     --     $     --     $     --

</TABLE>

See Item 1.  "Business - Disposition of Certain Businesses"



                                       15
<PAGE>   16


ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
RESULTS OF OPERATIONS

     This discussion should be read in connection with the information contained
in the Consolidated Financial Statements and the notes thereto.

GENERAL

         The Company is a leading producer and marketer of chemical and polymer
products. The Company had sales of $897.4 million, $906.6 million and $1,023.3
million for the years ended December 31, 1997, 1996 and 1995, respectively.
Product shipments for 1997 were slightly lower than 1996 due to the cyclical
nature of the industry. Anticipated additional increases in production capacity
in certain chemical markets in which the Company participates could adversely
affect selling prices in the near term.

         Raw materials account for approximately two-thirds of the Company's
total production cost. As a result, the Company's ability to pass on increases
in feedstock costs to customers has a significant impact on operating results.
The ability to pass on increases in feedstock costs is, to a large extent,
related to market conditions. While the Company generally has been able to pass
increases in feedstock costs on to customers, there can be no assurance that the
Company will be able to do so in the future. The Company's ability to pass on
increases in feedstock costs is particularly subject to uncertainty with respect
to the Company's commodity products. Substantial increases in capacity which
have occurred recently or are anticipated in certain of the commodity and
specialty chemical markets in which the Company participates can be expected to
affect such ability. In addition, prices of feedstock can be subject to
significant price fluctuations. Increases in costs may not be accompanied by
corresponding increases in selling prices for the Company's products in all
instances, regardless of market conditions.

         Approximately 86% of the Company's sales are of products that are
considered commodities. In an effort to increase its specialty-type products
business, the Company's production of polypropylene and acrylic sheet has been
increasingly directed toward specialized, higher margin products. Generally, the
Company's profit margins on most of its specialty-type products have been
substantially higher than those on its commodity products.

         Sales and operating results in the last quarter of each year are
generally lower than in the first three quarters. The fourth quarter is
generally adversely affected by lower demand in some of the Company's principal
end-use markets, particularly construction.

         In addition to its routine repair and maintenance activities, the
Company has a program of planned maintenance turnarounds under which certain
facilities are temporarily taken out of production for repairs and maintenance.
To the degree that the cost of planned maintenance turnarounds is not evenly
spread over the program's normal two-year cycle, year-to-year and quarterly
variations in income can result. Subject to regulatory inspections and
maintaining the Company's safety standards, the timing of maintenance
turnarounds is largely at the discretion of management. In determining the
schedule of maintenance turnarounds, management considers, among other things,
the level of product demand, catalyst life and the operating performance of the
production facility. Costs of the planned maintenance turnarounds for 1997,
1996, and 1995 were approximately $5.0 million, $7.7 million, $8.5 million,
respectively. For financial accounting purposes, the Company capitalizes the
cost of catalyst replacement and amortizes the cost over the life of the
catalyst. The Company expenses other planned maintenance activity during the
period that the work was performed.

RESULTS OF OPERATIONS

     Year ended December 31, 1997 compared with year ended December 31, 1996.
Operating income for 1997 was $51.7 million on sales of $897.4 million compared
with operating income of $107.6 million in 1996 on sales of $906.6 million. The
reduction in operating income reflects reduced margins in most of the Company's
product lines compared to the prior year. Higher feedstock and conversion costs
more than offset slightly higher product selling pricing. Feedstock and
conversion costs increased 8.2% in 1997 



                                       16
<PAGE>   17

compared to 1996 while overall average net selling prices increased just 0.6% in
1997 over 1996. Sales volumes declined 0.5% in 1997 compared with the prior year
period.

     Selling prices increased slightly in chemicals and polymers; however,
feedstock and conversion costs increased at a greater rate. Chemicals feedstock
and conversion costs increased 8.5% in 1997 while selling prices increased 0.2%.
Feedstock and conversion costs were also higher in polymers increasing 7.2%
compared with the prior year period. Polymers overall pricing increased 0.4% in
1997 compared to 1996. Sales volumes increased 2.3% for polymers but declined
2.0% in chemicals.

     In addition, the Company's operating income in 1997 declined compared to
1996 due to the sale of the Coal Chemicals Business in March 1996. That business
contributed $2.6 million in operating income in 1996.

     Selling, general and administrative expenses increased $3.9 million or 8.3%
in 1997 compared to the prior year due, in large part, to the consolidation of
expenses relating to Avonite. Selling, general and administrative expenses for
Avonite, were $5.7 million in 1997 as compared to $2.3 million in 1996. Avonite
became a consolidated subsidiary on July 1, 1996.

     Loss on disposal of assets was $9.2 million in 1997, an increase of $1.3
million compared to the prior year period. The loss on disposal of assets in
1997 was primarily attributable to the writeoff of deferred engineering costs
associated with the Company's consideration of a cumene/phenol complex at
Garyville, Louisiana.

     Interest expense was $23.6 million in 1997 as compared to $37.9 million for
the prior year. The $14.3 million decrease in interest expense resulted
primarily from the conversion of $179.5 million in principal amount of the
Company's payment-in-kind debentures to common stock on September 30, 1996.

     The provision for estimated tax expense for 1997 was $9.3 million compared
with a provision for estimated taxes of $27.6 million for the prior year. The
Company's effective tax rate has increased to 52.5% in 1997 from 45.3% in 1996
as a result of the amortization of excess of cost over assets acquired and lower
pre-tax income.

     The Company's net income was $8.0 million for the year ending December 31,
1997, a decrease of $25.3 million compared with net income of $33.3 million in
1996.

     Year ended December 31, 1996 compared with year ended December 31, 1995.
Operating income for 1996 was $107.6 million on sales of $906.6 million compared
with operating income of $172.4 million in 1995 on sales of $1,023.3 million.
The reduction in operating income reflects reduced margins in 1996 in most of
the Company's product lines compared to the prior year. Pricing in most of the
Company's product lines declined at a greater rate than did feedstock costs.
Company feedstock and conversion costs decreased 7.4% in 1996 versus the prior
year while overall average company net selling prices decreased a greater 11.5%.
Company sales volumes increased 4.7% in 1996 compared with the prior year
period.

     Chemicals feedstock and conversion costs decreased 6.7% while selling
prices decreased 12.3%. Polymers feedstock and conversion costs decreased 10.5%
as compared with the prior year period. Polymers were also negatively impacted
by lower overall pricing which declined 12.3% in 1996 compared to 1995. Sales
volumes were higher in polymers, increasing 15.2% as compared to the prior year.
Chemicals sales volumes were unchanged relative to 1995.

     In addition, the Company's operating income declined due to the sale of the
coal chemicals business in March 1996. The business contributed $2.6 million in
operating income in 1996 and $10.3 million in 1995.

     Selling, general and administrative expenses increased $3.3 million or 7.6%
in 1996 compared to the prior year due, in large part, to the consolidation of
expenses relating to Avonite. Selling, general and administrative expenses for
Avonite were $2.3 million in 1996 while they were not consolidated in 1995.
Avonite became a consolidated subsidiary of the Company on July 1, 1996.

                                       17
<PAGE>   18


     Loss on disposal of assets was $7.9 million in 1996, a decrease of $11.1
million as compared to the prior year. The loss on disposal of assets during
1996 was primarily due to the sale of the Company's Coal Chemicals Business as
well as the writeoff of facilities which were idled in the chemicals and
polymers businesses.

     Interest expense was $37.9 million in 1996 as compared to $49.8 million for
the prior year period. The $11.9 million decrease in interest expense resulted
from the conversion of $179.5 million in principal amount of the Company's
payment-in-kind ("PIK") debentures to common stock on September 30, 1996. Also
contributing to the decrease in interest expense was the reduction in debt from
application of the proceeds of the sale of the Company's Coal Chemicals
Business.

     The provision for estimated tax expenses for 1996 was $27.6 million
compared with a provision for estimated taxes of $44.4 million for the prior
year. The Company's effective tax rate increased to 45.3% in 1996 from 42.4% in
1995 as a result of lower pre-tax income and the reversal of a $5.0 million
deferred tax benefit relating to the Company's 50% equity interest in Avonite as
a result of the acquisition of an additional 10% of Avonite's common equity.

     The Company's net income of $33.3 million for the year ending December 31,
1996 represents a decrease of $26.9 million compared with net income of $60.2
million in 1995.

FINANCIAL CONDITION

LIQUIDITY

     Total working capital was $74.9 million at December 31, 1997 with a ratio
of current assets to current liabilities of 1.4 to 1 and $74.8 million at
December 31, 1996 with a ratio of current assets to current liabilities of 1.5
to 1. Cash and equivalents at December 31, 1997 were $3.9 million compared to
the $1.9 million at December 31, 1996.

     Cash flow from operating activities totaled $68.3 million for the annual
period ending December 31, 1997 as compared to $84.0 million and $85.5 million
for 1996 and 1995, respectively. Cash flow from operations during the 1997
calendar year was not sufficient to satisfy capital expenditure requirements.
During 1997, the Company supplemented its cash from operations with cash
available under its short term and revolving credit agreements in order to meet
its capital cash requirements.

     The Company received $10.0 million on October 1, 1997 from Dianal America,
Inc., a subsidiary of MRC, in return for a 10% equity interest in AALLC.

     The Company entered into a term loan agreement, dated as of August 1, 1994,
with MC in the amount of $203.0 million and had a maturity date of July 31, 2002
(the "MC Term Loan"). As of December 31, 1996, $100.0 million was outstanding
under the MC Term Loan. The Company also entered into a term loan and revolving
credit agreement with Mitsubishi International Corporation ("MIC") dated as of
August 1, 1994 (the "MIC Term Loan" and the "MIC Revolving Loan", respectively).
The MIC Term Loan provided for a term loan in the principal amount of $100.0
million, with a maturity date of March 31, 1997, all of which was prepaid in its
entirety with a portion of the proceeds from the sale of the Notes (discussed
below) and terminated. The $100.0 million MC Term Loan was prepaid in its
entirety on March 3, 1997 using proceeds from the MIC Revolving Loan by
increasing the commitment amount to $250.0 million from its previous commitment
amount of $150.0 million. Subsequent to the repayment of the $100.0 million MC
Term Loan, the maximum commitment amount of the MIC Revolving Loan was reduced
from $250.0 million to $200.0 million by converting $50.0 million to a new MIC
Term Loan due April 18, 2002.

     Effective February 1, 1998, the interest rate on the Revolving Loan-MIC was
increased by .25% for all loans extending on and after February 1, 1998. This
increase is not expected to have a material effect on the Company's working
capital.

     The MC Term Loan and the MIC Revolving Loan are guaranteed by MC. In
consideration of the guarantee, the Company has agreed to pay MC a guarantee fee
calculated on a daily basis in an amount equal to .30% per annum for loans
effective June 3, 1996 and .1875% per annum for loans effective March 3, 1997
and thereafter. The fee is payable semiannually.


                                       18
<PAGE>   19

     On November 25, 1996, the Company issued $150.0 million of 6.875% notes due
November 15, 2006 ("Notes") at a discount of $1.1 million. The proceeds were
used to prepay in entirety the $100.0 million MIC Term Loan and the balance was
used for general corporate purposes.

     Prior to the issuance of the Notes, the Company entered into an interest
rate hedging contract with a commercial bank that effectively fixed at 6.404%
the treasury rate component of the all-in cost (treasury rate component plus
credit margin) of the Notes. The Company settled the interest rate hedging
contract at a cost of approximately $2.5 million on November 22, 1996, which is
being amortized along with other costs associated with the Notes over the life
of the Notes.

     The Company has a $50.0 million discretionary working capital facility with
a commercial lender to manage the Company's daily working capital fluctuations.
The working capital facility constitutes unsecured senior indebtedness of the
Company and ranks pari passu with all other unsecured senior indebtedness of the
Company for borrowed money, including the Notes. Under the working capital
facility, the Company expects to indirectly access the commercial paper market
at market rates equivalent to A1/P1 commercial paper, plus a reasonable loan
margin typical for a company with a credit rating similar to that of the
Company.

     A dividend of $558 per share of common stock was declared and paid on April
24, 1997 to holders of record as of February 26, 1997. The total amount of the
dividend was $8.3 million.

     The Company believes that cash from operations, supplemented as necessary
with cash available under the Company's revolving credit agreement, working
capital facility, and other third-party financing, will provide it with
sufficient resources to meet present and envisioned future working capital and
cash needs.

CAPITAL EXPENDITURES AND RESOURCES

     Fixed asset expenditures were $101.9 million in 1997 as compared to $41.5
million in 1996 and $55.3 million in 1995. Expenditures in 1997 primarily
reflected spending for the capacity expansions at Haverhill, Ohio for phenol and
related products, phthalic anhydride expansion and equipment upgrades at
Pasadena, Texas, and polypropylene expansion at the LaPorte, Texas facility.
Other significant expenditures included the installation of bulk raw material
handling facilities for AALLC at Florence, Kentucky.

     In October 1997, Aristech entered into a contractual agreement with JE
Merit Constructors for the engineering, procurement, and construction of a third
polypropylene line at the Company's LaPorte, Texas site.

     In October 1997, Aristech entered into a contractual agreement with
Morrison Knudsen Corporation for certain procurement for and construction of a
third phenol line at the Company's Haverhill, Ohio site (the "Third Line"). The
agreement is effective as of August 4, 1997.

     In October 1997, Aristech entered into a contractual agreement with the
M.W. Kellogg Company for the engineering and certain procurement for the third
line. The agreement is effective as of August 18, 1997.

     The Company believes that cash from operations, supplemented as necessary
with cash available under the Company's revolving credit agreement, working
capital facility, and other third-party financings, will provide it with
sufficient resources to fund the Company's current and future years' capital
spending program.

     On March 27, 1998, Aristech intends to enter into an asset securitization
agreement to finance a portion of its capital expansion program. The agreement,
effective April 1, 1998, would involve the sale of undivided interests in a
replenishing pool of trade receivables in exchange for cost-effective
revolver-like financing up to $100 million. The net proceeds received from the
sale will be initially used to reduce the amount outstanding on the Revolving
Loan-MIC.



                                       19
<PAGE>   20



YEAR 2000

     The Company, like many owners of computer systems, will be required to
modify portions of its systems so that they will function properly in the year
2000. In executing its year 2000 readiness plan, the Company is utilizing both
internal and external resources to identify, correct or reprogram, and test its
systems for year 2000 compliance. It is anticipated that all reprogramming
efforts will be complete allowing adequate time for testing. Maintenance or
modification costs will be expensed as incurred, while the costs of new software
will be capitalized and amortized over the software's useful life. The Company
does not expect the amounts required to be expensed to have a material effect on
its financial position or results of operations. The amount expensed in 1997 was
immaterial.

     In addition, the Company has and continues to communicate with others with
whom it does significant business to determine their year 2000 compliance
readiness and the extent to which the Company is vulnerable to any third party
year 2000 issues. However, there can be no guarantee that the systems of other
companies on which the Company's systems rely will be timely converted, or that
a failure to convert by another company, or a conversion that is incompatible
with the Company's systems, would not have a material adverse effect on the
Company.


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      At December 31, 1997 and 1996, the Company was not a party to any material
derivative financial instruments or any other market risk sensitive instruments,
other than the trade accounts receivable and trade accounts payable which by
their nature mature within one year, inventory that is not subject to commodity
price risk, and the long-term debt which is discussed in Note 11 to the
financial statements (see Item 8). The Company's exposure to market risk is
minimal with regards to its trade accounts receivable, trade accounts payable,
inventory and long-term debt.


ITEM 8.    FINANCIAL STATEMENTS

     Index to Consolidated Financial Statements
                                                                     PAGE
                                                                     ----
INDEPENDENT AUDITORS' REPORT                                          21
CONSOLIDATED FINANCIAL STATEMENTS:
   CONSOLIDATED STATEMENTS OF INCOME                                  22
   CONSOLIDATED BALANCE SHEETS                                        23
   CONSOLIDATED STATEMENTS OF CASH FLOWS                              24
   CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY                    26
   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                     27



                                       20
<PAGE>   21



INDEPENDENT AUDITORS' REPORT

Aristech Chemical Corporation


We have audited the accompanying consolidated balance sheets of Aristech
Chemical Corporation and its subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997. Our
audits also included the financial statement schedule listed in the Exhibit at
Item 14. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements and financial statement schedule based on
our audits.

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

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Aristech Chemical Corporation
and its subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.




Deloitte & Touche LLP
Pittsburgh, Pennsylvania


January 30, 1998 (except for Note 18,
as to which the date is March 18, 1998)






                                       21
<PAGE>   22



ARISTECH CHEMICAL CORPORATION
Consolidated Statements of Income
For the Years Ended December 31, 1997, 1996 and 1995
(Dollars in Millions)
--------------------------------------------------------



<TABLE>
<CAPTION>
                                                      1997        1996         1995
                                                    --------    --------    ----------
<S>                                                <C>         <C>          <C>

Sales                                               $  897.4    $  906.6    $  1,023.3

Operating Costs:
   Cost of sales                                       745.6       704.4         758.9
   Selling, general and administrative expenses         50.8        46.9          43.6
   Depreciation and amortization                        49.3        47.7          48.4
                                                    --------    --------    ----------

      Total Operating Costs                            845.7       799.0         850.9
                                                    --------    --------    ----------

Operating Income                                        51.7       107.6         172.4

Loss on Disposal of Assets                              (9.2)       (7.9)        (19.0)
Other (Expense) Income, Net                             (1.7)       (1.6)         (1.1)
Interest Income                                          0.5         0.7           2.1
Interest Expense                                       (23.6)      (37.9)        (49.8)
                                                    --------    --------    ----------

Income Before Taxes on Income                           17.7        60.9         104.6

Provision for Taxes on Income                            9.3        27.6          44.4
                                                    --------    --------    ----------

Income Before Minority Interest                          8.4        33.3          60.2

Minority Interest                                       (0.4)       --            --
                                                    --------    --------    ----------

Net Income                                          $    8.0    $   33.3    $     60.2
                                                    ========    ========    ==========


Related Party Transactions:

Sales                                               $   80.3    $   83.2    $     83.4
Purchases                                               24.2        24.0          27.2
Interest Expense                                         9.9        35.8          50.6

</TABLE>

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


                                       22
<PAGE>   23



ARISTECH CHEMICAL CORPORATION
Consolidated Balance Sheets
December 31, 1997 and 1996
(Dollars in Millions)
-----------------------------------------------------

<TABLE>
<CAPTION>

                                                                      1997          1996
                                                                   ----------    ----------
<S>                                                               <C>           <C>
ASSETS
Current Assets:
   Cash and equivalents                                            $    3.9    $    1.9
   Receivables (less allowance for doubtful
      accounts of $.6 for 1997 and 1996)                              105.8        99.0
   Receivables - related parties                                        8.4        11.2
   Inventories                                                        123.5       113.1
   Other current assets                                                 1.4         2.1
                                                                   --------    --------
       Total Current Assets                                           243.0       227.3

Property, plant and equipment, net of accumulated depreciation        662.8       598.0
Long-term receivables                                                   7.9        --
Excess cost over assets acquired                                      167.4       172.6
Deferred income taxes                                                   1.4         1.5
Other assets                                                           15.0        14.4
                                                                   ========    ========
       Total Assets                                                $1,097.5    $1,013.8
                                                                   ========    ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
   Accounts payable                                                $   87.5    $   68.5
   Accounts payable - related parties                                   1.6         0.5
   Payroll and benefits payable                                         9.2        12.0
   Accrued taxes                                                        6.1        13.1
   Deferred income taxes                                                3.9         0.7
   Short-term borrowings                                               42.3        40.4
   Long-term debt due within one year                                   0.6         0.1
   Other current liabilities                                           16.9        17.2
                                                                   --------    --------
       Total Current Liabilities                                      168.1       152.5

Long-term debt-related parties                                        187.0       148.0
Long-term debt-other                                                  178.7       161.9
Deferred income taxes                                                 162.9       164.7
Other liabilities                                                      37.0        33.1
                                                                   --------    --------
       Total Liabilities                                              733.7       660.2
                                                                   --------    --------

Minority Interest                                                       3.0        --
                                                                   --------    --------

Common stock ($.01 par value, 20,000 shares authorized,
  14,908 shares issued at December 31, 1997 and 1996)                  --          --
Additional paid-in capital                                            386.3       378.8
Retained deficit                                                      (25.5)      (25.2)
                                                                   --------    --------
       Total Stockholders' Equity                                     360.8       353.6
                                                                   --------    --------

       Total Liabilities and Stockholders' Equity                  $1,097.5    $1,013.8
                                                                   ========    ========

</TABLE>


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



                                       23
<PAGE>   24



ARISTECH CHEMICAL CORPORATION
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1997, 1996 and 1995
(Dollars in Millions)
--------------------------------------------------------

<TABLE>
<CAPTION>

                                                            1997        1996        1995
                                                          --------    --------    --------
<S>                                                      <C>          <C>        <C>
Cash Flow From Operating Activities:
   Net Income                                             $    8.0    $   33.3    $   60.2
Adjustments to reconcile net income to net cash
  provided by operating activities:
   Depreciation                                               44.1        42.5        43.4
   Amortization of excess cost over assets acquired            5.2         5.2         5.6
   Amortization of merger expenses                             2.0         2.0         1.9
   Deferred income taxes                                       1.5        (5.1)       26.5
   Loss on disposal of assets                                  9.2         7.9        19.0
   Decrease (increase) in receivables                         (4.0)       11.0         2.7
   Increase in inventories                                   (10.4)       (9.0)      (17.8)
   Increase (decrease) in accounts payable
     and other current liabilities                            10.0        (1.9)      (57.3)
   Minority interest in consolidated subsidiary                0.4        --          --
   Other                                                       2.3        (1.9)        1.3
                                                          --------    --------    --------
Net Cash Provided by Operating Activities                     68.3        84.0        85.5

Cash Flows From Investing Activities:
   Capital expenditures                                     (101.9)      (41.5)      (55.3)
   Purchase of short-term investment                          --          --         (17.0)
   Maturity of short-term investment                          --          17.0        --
   Cash received on disposal of assets                        --          39.7        91.9
   Long-term receivables                                      (8.3)       --          --
   Cash assumed from additional purchase of Avonite           --           0.7        --
                                                          --------    --------    --------
Net Cash Provided by (Used in) Investing Activities         (110.2)       15.9        19.6

Cash Flows From Financing Activities:
   Short-term debt increase                                    1.9        31.7         8.7
   Repayment of long-term debt                              (167.1)     (220.1)     (155.9)
   Proceeds from issuance of long-term debt                  207.4       148.9        39.0
   Long-term debt issuance costs                               0.2        (4.0)       --
   Dividends paid                                             (8.3)      (24.2)       (3.8)
   Payments for purchase of treasury stock                    --          --         (68.3)
   Principal payments under capital lease obligations         (0.2)       --          --
   Redemption of preferred stock                              --          (6.2)       (6.1)
   Redemption of payment-in-kind debentures                   --         (24.5)      (24.5)
   Proceeds - equity contribution to AALLC                    10.0        --          --
   Issuance of common stock                                   --          --          77.5
                                                          --------    --------    --------
Net Cash Provided by (Used in) Financing Activities           43.9       (98.4)     (133.4)

Net Increase (Decrease) in Cash and Equivalents                2.0         1.5       (28.3)
Cash and Equivalents, Beginning of Year                        1.9         0.4        28.7
                                                          --------    --------    --------
Cash and Equivalents, End of Year                         $    3.9    $    1.9    $    0.4
                                                          ========    ========    ========
</TABLE>

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


                                       24
<PAGE>   25


<TABLE>
<CAPTION>
                                                           1997        1996         1995
                                                           ----        ----         ----
<S>                                                      <C>          <C>          <C>
Supplemental disclosure of cash flow information:
     Cash paid during period for:

              Interest                                    $23.2        $39.3        $46.7
              Income taxes                                 14.5         27.3         13.8
</TABLE>


Non-cash financing activities include the conversion of debentures of $179.5
million and Redeemable Series A Convertible payment-in-kind ("PIK") Preferred
Stock of $44.8 million for common stock totaling $224.3 million in 1996;
debentures issued in lieu of cash payments for interest of $5.7 million in 1995;
and the issuance of additional shares for dividends on the Redeemable Series A
Convertible PIK Preferred Stock of $1.5 million in 1995.


Non-cash investing transactions for 1996 include the acquisition of an
additional 10% interest in Avonite in exchange for the assignment of a $1.0
million promissory note from Avonite to the Avonite minority stockholders.
Non-cash investing activities also include the then pending sale of $28.2
million of net property, plant and equipment at December 31, 1995, which
resulted in a decrease in net property, plant and equipment and a corresponding
increase in assets held for sale.


Non-cash investing and financing transactions for 1997 include capital
lease obligations in the amount of $16.2 million.


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




                                       25
<PAGE>   26


ARISTECH CHEMICAL CORPORATION

Consolidated Statements of Stockholders' Equity

For the Years Ended December 31, 1997, 1996 and 1995
(Dollars in Millions)
----------------------------------------------------
<TABLE>
<CAPTION>
                                                           Common Stock
                                                     ========================
                                                                                   Additional
                                                       Number        Treasury        Paid-in      Treasury       Retained
                                                     of Shares        Shares         Capital        Stock         Deficit
                                                     ---------        ------         -------        -----         -------
<S>                                                    <C>         <C>              <C>           <C>            <C>
Balance - December 31, 1994                            7,605          (105)          $ 80.0        $ (3.0)       $ (75.7)

Dividend on Series A
     Convertible Preferred Stock                          --            --               --          --             (5.3)

Transfer from temporary equity                         2,245            --             68.3          --             --

Treasury stock purchased                                  --        (2,245)              --         (68.3)          --

Treasury stock retired                                    --         2,350               --          71.3           --

Shares canceled                                       (2,350)           --            (71.3)         --             --

Shares issued                                          2,550            --             77.5          --             --

Net Income - 1995                                         --            --               --          --             60.2
                                                      ------         -----          -------       -----           ------

Balance - December 31, 1995                           10,050            --            154.5          --            (20.8)

Dividend on Series A                                                                                                     
     Convertible Preferred Stock                          --            --               --          --             (4.2)

Dividend - common stock                                   --            --               --          --            (20.0)

Conversion of PIK debentures                           3,888            --            179.5          --             --
   to common stock

Conversion of Series A Convertible                       970            --             44.8          --             --
   Preferred Stock to common stock

Assumption of minority deficit in Avonite                 --            --               --          --            (14.1)

Net Income - 1996                                         --            --               --          --             33.3

All other                                                 --            --               --          --              0.6
                                                      ------         -----          -------       -----           ------

Balance - December 31, 1996                           14,908            --            378.8          --            (25.2)

Dividend - common stock                                   --            --               --          --             (8.3)

Proceeds - equity contribution to AALLC                   --            --              7.5          --             --

Net Income - 1997                                         --            --               --          --              8.0
                                                      ------         -----          -------       -----           ------

Balance - December 31, 1997                           14,908            --          $ 386.3       $  --           $(25.5)
                                                      ======         =====          =======       =====           ======

</TABLE>



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


                                       26
<PAGE>   27



ARISTECH CHEMICAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.       GENERAL

         Aristech Chemical Corporation (the "Company") was incorporated under
         the laws of the State of Delaware on October 14, 1986 as a wholly-owned
         subsidiary of USX Corporation ("USX"). On December 4, 1986, USX
         transferred substantially all of the assets and liabilities of its USS
         Chemicals Division to the Company, and the Company's Common Stock was
         offered and sold to the public. The USS Chemicals Division was formed
         by USX in 1966. On March 7,1990 Mitsubishi Corporation ("MC"), certain
         other investors and certain members of management of the Company
         acquired the Company in a going-private transaction. The interests of
         certain of the investors, including the management investors, have
         subsequently been reacquired and 82.3% of the Company's common stock is
         beneficially owned by MC.

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Basis of Presentation

         The consolidated financial statements include the accounts of the
         Company and its majority owned subsidiaries. Investments in other
         entities over which the Company exercises significant influence are
         carried on the equity basis. All intercompany accounts and transactions
         have been eliminated. Certain amounts previously reported in financial
         statement captions have been reclassified to conform with the 1997
         presentation.

         The Company adopted Statement of Position ("SOP") 96-1, "Environmental
         Remediation Liabilities" in 1997. The adoption of SOP 96-1 did not have
         a material effect on the consolidated financial statements.

         The Company adopted Statement of Financial Accounting Standards
         ("SFAS") No. 130 "Reporting Comprehensive Income" in 1997. Adoption had
         no effect on the Company's financial position or results of operations.

         In June 1997, SFAS No. 131 "Disclosures about Segments of an Enterprise
         and Related Information" was issued. SFAS No. 131 is effective for
         financial statements issued for periods beginning after December 15,
         1997. The Company has not yet determined the effect of this standard on
         its financial reporting.

         In February 1998, SFAS No. 132 "Employers' Disclosures about Pensions
         and Other Postretirement Benefits" was issued. SFAS 132 is effective
         for financial statements issued for periods beginning after December
         15, 1997. The Company has not yet determined the effect of this
         standard on its financial reporting.

         The preparation of consolidated 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 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.

         Inventories

         Inventories are stated at the lower of aggregate cost or market. Cost
         is determined primarily by the last-in, first-out ("LIFO") method.
         Inventory costs include direct and indirect manufacturing costs
         associated with the production of product.

         Property, Plant and Equipment

         Property, plant and equipment are carried at cost. Major replacements
         and improvements which extend the life of the property are capitalized,
         while maintenance and repairs are expensed as incurred. The Company
         capitalizes the interest cost associated with major property additions
         while in progress and amortizes the amount over the useful lives of the
         related assets. Depreciation of plant and equipment is computed on the
         straight-line method.

         When a plant or major facility within a plant is sold or otherwise
         disposed of, any gain or loss is reflected in the consolidated
         statement of income. Proceeds from the sale of other facilities
         depreciated on a group basis are credited to the depreciation reserve.



                                       27
<PAGE>   28

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         The Company capitalizes the cost of catalyst replacement and amortizes
         the cost over the life of the catalyst. The Company expenses any other
         planned maintenance activity during the period the work was performed.

         Excess Cost Over Assets Acquired

         The acquisition of Aristech by MC was accounted for as a purchase
         transaction with the purchase price being allocated to assets and
         liabilities based on their fair values as of the date of acquisition.
         The excess cost over the fair value of assets acquired is generally
         amortized on a straight-line basis over a 40 year period. Such amount
         associated with the 1990 acquisition has been allocated to each of the
         Company's businesses based on historical operating results prior to the
         acquisition. Accumulated amortization of the excess cost over assets
         acquired was $ 54.4 million and $49.2 million at December 31, 1997 and
         1996, respectively.

         Pensions

         The Company maintains defined benefit pension plans for substantially
         all of its employees with benefits based on compensation and years of
         service. The Company's funding practice is to contribute annually not
         less than the actuarially determined minimum funding requirements of
         the Employee Retirement Income Security Act of 1974 nor more than the
         maximum funding limitation under the Internal Revenue Code.
         Contributions are intended to provide for benefits for service to date
         and for benefits expected to be earned in the future.

         The Company also maintains defined contribution plans which cover
         certain eligible salaried and hourly employees. The Company's cost is
         determined based on a percentage of compensation as defined by the
         plans (see Note 4).

         Income Taxes

         Income taxes are accounted for in accordance with SFAS No. 109,
         "Accounting for Income Taxes". Under SFAS No. 109, deferred income
         taxes are recognized for the estimated taxes ultimately payable or
         recoverable based on enacted tax law. The deferred income taxes are
         computed annually for differences between book and tax bases of assets
         and liabilities that will result in taxable or deductible amounts in
         the future (see Note 5).

         Income Recognition

         Sales and related costs of sales are included in income when goods are
         shipped or services are rendered to the customer.

         Cash Equivalents

         The Company considers all highly liquid instruments with a maturity of
         three months or less at the date of purchase to be cash equivalents.
         Such investments are carried at cost which approximates fair value.

         Environmental Compliance and Remediation

         Environmental compliance costs include maintenance, monitoring and
         similar costs. Such costs are expensed as incurred. Costs for long-term
         operations and maintenance obligations at sites subject to a regulatory
         agreement are accrued in advance based upon management's estimate.
         Except to the extent costs can be capitalized, environmental
         remediation costs are fully accrued when environmental assessments
         and/or remedial efforts are probable and the cost can be reasonably
         estimated.




                                       28
<PAGE>   29


3.       NATURE OF OPERATIONS

         The Company's operations are conducted in one business segment, the
         production and marketing of chemical and polymer products. The major
         chemical products include phenol, acetone, bisphenol A, aniline,
         phthalic anhydride, 2-ethylhexanol and plasticizer. Major polymer
         products include polypropylene and acrylic sheet. Approximately 86% of
         the total sales are of products which are considered commodity
         chemicals. The Company's products are generally sold for further
         processing by manufacturers of automotive components, construction
         materials and consumer products.

         The Company's product line provides it with a diverse revenue base. The
         Company does not derive significant revenue from any single customer.
         Sales for export markets are made primarily to Japan, Canada and
         Taiwan. The Company exported chemical products with total sales revenue
         of $178.1 million in 1997, $172.4 million in 1996 and $186.8 million in
         1995.

4.       PENSIONS AND OTHER POSTRETIREMENT BENEFITS

         Substantially all employees of the Company are covered by various
         defined benefit or defined contribution plans. The cost of such plans
         was $6.0 million in 1997, $5.7 million in 1996 and $4.9 million in
         1995.

         Defined benefit pension cost for 1997, 1996 and 1995 includes the
         following components:


<TABLE>
<CAPTION>

             (In millions)                                          1997      1996        1995
                                                                    ----      ----        ----
                  <S>                                               <C>       <C>        <C>  
                  Cost of benefits earned during the period         $4.1      $ 3.8      $ 3.2
                  Interest cost on projected benefit obligation      4.5        3.8        3.8
                  Actual return on plan assets                      (8.0)      (6.5)      (7.6)
                  Net amortization and deferral                      4.6        3.7        4.7
                                                                    ====      =====      =====
                    Total                                           $5.2      $ 4.8      $ 4.1
                                                                    ====      =====      =====

</TABLE>


<TABLE>
<CAPTION>

             Assumptions                                                        1997          1996          1995
             -----------                                                        ----          ----          ----
                  <S>                                                           <C>           <C>           <C>  
                  Discount rate, net periodic pension cost                      7.75%         7.25%         8.50%
                  Rate of increase in compensation levels, net
                        periodic pension cost                                   4.50          4.00          4.00
                  Expected long-term rate of return on assets                   9.50          9.00          9.00
                  Discount rate, projected benefit obligation                   7.00          7.75          7.25
                  Rate of increase in compensation levels, projected
                        benefit obligation                                      4.25          4.50          4.00
</TABLE>


                                       29
<PAGE>   30


4.       PENSIONS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)

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

<TABLE>
<CAPTION>
                                                                      Assets Exceed                 Accumulated
                                                                       Accumulated                    Benefits
                                                                         Benefits                   Exceed Assets
                                                                         --------                   -------------
            (In millions)                                        1997            1996            1997            1996
                                                                 ----            ----            ----            ----
           <S>                                                <C>              <C>            <C>              <C>
            Actuarial present value of benefit obligations:
                   Vested benefit obligation                   $  (33.1)       $  (31.4)       $   (8.4)        $  (4.2)
                                                               ========        ========        =========        ========

                   Accumulated benefit obligation              $  (40.2)       $  (36.0)       $   (8.5)        $  (4.5)
                                                               ========        ========        =========        ========

                   Projected benefit obligation                $  (61.2)       $  (52.5)       $   (9.7)        $  (7.5)

            Plan assets at fair value                              44.8            39.5             3.9             1.2
                                                               --------        --------        --------         -------
            Plan assets less than projected benefit
                   obligation                                     (16.4)          (13.0)           (5.8)           (6.3)

            Unrecognized net loss                                  10.3             7.1             1.0              .9
            Unrecognized prior service cost                          .6              .7             4.0             3.9
                                                               --------        --------        --------        --------
            Accrued pension cost recognized in
                   the consolidated balance sheets             $   (5.5)       $   (5.2)       $    (.8)       $   (1.5)
                                                               ========        ========        ========        ========

</TABLE>

         Amounts recognized in the 1996 and 1995 consolidated income statements
         due to the settlement or curtailment of pension plans as a result of
         the sales of discontinued business units were not significant.
         There were no settlements or curtailments during 1997.

         Plan assets are invested primarily in listed stocks and bonds.

         In addition to providing pension benefits, the Company provides certain
         medical and life insurance benefits to eligible retired employees.
         Under the terms of the benefit plans, which are unfunded, the Company
         reserves the right to modify or discontinue the plans.

         The expense for other postretirement benefits was $1.8 million in 1997,
         $1.4 million in 1996 and $2.1 million in 1995. The cash payments for
         such benefits were $.8 million in 1997, $.6 million in 1996 and $.7
         million in 1995.

         Postretirement benefit cost for 1997, 1996 and 1995 included the
         following components:

<TABLE>
<CAPTION>
            (In millions)                                               1997           1996         1995
                                                                        ----           ----         ----
                  <S>                                                  <C>            <C>          <C>  
                  Cost of benefits earned during the period            $  .4          $  .4        $  .4
                  Interest cost on accumulated postretirement
                     obligation                                          1.2            1.2          1.4
                  Amortization of transition obligation                   .2             .2           .3
                  Credit due to discontinuation of business              ---            (.4)         ---
                    units                                              -----          -----        -----
                     Total                                             $ 1.8          $ 1.4        $ 2.1
                                                                       =====          =====        =====
</TABLE>

         For measurement purposes, the discount rates used for calculating the
         present value of postretirement benefit liabilities were 7.00% for
         1997, 7.75% for 1996 and 7.25% for 1995.



                                       30
<PAGE>   31





4.       PENSIONS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)

         The following table sets forth the postretirement benefit liability as
         of December 31, 1997 and 1996:

<TABLE>
<CAPTION>

             (In millions)                                                                   1997         1996
                                                                                             ----         ----
             <S>                                                                           <C>          <C>
                  Accumulated postretirement benefit obligation:
                     Retirees                                                               $ (7.8)      $ (7.5)
                     Fully eligible active plan participants                                  (3.5)        (2.9)
                     Other active plan participants                                           (7.5)        (5.7)
                                                                                            ------       ------
                        Total                                                                (18.8)       (16.1)
                  Unrecognized (gain) loss                                                      .8          (.8)
                  Unrecognized prior service cost                                               .5           .2
                  Unrecognized transition obligation                                           3.5          3.7
                                                                                            ------       ------

                  Accrued postretirement benefit liability
                    recognized in the consolidated balance sheets                           $(14.0)      $(13.0)
                                                                                            =========    ======
</TABLE>

         The assumed health care cost trend rate was 7.3% for 1997 and 8% for
         1996 and 1995. These rates were assumed to decline to 4% for 1997,
         1996, and 1995 over a six year period. A 1% increase in the health care
         cost trend rate would increase the accumulated postretirement benefit
         obligation as of December 31, 1997 by 5.4% and the sum of the 1997
         service and interest costs by 5.4%.


5.       TAX PROVISION

         Provision for taxes on income is as follows:
<TABLE>
<CAPTION>

             (In millions)                                                  1997             1996            1995
                                                                            ----             ----            ----
             <S>                                                            <C>             <C>             <C>   
                  Current federal income taxes                              $ 6.4           $ 28.6          $ 16.3
                  Current state and local income taxes                        1.4              3.4             3.3
                  Deferred income taxes                                       1.0             (3.6)           24.8
                                                                            -----           ------          ------

                  Total provision before change in valuation                
                    allowance                                                 8.8             28.4            44.4
                  Change in valuation allowance                                .5              (.8)            ---
                                                                            -----           ------          ------
                  Total provision                                           $ 9.3           $ 27.6          $ 44.4
                                                                            =====           ======          ======
</TABLE>


         A reconciliation of the differences between income taxes computed at
         the federal statutory rate to the total provision for income taxes is
         as follows:

<TABLE>
<CAPTION>
             (In millions)                                                   1997             1996         1995
                                                                             ----             ----         ----
              <S>                                                           <C>              <C>          <C>   
                  Statutory rate applied to income before tax               $  6.1           $ 21.0       $ 36.6
                  Foreign Sales Corporation benefits and other
                     tax credits                                              (1.7)             (.5)         (.7)
                  Amortization of excess cost over assets acquired             1.8              2.0          2.1
                  Losses from equity investee                                  ---              4.3          ---
                  Write-off of excess cost over assets acquired                ---              ---          5.9
                  State income taxes after federal income tax benefit          2.8              2.0          1.4
                  Other                                                        (.2)             (.4)         (.9)
                                                                            ------           ------       ------
                  Total provision for income taxes before change in
                     valuation allowance                                       8.8             28.4         44.4
                  Change in valuation allowance                                 .5              (.8)         ---
                                                                            ------           ------       ------
                  Total provision for income taxes                          $  9.3           $ 27.6       $ 44.4
                                                                            ======           ======       ======

</TABLE>



                                       31
<PAGE>   32






5.       TAX PROVISION (CONTINUED)

         The tax effect of the significant temporary differences which comprise
         the deferred tax assets and liabilities is as follows:

<TABLE>
<CAPTION>
         (In millions)                                                                1997            1996
                                                                                      ----            ----
          <S>                                                                        <C>              <C>   
              Deferred tax assets:
                  Accruals different than payments                                   $ 14.4           $ 15.3
                  Net operating loss carryforwards                                      9.3              8.8
                  Other                                                                  .6               .1
                                                                                     ------           ------
                  Deferred tax assets before valuation allowance                       24.3             24.2
                  Less valuation allowance                                             (9.2)            (8.7)
                                                                                     ------           -------
                  Deferred tax assets                                                  15.1             15.5
                                                                                     ------           -------

              Deferred tax liabilities:
                  Property and inventory                                              180.5            178.6
                  Other                                                                 ---               .8
                                                                                     ------           -------
                  Deferred tax liabilities                                            180.5            179.4
                                                                                     ------           -------

                  Net deferred tax liabilities                                       $165.4           $163.9
                                                                                     ======           ======
</TABLE>

         Avonite (see Note 9) has net operating loss carryforwards of $26.5
         million which expire in years 1999 through 2011. Since Avonite is not
         consolidated for tax purposes, utilization of these carryforwards is
         limited to the taxable income of Avonite. Should a tax benefit be
         subsequently recognized relating to the valuation allowance at December
         31, 1997, $4.4 million of such benefit would be allocated to reduce
         excess cost over assets acquired and the Avonite minority deficit
         assumed.

         During 1996, the Company settled the IRS examination related to audit
         years through December 31, 1990. This settlement resulted in an
         increase in the excess cost over assets acquired account of $1.7
         million in 1995. Management believes that reserves established for open
         years are adequate.

6.       INVENTORIES

         Inventories consist of the following at December 31, 1997 and 1996:

<TABLE>
<CAPTION>

        (In millions)                                           1997            1996
                                                                ----            ----
         <S>                                                   <C>             <C>   
              Raw materials                                    $ 35.9          $ 24.8
              Finished products                                  68.0            70.8
              Supplies and sundry items                          19.6            17.5
                                                               ------          -------
                Total Inventory                                $123.5          $113.1
                                                               ======          ======
</TABLE>


         The current cost of inventories at December 31, 1997 and 1996 was
         $116.1 million and $110.2 million, respectively.

         The Company had no significant LIFO liquidations in 1997, 1996 and
         1995.

                                       32
<PAGE>   33


7.       PROPERTY, PLANT AND EQUIPMENT

         Property, plant and equipment consists of the following at December 31,
         1997 and 1996:

<TABLE>
<CAPTION>
         (In millions)                                                 1997             1996
                                                                       ----             ----
          <S>                                                         <C>              <C>   
              Land                                                    $ 13.9           $ 13.8
              Buildings                                                 54.8             36.8
              Machinery and equipment                                  876.6            793.0
                                                                      ------           ------

                  Total property, plant and equipment                  945.3            843.6
                  Less accumulated depreciation                        282.5            245.6
                                                                      ------           ------
                  Net property, plant and equipment                   $662.8           $598.0
                                                                      ======           ======
</TABLE>

8.       ARISTECH ACRYLICS LLC

         On October 1, 1997, Aristech formed a joint venture with Mitsubishi
         Rayon Co., Ltd. ("MRC") to manufacture and sell acrylic sheet and
         decorative surface products. Aristech's former acrylic sheet division
         was reorganized as Aristech Acrylics LLC ("AALLC"), a Kentucky limited
         liability company in which Aristech holds a 90% ownership interest.
         Dianal America, Inc. ("DAI"), a wholly-owned U.S. subsidiary of MRC
         holds a 10% ownership interest in Aristech Acrylics LLC. The $10.0
         million investment by DAI in member equity exceeded the proportionate
         share of book value purchased. The excess of $7.5 million has been
         recorded as additional paid in capital. AALLC is a consolidated
         subsidiary of the Company.

9.       AVONITE, INC.

         On December 15, 1987, the Company acquired for $5.0 million a 50%
         interest in Avonite, Inc. ("Avonite") of Belen, New Mexico, a producer
         and marketer of premium unsaturated polyester sheet. The investment was
         accounted for under the equity method. As of December 31, 1995, the
         Company had made loans to Avonite totaling $8.8 million for working
         capital and construction of a new production facility completed in
         1989. Interest receivable relating to the loans at December 31, 1995
         was $5.9 million. In the ordinary course of business, the Company sells
         products to Avonite and the outstanding receivable balance relating to
         these sales at December 31, 1995 was $2.6 million.

         On July 1, 1996, the Company acquired an additional 10% of the
         outstanding common stock of Avonite in exchange for the assignment to
         the Avonite minority owners of a $1.0 million note owed by Avonite to
         the Company. As a result, Avonite became a consolidated subsidiary of
         the Company. Excess cost over assets acquired of $3.5 million was
         recorded and the minority deficit at the date of the additional
         acquisition of $14.1 million was assumed by the Company.

10.      LEASE COMMITMENTS

         The Company has operating leases primarily for buildings, railway
         equipment, data processing and automotive equipment. The Company has
         capital leases primarily for buildings.

         Minimum annual rental commitments for non-cancelable leases with
         initial or remaining lease terms in excess of one year were as follows
         at December 31, 1997:


<TABLE>
<CAPTION>
                                                                                   Capital
                                                                     -------------------------------------
                        (In Millions)                Operating       Principal      Interest         Total
                                                     ---------       ---------      --------         -----
                         <S>                          <C>             <C>           <C>            <C>   
                             1998                      $ 14.8          $ 0.6         $  0.9         $  1.5
                             1999                        12.8            0.5            0.9            1.4
                             2000                        10.0            0.5            0.9            1.4
                             2001                         6.3            0.6            0.8            1.4
                             2002                         3.4            0.6            0.8            1.4
                          Thereafter                      3.0           13.4            7.2           20.6
                                                       ------         ------         ------         ------
                 Total minimum lease payments          $ 50.3         $ 16.2         $ 11.5         $ 27.7
                                                       ======         ======         ======         ======

</TABLE>

         Operating lease rental expense was $10.8 million for 1997, $12.0
         million for 1996 and $11.0 million for 1995.



                                       33
<PAGE>   34

10.      LEASE COMMITMENTS (CONTINUED)

         Capital leases for 1997 are described below. Capital leases for 1996 
         were immaterial.

         (In Millions)                                         1997
                                                              -----
              Land                                            $  .2
              Building                                         16.0
                                                              -----
                 Total assets                                  16.2
              Less allowances for depreciation                   .2
                                                              -----
                     Total                                    $16.0
                                                              =====

11.      DEBT

         Following is a summary of the Company's outstanding debt as of December
         31, 1997 and 1996:

<TABLE>
<CAPTION>

             (In millions)                                                                       1997          1996
                                                                                                 ----          ----
<S>                                                                                         <C>              <C>
             Term Loan-MC, due July 31, 2002, interest payments due at a
                  variable rate based on the London Interbank Offered Rate
                  ("LIBOR") plus a margin of 1.375% and .55% for loans extending
                  to June 3, 1996 and November 1, 1996, respectively, and a
                  margin of .4875% for loans beyond November 1, 1996. The loan
                  was repaid on March 3, 1997, with the proceeds from the 
                  Revolving Loan-MIC.                                                       $     ---        $100.0
                                                                                                     
             Term Loan-Mitsubishi International Corporation ("MIC")-LLC, due April
                  18, 2002, interest payments due at a variable rate based on LIBOR                          
                  plus a margin of .1875%.                                                       50.0            --

             Revolving Loan-MIC, $200.0 maximum commitment amount, due April 18,
                  2002, interest payments due at a variable rate based on
                  LIBOR plus a margin of .15% for loans extending to November 25,                              
                  1996 and LIBOR plus a margin of .1875% thereafter.                            137.0          48.0

             6-7/8% Notes, dated November 25, 1996, due November 15,
                  2006, with semiannual interest payments due May 15 and                                      
                  November 15 of each year.                                                     148.9         148.9

             Note payable to Avonite stockholder, due July 1, 2006, with
                  interest calculated and payable quarterly at the prime rate of
                  interest plus 2% with any unpaid amounts added to principal.
                  The note is secured by a stock pledge by and between the 
                  Avonite stockholder and the Avonite minority stockholders.                     12.4          11.2

             Priority Promissory Note, unsecured, assigned by the Company to the
                  Avonite minority stockholders, due July 1, 2006, with interest
                  calculated and payable quarterly at the prime rate
                  of interest plus 2% with any unpaid amounts added to                                         
                  principal.                                                                      1.2           1.1

             Industrial Revenue Bond, due May 1, 2008 payable monthly including
                  interest based on the prime rate of interest.
                  The loan is secured by Avonite property and land, and a                                       
                  guarantee of the Company.                                                       0.6           0.6

             Capital lease obligations, maturing at various dates from
                  1998 to 2017.                                                                  16.2           0.2
                                                                                                 ----      --------
                                                                                                366.3         310.0  
             Less amount due within one year                                                      0.6           0.1
                                                                                               ------      -------- 
                  Total                                                                        $365.7        $309.9
                                                                                               ======        ======
</TABLE>


Of the $366.3 million of debt outstanding at December 31, 1997, $187.0 million
matures in five years with the remaining $163.1 million maturing thereafter
(excluding capital lease obligations disclosed in Note 10).



                                       34
<PAGE>   35

11.      DEBT (CONTINUED)

         The Company has agreed to pay MC a guarantee fee on the outstanding
         principal balance of all financing obtained from MIC. The guarantee fee
         is calculated on a daily basis in an amount equal to 1.125% per annum
         for guaranteed loans extending to January 4, 1995, .60% per annum for
         guaranteed loans extending to June 3, 1996, .30% per annum for
         guaranteed loans extending to March 3, 1997, and .1875% per annum for
         guaranteed loans extending after March 3, 1997. The guarantee fee
         expense for 1997, 1996 and 1995 was $.3 million, $.9 million and $2.2
         million, respectively.

         Prior to the issuance of the 6-7/8% Notes ("Notes"), the Company
         entered into an interest rate hedging contract with a commercial bank
         that effectively fixed at 6.404% the treasury rate component of the
         all-in cost (treasury rate component plus credit margin) of the Notes.
         The Company settled the interest rate hedging contract at a cost of
         approximately $2.5 million on November 22, 1996, which is being
         amortized along with other costs associated with the Notes over the
         life of the Notes.

         On March 7, 1990, the Company issued $80.0 million of PIK Debentures to
         MC and MIC. An additional $64.0 million of PIK Debentures were issued
         to the minority owners on November 27, 1990. On September 30, 1996, the
         Company called for the redemption of all its outstanding PIK
         Debentures. MC, MIC and Mitsubishi Chemical Corporation ("MCC") elected
         to exercise their right to convert $179.5 million of the PIK Debentures
         into 3,888 shares of common stock of the Company. The remaining $24.5
         million of PIK Debentures held by MRC were redeemed for cash.

         In December of 1996, the Company arranged for a $50.0 million
         discretionary line of credit with a commercial bank. Short-term
         borrowings drawn under this line amounted to $42.3 million and $40.4
         million at December 31, 1997 and 1996, respectively, bearing interest
         at a variable rate. The effective rate paid during 1997 was 5.7%.

         Based on the borrowing rates currently available to the Company for
         loans with similar terms and average maturities, the fair value of the
         Company's debt at December 31, 1997 and 1996 approximates carrying
         value at those dates.

12.      OTHER ITEMS

<TABLE>
<CAPTION>
         (In millions)                                                      1997             1996          1995
                                                                           -----            -----         -----
         <S>                                                              <C>              <C>            <C>
         Operating costs include:
            Maintenance and repairs of plant and equipment                 $32.0            $36.0         $31.8
            Research and development                                        13.8             13.0          11.9
</TABLE>

13.      EQUITY

         The Subscription and Stockholders Agreement ("Stockholders Agreement"),
         dated January 31, 1990, and as amended June 4, 1993, provided for the
         initial capitalization of the Company. Under the Stockholders
         Agreement, management investors acquired 1,250 shares of common stock
         ("Acquired Shares") in return for shares of Aristech common stock and
         cash with a combined total value of $12.5 million. MC and MIC together
         acquired 7,500 shares of common stock for $84.7 million and the other
         investors acquired 250 shares of common stock for $2.8 million. In
         addition, management investors received, at no cost, 850 shares of
         common stock ("Restricted Shares").

         On March 23, 1995, the Company exercised its call option with respect
         to 2,245 shares of common stock held by the management investors and
         certain other investors at the established price of $30,431 per share,
         in addition to options on 200 shares granted to the management
         investors by the Performance Option Plan ("POP"). The shares and
         options were purchased using proceeds obtained from issuing 2,550
         shares of common stock to MC and MIC at the established price.

         Deferred compensation had been recognized for the established price of
         the Restricted Shares and for the difference between the established
         price of the Acquired Shares and the amount paid by management
         investors for such shares. The deferred compensation was amortized over
         the restriction period beginning on March 1990 and ending on March
         1995.


                                       35
<PAGE>   36



13.      EQUITY (CONTINUED)

         On February 26, 1997, a cash dividend of $558 per share and on February
         22, 1996, a cash dividend of $1,990 per share, was declared to holders
         of record of the Company's common stock as of that date and was paid in
         April, 1997 and June, 1996, respectively.

         An additional 4,858 shares of common stock were issued on September 30,
         1996 when MC, MIC and MCC exercised an option to convert their PIK
         Debentures and PIK Preferred Stock (see Note 11).

14.      LONG-TERM RECEIVABLES

         In May of 1996, the Company entered into an agreement with the
         Pittsburgh Economic Industrial Development Corporation ("PEIDC") which
         provided that the Company would assist in financing the construction of
         its leased polypropylene technical center. Under this agreement, the
         Company advanced a total of $8.4 million to PEIDC. The advance is
         scheduled to be repaid monthly including interest at a rate of 8.25%
         over the Company's 20 year lease term for the facility (see Note 10),
         which commenced in November 1997. At December 31, 1997, $7.9 million
         was outstanding under this agreement and included as long-term
         receivables with the remaining $0.5 million included in other current
         assets.

15.      REDEEMABLE PREFERRED STOCK

         The PIK Preferred Stock, of which 1,000,000 shares were authorized, had
         a liquidation value of $100 per share plus all accumulated and unpaid
         dividends to the date of final distribution. Dividends were payable
         quarterly at the rate of 10% per annum. Prior to June 1, 1995,
         dividends were paid in additional shares of this PIK Preferred Stock
         rather than in cash. Additional shares issued in lieu of cash dividends
         were $1.5 million in 1995. All dividends payable on or after June 1,
         1995 were paid in cash. Total cash dividends for 1996 and 1995 were
         $4.2 million and $3.8 million, respectively. This PIK Preferred Stock
         was convertible at the option of the holder(s) into 7% of the
         fully-diluted common stock of the Company as defined in the Certificate
         of Designation for this issuance. The shares were also subject to
         redemption at the Company's option after March 1, 1995. On March 23,
         1995, the Company redeemed all of the shares held by a minority
         investor for $6.1 million. On September 30, 1996 MC, MIC and MCC
         elected to convert $44.8 million of the PIK Preferred Stock into 970
         shares of common stock. The shares held by MRC were redeemed for $6.2
         million in cash.

16.      COMMITMENTS AND CONTINGENCIES

         Contract commitments for capital expenditures for property, plant and
         equipment totaled $291.3 million and $16.8 million at December 31, 1997
         and 1996, respectively.

         The Company is obligated to indemnify USX against certain claims or
         liabilities which USX may incur relating to USX's prior ownership and
         operation of the facilities transferred to the Company in 1986,
         including liabilities under laws relating to the protection of the
         environment and the workplace. Such liabilities have been provided for
         in the consolidated financial statements.

         As of December 31, 1997 and 1996, the Company had outstanding
         irrevocable standby letters of credit in the amount of $5.6 million and
         $15.2 million, respectively, primarily in connection with environmental
         matters.

         The Company is a defendant in a patent infringement suit filed by
         Phillips Petroleum Company ("Phillips") in 1987, in the United States
         District Court for the Southern District of Texas, captioned Phillips
         Petroleum Company v. Aristech Chemical Corporation, Civil Action No.
         H87-3445. The complaint alleges infringement of two patents related to
         the production of polypropylene, which have since expired. The Company
         and Phillips each filed motions for summary judgment which were
         referred to a Special Master. The Special Master issued a lengthy
         recommendation to find in the Company's favor, and Phillips filed a
         motion to reject the Special Master's recommendation. A hearing on this
         motion was held on October 21, 1996. On November 13, 1996, the District
         Court granted the Company's motion for summary judgment and entered an
         order to that effect on November 19, 1996. A final judgment was entered
         in Aristech's favor on December 23, 1996. Phillips is appealing the
         judgment. The Company believes that the outcome of this matter will not
         have a material adverse effect on the Company.



                                       36
<PAGE>   37

16       COMMITMENTS AND CONTINGENCIES (CONTINUED)

         The Company is subject to pervasive environmental laws and regulations
         concerning the production, handling, storage, transportation, emission
         and disposal of waste materials and is also subject to other federal
         and state laws and regulations regarding health and safety matters.
         These laws and regulations are constantly evolving, and it is
         impossible to predict accurately the effect these laws and regulations
         will have on the Company in the future.

         The Company is also the subject of, or party to, a number of other
         pending or threatened legal actions involving a variety of matters. In
         the opinion of management, any ultimate liability arising from these
         contingencies, to the extent not otherwise provided for, should not
         have a material adverse effect on the consolidated financial position,
         results of operations, or cash flows of the Company.

17.      ASSETS HELD FOR SALE

         The coal chemical business was sold in April, 1996. The net sales and
         operating income of the coal chemical business, excluding certain
         corporate charges, for 1996 and 1995 were as follows:

         (In millions)                               1996              1995
                                                     -----             -----
              Net sales                              $19.1             $76.0
              Operating income                         2.6              10.3

18.      SUBSEQUENT EVENTS

         On March 18, 1998, the Board of Directors declared a cash dividend of
         $268 per common share payable on March 31, 1998, to stockholders of
         record on March 6, 1998. The total amount of the dividend was $4.0
         million.




                                       37
<PAGE>   38



ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
          AND FINANCIAL DISCLOSURE

         Not applicable.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Aristech's By-Laws provide that the Board of Directors will consist of 13
members, which number may be increased or decreased by an amendment to the
By-Laws, but in any event the number of directors may not be less than three.
There currently are eight members of the Board of Directors. The members of the
Board of Directors will serve until the 1999 annual Board of Directors meeting
or until their successors are elected and qualified. The Board of Directors has
established an Executive Committee to act between meetings of the Board on all
matters which may be legally delegated to a committee of the Board. Directors of
Aristech currently receive no fees or remuneration for service as a member of
the Board or any Board Committee. Information with respect to those persons who
serve as directors is set forth below:


<TABLE>
<CAPTION>
         NAME, AGE AND OCCUPATION
         ------------------------

<S>                                         <C>
 Masatake Bando (55)                        Masatake Bando became Chairman and Chief Executive Officer
 Chairman and Chief                         March 18, 1998 and has been a Director since August 1996.
 Executive Officer; Member of               Mr. Bando was Chairman Elect from January 1, 1998 to
 Executive Committee                        March 17, 1998; Vice Chairman from September 1997 to December
                                            1997; Senior Vice President and Chief Operating Officer-Chemicals
                                            of MIC, from June 1996 to August 1997; General Manager of
                                            Aromatics Petrochemicals Department of MC from May 1994 to June
                                            1996; General Manager of Corporate Planning, Eastern Petrochemical
                                            Co. from May 1992 to April 1994; and Deputy General Manager of
                                            Aromatics Petrochemicals Department of MC from January 1991 to May
                                            1992.

Charles W. Hamilton (59)                    Charles W. Hamilton became President and Chief Operating
President and Chief Operating               Officer on January 1, 1994 and has been a Director since
Officer; Member of Executive                January 1991. Mr. Hamilton was  Executive Vice President
 Committee                                  from March 1993 to January 1994 and Senior Vice
                                            President-Intermediate Chemicals and Special Products Division
                                            from May 1989 to March 1993.

Hajime Koga (55)                            Hajime Koga became a Director in April 1990. Mr. Koga has been
Director; Member of Executive               General Manager of Basic Chemicals Division B of MC since April
Committee                                   1997. Mr. Koga was General Manager of Aristech Department and
                                            General Manager of Basic Chemicals Division B of MC from June 1996
                                            to April 1997; General Manager of Aristech Department and Senior
                                            Assistant to Managing Director-Chemicals of MC from June 1995 to
                                            June 1996; General Manager of Aristech Department of MC from April
                                            1995 to May 1995; Senior Staff of Managing Director-Chemicals of
                                            MC from August 1994 to March 1995; Senior Vice President, Chief
                                            Operating Officer-Chemicals of MIC from April 1993 to June 1994.

</TABLE>


                                       38
<PAGE>   39

<TABLE>
<S>                                         <C>
Yasuo Sone (58)                             Yasuo Sone became a Director in August 1996. Mr. Sone has
Director                                    been Managing Director-Chemicals of MC since April 1996. Mr. Sone
                                            was Director and Senior Assistant to Managing Director-Chemicals
                                            of MC from March 1995 to March 1996; Director of MC and Executive
                                            Vice President of MIC from June 1994 to February 1995; Executive
                                            Vice President of MIC from April 1993 to June 1994; and Senior
                                            Vice President, Chief Operating Officer-Chemicals of MIC from
                                            April 1991 to March 1993.

Muneo Suzuki (59)                           Muneo Suzuki became a Director in July 1996. Mr. Suzuki has
Director                                    been Managing Director and President of Industrial Chemicals
                                            Company of MCC since June 1996. Mr. Suzuki was Managing Director
                                            and President of Fiber Intermediates Company of MCC from June 1995
                                            to June 1996; Director and President of Fiber Intermediates
                                            Company of MCC from October 1994 to June 1995; Board Director,
                                            General Manager of Synthetic Chemicals Division and Polyester
                                            Division of Mitsubishi Kasei Corporation ("MKC") (a predecessor of
                                            MCC) from January 1994 to September 1994; Board Director, General
                                            Manager of Synthetic Chemicals Division of MKC from June 1992 to
                                            January 1994.

Tatsuo Suzuki (57)                          Tatsuo Suzuki became a Director in July 1997.  Mr. Suzuki has
Director                                    been General Manager Affiliated Companies Administration and
                                            Planning of Mitsubishi Rayon Co., Ltd. (MRC) since June 1996.
                                            Mr. Suzuki was Director Affiliated Companies Administration and
                                            Planning from June 1995 to June 1996; General Manager Metablen
                                            and Film Division from April 1993 to June 1995.

Takayori Tsuboi (60)                        Takayori Tsuboi became a Director in July 1996. Mr. Tsuboi
Director                                    has been President of Mitsubishi Chemical America Inc. since
                                            June 1996 and Managing Director of MCC since June 1995. Mr. Tsuboi
                                            was Managing Director, Petrochemical Planning Department and
                                            Overseas Department of MCC from October 1994 to June 1995;
                                            Director, Corporate Planning Department and Management Planning
                                            Department of Mitsubishi Petrochemical Co., Ltd. ("MPC") (a
                                            predecessor of MCC) from June 1993 to September 1994; Director,
                                            Osaka branch of MPC from June 1992 to June 1993

Takuji Nakamura (53)                        Takuji Nakamura became a Director in March 1998.  Mr. Nakamura has
Director; Member of                         been Senior Vice President and Chief Operating Officer - Chemicals of
Executive Committee                         MIC since September 1997.  Mr. Nakamura was General Manager, Fine
                                            Chemicals Department of MC from July 1996 to August 1997; General
                                            Manager,Pharmaceuticals and Agrochemical Department of MC from
                                            April 1996 to June 1996; General Manager, Fine Chemicals Business
                                            Development Department of MC March of 1996; General Manager, Fine Chemical 
                                            Business Development Department and Bio-Chemicals Department of MC from 
                                            October 1994 to February 1996. General Manager, Fine Chemicals Business 
                                            Development Department of MC from April 1992 to September 1994.

</TABLE>



                                            39
<PAGE>   40



Executive Officers

      Set forth below is certain information relating to the ages and business
experience of the non-director executive officers of the Company.

<TABLE>
<CAPTION>

          NAME, AGE AND OCCUPATION
          ------------------------
<S>                                         <C>

Mark K. McNally (51)                        Mark K. McNally became Senior Vice President, General Counsel and
Senior Vice President,                      Corporate Secretary in April 1995. Mr. McNally was Vice President-
General Counsel and                         Environmental Affairs, Occupational Health and Safety from 1992 to 1995;
Corporate Secretary                         Director-Environmental Affairs, Occupational Health and Safety from 1991
                                            to 1992 and Senior Counsel of the Company from 1986 to 1991.

Michael J.Prendergast (49)                  Michael J. Prendergast became Acting Chief Financial Officer in
Acting Chief Financial Officer              October 1997.  Mr. Prendergast was Vice President and Controller from 
                                            April 1997 to October 1997; Corporate Comptroller from January 1994 to 
                                            April 1997; Director-Tax, Human Resources and Internal Audit from May
                                            1990 to January 1994 and Director-Tax and Internal Audit from May
                                            1988 to May 1990.

James J. Driscoll Jr. (59)                  James J. Driscoll Jr. became Senior Vice President-Polymers in June 1994.  Mr.
Senior Vice President-Polymers              Driscoll was Senior Vice President-Thermoplastic Polymers from March 1993
                                            to June 1994 and Vice President and General Manager-Thermoplastic Polymers 
                                            Division from May 1989 to March 1993.

Charles P. Costanza (56)                    Charles P. Costanza became Senior Vice President-Chemicals in September 1996.
Senior Vice President -Chemicals            Mr. Costanza was Vice President-Chemicals from June 1994 to August 1996; Vice
                                            President-Intermediate Chemicals from March 1993 to June 1994 and General
                                            Manager-Dibasics and Alcohols from June 1990 to March 1993.

William D. Walston (62)                     William D. Walston became Treasurer in January 1994. Mr. Walston was
Treasurer                                   Corporate Comptroller from 1986 to January 1994.

Richard A. Becker (55)                      Richard A. Becker became Corporate Comptroller in November 1997.  Mr.
Corporate Comptroller                       Becker was Director-General and Consolidation Accounting from September 1995 to
                                            November 1997 and Controller-Intermediate Chemicals from October 1993 to 
                                            September 1995.

Dennis R. Henderson (48)                    Dennis R. Henderson became Vice President-Chemicals in December 1997.
Vice President-Chemicals                    Mr. Henderson was Division Vice President-Chemicals from May 1997 to 
                                            December 1997; Division Vice President-Intermediate Chemicals from 
                                            April 1996 to May 1997; General Manager-Intermediate Chemicals from 
                                            June 1994 to April 1996 and General Manager-Plasticizer and Distribution 
                                            from June 1990 to June 1994.


</TABLE>





                                       40
<PAGE>   41

ITEM 11.  EXECUTIVE COMPENSATION

Compensation of Executive Officers

     The following table summarizes all compensation paid to and earned by
Aristech's chief executive officer and each of Aristech's four most highly
compensated executive officers other than the chief executive officer for
services rendered to Aristech for the years ended December 31, 1997, 1996 and
1995.

<TABLE>
<CAPTION>
                                                   Summary Compensation Table

                                                       Annual Compensation                        Long-term Compensation
                                            ----------------------------------------------    --------------------------------
                                                                            Other Annual       LTIP and         All Other
Name and Principal Position         Year    Salary ($)       Bonus ($)    Compensation ($)    POP ($)(5)    Compensation($)(1)
---------------------------         ----    ----------       ---------    ----------------    ------------  ------------------
<S>                                 <C>     <C>               <C>              <C>            <C>                <C>  
Jiro Kamimura  (6)                  1997     368,333(2)           0(3)         80,833(4)              0           8,724
  Chairman and                      1996     310,000(2)           0(3)         81,085(4)              0           8,407
  Chief Executive Officer           1995     256,667(2)           0(3)         80,333(4)              0           4,239

Charles W. Hamilton                 1997     290,000        341,253             7,485           200,328           8,416
  President and                     1996     277,500        271,649             9,035                 0           9,568
  Chief Operating Officer           1995     270,089        271,649                 0         5,077,177           3,369

James J. Driscoll                   1997     233,000        245,723             5,735           132,741          10,837
  Senior Vice President-            1996     222,167        214,895             5,580                 0          10,323
  Polymers                          1995     213,335        214,895                 0         1,233,438           4,136

Mark K. McNally                     1997     190,000        197,990             6,770           105,461           9,458
  Senior Vice President,            1996     181,667        165,868             4,945                 0           7,651
  General Counsel and               1995     164,308        165,868                 0           785,927           3,042
  Corporate Secretary

Charles P. Costanza                 1997     185,000        185,612             2,940            99,816           5,517
  Senior Vice President-            1996     168,333        161,560             2,790                 0           7,557
  Chemicals                         1995     160,000        161,560                 0           726,016           3,636
</TABLE>


(1)  Includes matching contributions under Aristech's 401(k) savings plan,
     allowances under Aristech's welfare cafeteria plan and the cost of
     group-term life insurance in excess of $50,000 of coverage.

(2)  Pursuant to an agreement between MC and Mr. Kamimura, Mr. Kamimura remits
     quarterly to MC the amount necessary to reconcile his total compensation to
     the MC executive pay scale.

(3)  Mr. Kamimura does not participate in Aristech's bonus plans, or in any of
     Aristech's executive benefit plans.

(4)  Includes reimbursement for Mr. Kamimura's housing and related costs and for
     his automobile expenses.

(5)  For 1995, reflects cash payments under Aristech's Performance Option Plan
     ("POP") in 1995 and, in the case of Mr. Hamilton, includes cashout of
     restricted stock and anti-dilution options. The POP was a long-term,
     performance-based compensation plan established as a successor to a stock
     option plan which, along with restricted stock and anti-dilution stock
     option arrangements, was implemented in 1990 in connection with the going-
     private transaction effected by MC, certain other investors and certain
     members of management. The POP and other arrangements were terminated and
     paid out in 1995. For 1997, reflects payments under Aristech's LTIP.

(6)  Mr. Bando succeeded Mr. Kamimura as Chairman and Chief Executive Officer
     effective March 18, 1998.


                                       41
<PAGE>   42


Deferred Compensation Plan

     The Aristech Chemical Corporation Deferred Compensation Plan (the "Deferral
Plan") is a nonqualified deferred compensation plan that is designed to permit
eligible highly compensated employees of Aristech to defer current compensation.
Members of the Corporate Management Committee and other key employees designated
by the Executive Committee of the Board of Directors are eligible to participate
in the Deferral Plan. The Deferral Plan was adopted effective February 22, 1996.

     A participant can defer up to 50% of his base salary and 90% of his
performance award on an annual basis In addition, a participant will receive
credit to his account from Aristech under the Deferral Plan of matching
contributions in an amount equal to the matching contributions Aristech would
have made on his or her behalf to Aristech's Savings Plan without regard to
Internal Revenue Code maximums had the participant's Deferral Plan contributions
been contributed to the Savings Plan. Deemed interest is credited on all
deferred amounts and matching credits at a rate equal to 120% of the 60-month
rolling average rate of 10-year U.S. Treasury Notes or such other rate as
Aristech determines. A participant is always entitled to receive 100% of the
compensation he or she defers through the Deferral Plan if he or she leaves
Aristech for any reason. The participant becomes entitled to Aristech credits
accumulated in his or her account on the first day of the calendar year
following the year in which the matching credit was generated. Regardless of
years of service, a participant is entitled to the full value of his or her
Aristech credits if he or she retires, becomes disabled or dies or upon a change
in control (as defined in the Deferral Plan) or termination of the Deferral
Plan.

     Aristech has established a grantor trust with Wachovia Bank of North
Carolina, N. A., to accumulate assets for the payments of the benefits
established under the Deferral Plan. The assets of the trust are subject to the
claims of Aristech's creditors in bankruptcy.

Long Term Incentive Plan

     Aristech's Long Term Incentive Plan ("LTIP") provides designated members of
Aristech's management team with an opportunity to earn cash bonuses based on the
long term performance of Aristech. In general, performance cycles under the LTIP
will be four years in length. A new four-year cycle will begin every two years
so two cycles are active at any given time. There was an initial two-year
transition cycle for 1995-1996 as well as a four-year cycle for 1995-1998. A
target award, expressed as a percentage of base salary, will be established for
each participating executive at the beginning of each performance period.

     The performance measures used under the LTIP are relative return on gross
assets (involving a comparison of Aristech's return on gross assets with the
median return on gross assets of a group of comparable chemical manufacturing
companies) and growth in gross assets. For purposes of determining the actual
awards, relative return on gross assets is weighted 75% and growth in gross
assets is weighted 25%. A schedule set forth in the LTIP is used to determine
the percentage of the total target award that is earned by a participant
depending upon the levels of relative return on gross assets and growth in gross
assets attained by Aristech for the performance period. The Board of Directors
is permitted to make discretionary adjustments in payments to be made to
participants upon completion of a performance cycle, but such adjustments,
whether positive or negative, may not exceed 10% of the total target award pool.

     Awards earned under the LTIP will be paid 50% as soon as practicable after
the close of the performance cycle and 50% during January of the following year
(i.e., approximately one year after the completion of the performance period).
Participants are permitted to defer receipt of their awards under the terms of
the Deferral Plan.

     If a participant dies, retires, becomes disabled or is involuntarily
terminated without cause during a performance cycle, the participant (or his or
her beneficiary) is entitled to a pro-rated award for such performance cycle. If
a participant voluntarily terminates or is involuntarily terminated for cause,
the participant will receive no award for the then-current performance period
and will forfeit all rights to payments not yet made with respect to any other
performance periods. If a change in control of Aristech (as defined in the LTIP)
or an initial public offering occurs during a performance period, the LTIP shall
terminate and each participant shall receive a pro-rated award payment in cash.

     In addition to the provisions of the LTIP concerning awards to key
executives of Aristech, the LTIP authorizes the establishment of a supplemental
award pool for distribution to top line and staff executives who are not
eligible for individual target awards as described above. The selection of
recipients and amounts of individual awards under this supplemental pool shall
be determined by the Corporate Management Committee at the conclusion of a
performance period based on each

                                       42
<PAGE>   43

participating individual's contribution to Aristech's performance. The Board of
Directors has the authority to establish the amount of this supplemental award
pool, and has established a supplemental award pool of $1,000,000 for the first
two cycles of the plan.

Executive Life Insurance Plan

     Aristech's Executive Life Insurance Plan (the "Life Insurance Plan") was
established to provide members of the Corporate Management Committee or other
designated key employees of Aristech with supplemental life insurance benefits.
Under the Life Insurance Plan, Aristech obtains life insurance policies on the
lives of participating employees. Such policies provide each participant with a
basic survivor benefit equal to three times the participant's base salary, less
$50,000, provided that after the participant's retirement, but before the 15th
anniversary date of the insurance policy, the participant's basic survivor
benefit will equal one times the participant's base salary in effect prior to
retirement. After the participant's retirement and after the policy's 15th
anniversary date, Aristech will withdraw from the policy's cash value an amount
equal to Aristech's share of cumulative premiums, and ownership of the policy
will then be transferred to the participant.

     While employed by Aristech, a participant may elect to purchase optional
coverage in addition to the basic survivor benefit. During the participant's
active employment optional coverage may be in an amount equal to either one
times or two times the participant's salary. After retirement, the participant
may elect to reimburse Aristech for its cumulative premiums and take ownership
of the policy. Aristech will pay all the necessary premiums for the basic
survivor benefit for all participants. Each participant must contribute to
Aristech the premium amount attributable to optional coverage.

Change in Control Agreements

     Aristech has entered into change in control agreements with Messrs.
Hamilton, Driscoll, McNally and Costanza. Each such agreement has an initial
term of three years, subject to automatic annual renewals, but the agreements
will become operative only if and when a change in control (as defined in the
agreements) occurs during the term of the agreement or if the executive's
employment is terminated in connection with or in anticipation of a change in
control. From the date of any change in control until the third anniversary of
such date the executive shall be entitled to remain employed by Aristech and
receive compensation at least as favorable as that in effect prior to the change
in control.

     Upon a discharge of the executive other than for cause (as defined in the
agreements) or a resignation by the executive for good reason (as defined in the
agreements) during this three-year employment period, the executive will be
entitled to receive (i) payment of certain obligations accrued at the effective
date of termination (e.g., salary, earned but unpaid bonus, vacation pay and
other cash entitlements), (ii) benefits payable under plans, practices, programs
and policies of Aristech and (iii) a lump sum cash payment consisting of: (a) a
proportionate bonus based upon the executive's average bonus for the three most
recent completed fiscal years and (b) the product of 2.99 times the sum of the
executive's base salary and the executive's average bonus for the three most
recent completed fiscal years. In addition, the executive is entitled to
continued employee welfare benefits for three years after the date of
termination. Payments under the agreements are capped so that no excise tax will
be payable under Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Internal Revenue Code"), provided that this cap will only apply if it
results in the executive receiving greater benefits on an after-tax basis than
if the cap does not apply.

Pension Benefits

     Aristech maintains the Aristech Salaried Pension Plan (the "Salaried
Pension Plan") for eligible salaried employees not otherwise covered by hourly
or pre-existing special purpose pension plans. The Salaried Pension Plan is a
non-contributory defined benefit plan for salaried employees who were
participants in the USX Employee Pension Plan on December 4, 1986, and new
salaried employees on the first of January following date of hire. Benefits
under the Salaried Pension Plan are payable in the form of a monthly annuity or
lump sum.

     Aristech adopted the 1996 Supplemental Pension Plan (the "Supplemental
Pension Plan") effective February 22, 1996 to provide certain supplemental
pension benefits on a nonqualified basis to key employees designated as eligible
by the Board of Directors. A grantor trust established with Wachovia Bank of
North Carolina, N.A. allows for the accumulation of assets to pay benefits under
the Supplemental Pension Plan. The assets of this trust are subject to the
claims of Aristech's creditors in bankruptcy. Benefits under the Supplemental
Pension Plan are payable in the form of a monthly annuity or lump sum.



                                       43
<PAGE>   44


     The following table shows the total annual non-contributory pension
benefits for retirement at age 65 (or earlier under certain circumstances) under
the Salaried Pension Plan and the Supplemental Pension Plan, before any
deduction for Social Security and certain other government-administered
benefits, where applicable, and reductions for benefits payable under the USX
Employee Pension Plan or certain other pre-existing pension plans or benefit
plans, for various levels of covered compensation which would be payable to
employees retiring with representative years of service.


<TABLE>
<CAPTION>
                                                             Years of Service
                                                             ----------------
             Covered
          Compensation        15 Years       20 Years        25 Years        30 Years        35 Years        40 Years
          ------------        --------       --------        --------        --------        --------        --------
            <S>              <C>              <C>            <C>             <C>             <C>             <C>
            $125,000          $ 56,250        $ 62,500       $ 68,750        $ 75,000        $ 81,250        $ 87,500
             150,000            67,500          75,000         82,500          90,000          97,500         105,000
             175,000            78,750          87,500         96,250         105,000         113,750         122,500
             200,000            90,000         100,000        110,000         120,000         130,000         140,000
             225,000           101,250         112,500        123,750         135,000         146,250         157,500
             250,000           112,500         125,000        137,500         150,000         162,500         175,000
             300,000           135,000         150,000        165,000         180,000         195,000         210,000
             350,000           157,500         175,000        192,500         210,000         227,500         245,000
             400,000           180,000         200,000        220,000         240,000         260,000         280,000
             450,000           202,500         225,000        247,500         270,000         292,500         315,000
</TABLE>

     Covered compensation for purposes of the Salaried Pension Plan includes
salary and some other forms of compensation from Aristech, but excludes
executive bonuses, merit bonuses, performance bonuses and other recognition-type
payments. Benefits under the Salaried Pension Plan are offset by benefits
payable under the USX Employee Pension Plan, but are not offset by Social
Security benefits. Covered compensation under the Supplemental Pension Plan
includes base salary and incentive compensation. Benefits under the Supplemental
Pension Plan are offset by benefits payable under the Salaried Pension Plan, the
USX Employee Pension Plan and 50% of the participant's Social Security old age
insurance benefits. Messrs. Hamilton, Driscoll, McNally and Costanza had 36, 26,
18 and 29 years of service, respectively, and $429,951, $334,014, $255,987 and
$240,927 in covered compensation, respectively, for purposes of the Supplemental
Pension Plan.

     Mr. Kamimura participates in the Salaried Pension Plan but not the
Supplemental Pension Plan. For purposes of the Salaried Pension Plan, Mr.
Kamimura has four years of service and covered compensation of $160,000. The
following table shows the total annual non-contributory pension benefits for
retirement at age 65 (or earlier under certain circumstances) under the Salaried
Pension Plan, before any deduction for Social Security and certain other
government-administered benefits, where applicable, and reductions for benefits
payable under the USX Employee Pension Plan or certain other pre-existing
pension plans or benefit plans, for various levels of covered compensation which
would be payable to employees retiring with representative years of service.

<TABLE>
<CAPTION>
                                                        Years of Service
     Covered
  Compensation           5 Years       10 Years       15 Years       20 Years       25 Years       30 Years       35 Years
  ------------           -------       --------       --------       --------       --------       --------       --------
   <S>                   <C>            <C>           <C>            <C>            <C>            <C>            <C>     
   $ 125,000             $ 9,375       $ 18,750       $ 28,125       $ 37,500       $ 46,875       $ 56,250       $ 65,625
     150,000              11,250         22,500         33,750         45,000         56,250         67,500         78,750
     160,000              12,000         24,000         36,000         48,000         60,000         72,000         84,000
</TABLE>

     Directors who have not been employees of Aristech will not receive any
benefits under the Salaried Pension Plan or the Supplemental Pension Plan.



                                       44
<PAGE>   45




ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth certain information concerning the
beneficial ownership of shares of common stock as of December 31, 1997 by each
person known to Aristech to be a beneficial owner of outstanding common stock.

<TABLE>
<CAPTION>

                                              Number of            Percent of
Name of Stockholder                             Shares               Class
-------------------                           ---------            ----------
<S>                                            <C>                  <C>

Mitsubishi Corporation
6-3, Marunouchi 2-Chome
Chiyoda-Ku, Tokyo 100                           11,589 (1)            77.73% (1)

Mitsubishi Chemical Corporation (2)
Mitsubishi Building
5-2, Marunouchi 2-Chome
Chiyoda-Ku, Tokyo 100                            2,200                14.76%

Mitsubishi International Corporation
520 Madison Avenue  
New York, NY 10022                                 678                 4.55%

</TABLE>

(1)  Excludes 678 shares held by MIC, a New York corporation and a wholly owned
     subsidiary of MC. Including the shares owned by MIC, MC beneficially owns
     82.3% of the outstanding common stock

(2)  MC does not have a controlling interest in either MCC or MRC.

(3)  MRC holds 441 shares.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     In August 1994, the Company refinanced its original credit arrangements
entered into in connection with the going-private transaction in 1990 as well as
a subordinated loan entered into in March 1994, through a combination of loans
provided by MC, MIC and certain commercial banks. The Company entered into the
MC Term Loan in August 1994, which provided for a term loan in the amount of
$203.0 million and which had a maturity date of July 31, 2002. As of December
31, 1997, there were no amounts outstanding under the MC Term Loan. Interest was
payable on the MC Term Loan at a variable rate equal to the London Interbank
Offered Rate ("LIBOR") plus a margin of 1.375% for loans extending to June 3,
1996, a margin of .55% for loans from June 3, 1996 to November 1, 1996, and a
margin of .4875% for loans from November 1, 1996 and thereafter. The weighted
average interest rate for 1997 was 6.0%.

     The MIC Revolving Loan entered into in August 1994 provides for revolving
credit loans. Interest is payable on the MIC Revolving Loan at a variable rate
equal to LIBOR plus a margin of .1875%, which resulted in a weighted average
interest rate of 6.1% for 1997. The MIC Revolving Loan currently provides for a
commitment in the principal amount of $200.0 million with a final maturity date
of April 18, 2002. As of December 31, 1997, $137.0 million was outstanding under
the MIC Revolving Loan. Effective February 1, 1998, the interest rate on the
Revolving Loan MIC was increased by .25% for all loans extending on and after
February 1, 1998. The MIC Term Loan entered into in October 1997, provides for a
term loan in the principal amount of $50.0 million. The MIC Term Loan has a
maturity date of April 18, 2002. Interest is payable on the MIC Term Loan at a
variable rate equal to LIBOR plus a margin of .1875%, which resulted in a
weighted average interest rate of 6.1% for 1997.





                                       45
<PAGE>   46


     The MC Term Loan and the MIC Revolving Loan are guaranteed by MC. In
consideration of the guarantee, the Company has agreed to pay MC a guarantee fee
calculated on a daily basis in an amount equal to .30% per annum for loans
effective June 3, 1996 and .1875% per annum for loans effective March 3, 1997
and thereafter. The fee is payable semiannually. Guarantee fees of $.3 million
were paid in 1997.

      During 1997, the Company purchased $24.2 million in raw materials and
finished products from MC and MIC, and the Company sold $80.3 million of
finished products to MIC.


                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

A.   Financial Statements

     Financial Statements filed as part of this report are listed on the Index
     to Consolidated Financial Statements on page 20.

B.   Financial Statement Schedules

     Consolidated Valuation and Qualifying Accounts (Schedule II)

All other schedules are omitted because they are not applicable or the required
information is contained in the financial statements or notes thereto.




                                       46
<PAGE>   47




          SCHEDULE II - CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
                          ARISTECH CHEMICAL CORPORATION
                                  (IN MILLIONS)

<TABLE>
<CAPTION>

                               Column B-        Additions         Additions                           Column
                              Balance at        Charged to       Charged to                         Balance at
                             beginning of       costs and      other accounts      Column D-          end of
Column A-Description            period           expense         -describe        Deductions          period
--------------------         ------------       ----------     --------------     ----------        ----------
<S>                              <C>              <C>               <C>             <C>                <C>

Year Ended 12/31/97
Reserve for bad debts             $.6              $.2               ---             $ (.2)             $.6

Year ended 12/31/96
Reserve for bad debts             $.6              $.4               ---             $ (.4)             $.6

Year ended 12/31/95
Reserve for bad debts             $.8              $.5               ---             $ (.7)             $.6

</TABLE>


                                       47
<PAGE>   48


C.   Exhibit Index

     3.01     Restated Certificate of Incorporation of Aristech Chemical
              Corporation, as amended (See Exhibit 3.01 of the Company's Form
              S-4 filed December 16, 1996)

     3.02     By-Laws of Aristech Chemical Corporation, as amended (See Exhibit
              3.02 of the Company's Form S-4 filed December 16, 1996)

     4.01     Indenture dated as of November 1, 1996 between Aristech Chemical
              Corporation, as Issuer, and Merrill Lynch & Co., Merrill Lynch,
              Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities Inc.
              and Morgan Stanley & Co. Incorporated, as Initial Purchasers (See
              Exhibit 4.01 of the Company's Form S-4 filed December 16, 1996)

     4.02     Registration Rights Agreement dated as of November 25, 1996 among
              Aristech Chemical Corporation, as Issuer, and Merrill Lynch & Co.,
              Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan
              Securities Inc. and Morgan Stanley & Co. Incorporated, as Initial
              Purchasers (See Exhibit 4.02 of the Company's Form S-4 filed
              December 16, 1996)

     4.03     Form of Security for 6-7/8% Notes due 2006, originally issued by
              Aristech Chemical Corporation on November 25, 1996 (See Exhibit
              4.03 of the Company's Form S-4 filed December 16, 1996)

     4.04     Form of Security for 6-7/8% Notes due 2006, issued by Aristech
              Chemical Corporation on March 12, 1997 and registered under the
              Securities Act of 1933 (See Exhibit 4.04 of the Company's Form S-4
              filed December 16, 1996)

     10.01    Term Loan Agreement dated as August 1, 1994 between Aristech
              Chemical Corporation and Mitsubishi Corporation, as amended
              through September 30, 1996 (See Exhibit 10.01 of the Company's
              Form S-4 filed December 16, 1996)

     10.02    Term Loan and Revolving Credit Agreement dated as of August 1,
              1994 between Aristech Chemical Corporation and Mitsubishi
              International Corporation, as amended through October 1, 1997 (See
              Exhibit 10.02 of the Company's Form S-4 filed December 16, 1996)

     10.03    CP Conduit Facility Agreement (See Exhibit 10.03 of the Company's
              Form S-4 filed December 16, 1996)

     10.04    Agreement regarding Guarantees dated January 4, 1995 among
              Aristech Chemical Corporation and Mitsubishi Corporation, as
              amended through March 3, 1997 (See Exhibit 10.04 of the Company's
              Form S-4 filed December 16, 1996)

     10.05    Asset Purchase Agreement dated as of April 28, 1995 between
              Ashland Inc. and Aristech Chemical Corporation (See Exhibit 10.05
              of the Company's Form S-4 filed December 16, 1996)

     10.06    Form of Change in Control Agreement between Aristech Chemical
              Corporation and each of Charles W. Hamilton, James J. Driscoll,
              Mark K. McNally and Charles P. Costanza (See Exhibit 10.06 of the
              Company's Form S-4 filed December 16, 1996)

     10.07    Aristech Chemical Corporation Deferred Compensation Plan (See
              Exhibit 10.07 of the Company's Form S-4 filed December 16, 1996)

     10.08    Aristech Chemical Corporation Long Term Incentive Plan (See
              Exhibit 10.08 of the Company's Form S-4 filed December 16, 1996)

     10.09    Aristech Chemical Corporation Executive Life Insurance Plan (See
              Exhibit 10.09 of the Company's Form S-4 filed December 16, 1996)

     10.10    Summary of Aristech Chemical Corporation Long Term Disability Plan
              (See Exhibit 10.10 of the Company's Form S-4 filed December 16,
              1996)



                                       48
<PAGE>   49


     10.11    Aristech Chemical Corporation 1996 Supplemental Pension Plan (See
              Exhibit 10.11 of the Company's Form S-4 filed December 16, 1996)

     10.12    Aristech Chemical Corporation Variable Bonus Program (See Exhibit
              10.12 of the Company's Form S-4 filed December 16, 1996)

     12.01    Statement re: Computation of Ratio of Consolidated Earnings to
              Fixed Charges

     21.01    Significant Subsidiaries of Aristech Chemical Corporation

     27.01    Financial Data Schedule




                                       49
<PAGE>   50



                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15 (d) 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.



                                                ARISTECH CHEMICAL CORPORATION

Date:   3/23/98                            By:  /s/ MICHAEL J. PRENDERGAST
        -------                                -------------------------------
                                                Michael J. Prendergast
                                                Acting Chief Financial Officer


     Pursuant to the requirements of the securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
         SIGNATURE                               TITLE                                   DATE
         ---------                               -----                                   ----
<S>                                     <C>                                            <C>

  /s/ MASATAKE BANDO                    Chairman of the Board,                          3/18/98
------------------------------          Chief Executive Officer and Director
       Masatake Bando                   (Principal Executive Officer)

  /s/ CHARLES W. HAMILTON               President, Chief Operating Officer and          3/18/98
------------------------------          Director
     Charles W. Hamilton 

  /s/ MICHAEL J. PRENDERGAST            Acting Chief Financial Officer                  3/18/98
------------------------------          (Principal Financial Officer)
    Michael J. Prendergast

  /s/ RICHARD A. BECKER                 Corporate Comptroller                           3/18/98
------------------------------          (Principal Accounting Officer)
     Richard A. Becker

  /s/ HAJIME KOGA                       Director                                        3/18/98
------------------------------ 
       Hajime Koga


  /s/ YASUO SONE                        Director                                        3/18/98
------------------------------ 
         Yasuo Sone


  /s/ MUNEO SUZUKI                      Director                                        3/18/98
------------------------------ 
         Muneo Suzuki


  /s/ TATSUO SUZUKI                     Director                                        3/18/98
------------------------------ 
         Tatsuo Suzuki


  /s/ TAKAYORI TSUBOI                   Director                                        3/19/98
------------------------------
          Takayori Tsuboi


  /s/ TAKUJI  NAKAMURA                  Director                                        3/18/98
------------------------------ 
         Takuji Nakamura


</TABLE>
                                       50
<PAGE>   51


     SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
                SECTION 15(d) OF THE EXCHANGE ACT BY REGISTRANTS
                WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
                         SECTION 12 OF THE EXCHANGE ACT


         The Registrant has not provided an annual report to its security
holders covering the Registrant's last fiscal year other than its Form 10-K, and
has not provided a proxy statement, form of proxy or other proxy soliciting
material to more than ten of the Registrant's security holders with respect to
any annual or other meeting of security holders.




                                       51