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

(Mark One)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

For quarter ended March 26, 1999
                                      OR
 
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934
 
For the transition period from                        to
                              -----------------------   -----------------------

Commission file number  1-9037
                       --------
 
                              The IT Group, Inc.
            (Exact name of registrant as specified in its charter)

              Delaware                                       33-0001212
  (State or other jurisdiction of                          (I.R.S. Employer
   incorporation or organization)                          Identification No.)

         2790 Mosside Boulevard, Monroeville, Pennsylvania 15146-2792
(Address of principal executive offices)                             (Zip Code)

Registrant's telephone number, including area code:   (412) 372-7701

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 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 ........

At April 23, 1999 the registrant had issued and outstanding an aggregate of
22,700,795 shares of its common stock.
<PAGE>
 
                                     THE IT GROUP, INC.

                     INDEX TO QUARTERLY REPORT ON FORM 10-Q
                       FOR QUARTER ENDED MARCH 26, 1999



PART I.   FINANCIAL INFORMATION
<TABLE>
<CAPTION>



                                                                                        Page
                                                                                        ----
<S>                                                                                <C>
     Item 1.  Financial Statements.

              Condensed Consolidated Balance Sheets
              as of March 26, 1999 (unaudited) and
              December 25, 1998....................................................       3

              Condensed Consolidated Statements of Operations
              for the Fiscal Quarter ended March 26, 1999
              and March 27, 1998 (unaudited).......................................       4

              Condensed Consolidated Statements of Cash Flows
              for the Fiscal Quarter ended March 26, 1999
              and March 27, 1998 (unaudited).......................................       5

              Notes to Condensed Consolidated Financial
              Statements (unaudited)...............................................    6-12

     Item 2.  Management's Discussion and Analysis of
              Results of Operations and Financial Condition........................   13-20

     Item 3   Quantitative and Qualitative Disclosures about
              Market Risk..........................................................      20


PART II.  OTHER INFORMATION

     Item 1   Legal Proceedings....................................................      21

     Item 6.  Exhibits and Reports on Form 8-K.....................................      22

              Signatures...........................................................      23
</TABLE>

                                       2
<PAGE>
 
                                     PART I
Item 1. Financial Statements
                               THE IT GROUP, INC.
                                        
                     CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
 
                                                                     March 26,     December 25,
                                                                        1999           1998
                                                                   --------------  -------------
                                                                    (Unaudited)
                         ASSETS                                            (In thousands)
                         ------
<S>                                                                <C>             <C>
Current assets:
 Cash and cash equivalents.......................................      $  25,229      $  21,265
 Receivables, net................................................        341,079        338,589
 Prepaid expenses and other current assets.......................         18,777         17,308
 Deferred income taxes...........................................         15,927         15,919
                                                                       ---------      ---------
  Total current assets...........................................        401,012        393,081
Property, plant and equipment, at cost:
 Land and land improvements......................................            498          2,166
 Buildings and leasehold improvements............................         13,603         15,072
 Machinery and equipment.........................................         88,386         81,763
                                                                       ---------      ---------
                                                                         102,487         99,001        
  Less accumulated depreciation and amortization.................         54,630         51,331
                                                                       ---------      ---------
   Net property, plant and equipment.............................         47,857         47,670
 
Cost in excess of net assets of acquired businesses..............        356,515        356,619
Other assets.....................................................         20,287         17,469
Deferred income taxes............................................         90,339         93,719
Long-term assets of discontinued operations......................         40,048         40,048
                                                                       ---------      ---------
    Total assets.................................................      $ 956,058      $ 948,606
                                                                       =========      =========
 
        LIABILITIES AND STOCKHOLDERS' EQUITY
        ------------------------------------
Current liabilities:
 Accounts payable................................................      $ 145,265      $ 150,912
 Accrued liabilities.............................................         86,184         88,183
 Billings in excess of revenues..................................          4,492          8,219
 Short-term debt, including current portion of long-term debt....         18,500         17,603
 Current liabilities of discontinued operations, net.............          5,669          7,904
                                                                       ---------      ---------
  Total current liabilities......................................        260,110        272,821
 
Long-term debt...................................................        386,567        364,824
8% convertible subordinated debentures...........................         40,235         40,235
Other long-term accrued liabilities..............................         25,847         31,979
Minority interest................................................            581            579
Stockholders' equity:
 Common stock, $.01 par value; 50,000,000 shares authorized;
  22,683,547 and 22,675,917 shares issued........................            227            227
 Preferred stock, $100 par value; 180,000 shared authorized:
  7% cumulative convertible exchangeable, 20,556 shares issued
   and outstanding, 24,000 shares authorized.....................          2,056          2,056
  6% cumulative convertible participating, 46,095 shares issued
   and outstanding...............................................          4,609          4,609
 Additional paid-in capital......................................        349,268        348,794
 Deficit.........................................................       (112,791)      (116,984)
                                                                       ---------      ---------
                                                                         243,369        238,702
 Treasury stock at cost, 24,531 and 47,484 shares................            (29)           (74)
 Accumulated other comprehensive income..........................           (622)          (460)
                                                                       ---------      ---------
  Total stockholders' equity.....................................        242,718        238,168
                                                                       ---------      ---------
  Total liabilities and stockholders' equity.....................      $ 956,058      $ 948,606
                                                                       =========      =========
</TABLE>
                             See accompanying notes
                                        

                                       3
<PAGE>
 
                               THE IT GROUP, INC.
                                        
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                     (In thousands, except per share data)
<TABLE>
<CAPTION>
 
 
                                                                  Fiscal quarter ended
                                                                  --------------------
                                                                   March 26,  March 27,
                                                                     1999      1998
                                                                  ---------- ---------
                                                                       (Unaudited)
<S>                                                               <C>         <C>      
Revenues........................................................   $257,974   $136,038
Cost and expenses:
  Cost of revenues..............................................    224,677    118,838
  Selling, general and administrative expenses..................     14,826     10,592  
  Special charges                                                         -      5,694
                                                                   --------   --------
Operating income................................................     18,471        914
Interest expense, net...........................................      8,833      4,583
                                                                   --------   --------
Income (loss) before income taxes...............................      9,638     (3,669)
Provision (benefit) for income taxes............................      3,855       (141)
                                                                   --------   --------
Net income (loss) from continuing operations....................      5,783     (3,528)
Discontinued operations -- closure costs
  (net of $3,040 income tax benefit)............................          -      4,960
                                                                   --------   --------
Income (loss) before extraordinary item.........................      5,783     (8,488)
Extraordinary item -- loss on early extinguishment of debt 
  (net of $3,497 income tax benefit)............................          -      5,706
                                                                   --------   --------
Net income (loss)...............................................      5,783    (14,194)
Preferred stock dividends.......................................     (1,590)    (1,558)
                                                                   --------   --------
Net income (loss) applicable to common stock....................   $  4,193   $(15,752)
                                                                   ========   ========
 
Net income (loss) per share basic:
  Earnings (loss) from continuing operations (net of preferred
     stock dividends)...........................................   $   0.19   $  (0.52)
  Loss from discontinued operations.............................          -      (0.51)
  Extraordinary item -- early extinguishment of debt..............        -      (0.59)
                                                                   --------   --------
                                                                   $   0.19   $  (1.62)
                                                                   ========   ========
 
Net income (loss) per common share diluted......................   $   0.17   $  (1.62)
                                                                   ========   ========
 
Weighted average common shares outstanding:
Basic...........................................................     22,640      9,733
                                                                   ========   ========
Diluted.........................................................     29,273      9,733
                                                                   ========   ========
 
</TABLE>
                             See accompanying notes

                                       4
<PAGE>
 
                               THE IT GROUP, INC.
                                        
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
<TABLE>
<CAPTION>
   
                                                                            Fiscal quarter ended
                                                                            -----------------------
                                                                             March 26,    March 27,
                                                                                1999        1998
                                                                             ----------   ---------
                                                                                  (Unaudited)
<S>                                                                           <C>        <C> 
Cash flows from operating activities:
   Net income (loss)............................................              $  5,783   $ (14,194)
   Adjustments to reconcile net income (loss) to net cash
    provided by operating activities:
      Depreciation and amortization.............................                 6,321       5,630
      Deferred income taxes.....................................                 3,372      (3,310)
      Net loss from disposition of discontinued operations......                     -       4,960
      Extraordinary charge for early retirement of debt.........                     -       3,640
      Other.....................................................                   704      (1,104)
   Changes in assets and liabilities, net of effects
     from acquisitions:
      Changes in assets and liabilities.........................               (22,844)        187
      Decrease in site closure costs of discontinued operation..                (2,235)     (1,982)
                                                                              --------   ---------
   Net cash used for operating activities.......................                (8,899)     (6,173)
Cash flows from investing activities:
   Capital expenditures.........................................                (3,480)     (2,226)
   Acquisition of businesses....................................                (2,240)   (157,772)
   Cash on deposit as collateral................................                     -        (480)
   Other, net...................................................                (1,349)     (1,504)
                                                                              --------   ---------
   Net cash used for investing activities.......................                (7,069)   (161,982)
Cash flows from financing activities:
   Financing costs..............................................                (1,078)     (4,613)
   Net borrowing of long-term debt..............................                22,564     144,310
   Net issuance of common stock.................................                    36           -
   Dividends paid on preferred stock............................                (1,590)       (905)
                                                                              --------   ---------
   Net cash provided by financing activities....................                19,932     138,792
                                                                              --------   ---------
Net increase (decrease) in cash and cash equivalents............                 3,964     (29,363)
Cash and cash equivalents at beginning of period................                21,265      54,128
                                                                              --------   ---------
Cash and cash equivalents at end of period......................              $ 25,229   $  24,765
                                                                              ========   =========
</TABLE>
                            See accompanying notes.

                                       5
<PAGE>
 
                              THE IT GROUP, INC.

             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

1. Summary of significant account policies:

   The condensed consolidated financial statements included herein have been
   prepared by The IT Group, Inc. (IT or the Company), without audit, and
   include all adjustments of a normal, recurring nature which are, in the
   opinion of management, necessary for a fair presentation of the results of
   operations for the fiscal quarter and year to date period ended March 26,
   1999, pursuant to the rules of the Securities and Exchange Commission.
   Certain information and footnote disclosures normally included in financial
   statements prepared in accordance with generally accepted accounting
   principles have been condensed or omitted pursuant to such rules and
   regulations although the Company believes that the disclosures in such
   financial statements are adequate to make the information presented not
   misleading.

   These condensed consolidated financial statements should be read in
   conjunction with the Company's annual report on Form 10-K for the fiscal year
   ended December 25, 1998.  The results of operations for the fiscal period
   ended March 26, 1999 are not necessarily indicative of the results for the
   full fiscal year.  The December 25, 1998 balance sheet amounts were derived
   from audited financial statements.


2. Business acquisitions:

   Fluor Daniel GTI, Inc.

   On December 3, 1998, the Company acquired the outstanding common stock of
   Fluor Daniel GTI, Inc. (GTI), an environmental consulting, engineering and
   construction management services company. GTI operates mainly throughout the
   United States with minor foreign operations. Total consideration amounted to
   $69.4 million plus approximately $2.0 million in transaction costs. This
   transaction was accounted for as a purchase in accordance with Accounting
   Principles Board (APB) No. 16. The excess of the purchase price over the fair
   value of assets acquired and liabilities assumed in the merger of $16.3
   million is primarily classified as cost in excess of net assets of acquired
   businesses and is being amortized over forty years.


  The estimated fair value of the assets acquired and liabilities assumed of GTI
  are as follows:


<TABLE>
<CAPTION>

   Description                                                                                        Amount
   -----------                                                                                    -------------  
                                                                                                  (In thousands)
   <S>                                                                                               <C>
   Current assets ..............................................................................         $91,644
   Property and equipment.......................................................................           3,587
   Intangibles, primarily cost in excess of net assets of acquired businesses...................          16,324
   Other long term assets.......................................................................           5,972
   Current liabilities..........................................................................          46,130
</TABLE>



   As a result of the merger with GTI, the Company has adopted a plan and
   commenced the process of closing specific overlapping facilities and reducing
   consolidated employment. The acquired balance sheet includes an accrual of
   $7.9 million for the estimated GTI severance, office closure costs and lease
   termination costs of which $4.4 million has been paid through March 26, 1999.
   The balance, relating primarily to office lease costs, will be paid over the
   next four years.

   The purchase price allocation is preliminary and based upon information
   currently available. Management is continuing to gather and evaluate
   information regarding the valuation of assets and liabilities at the date of
   the acquisition. Management does not anticipate material changes to the
   preliminary allocation.

   OHM Acquisition

   In January 1998, the Company entered into a merger agreement to acquire OHM
   Corporation (OHM), an environmental and hazardous waste remediation company
   servicing primarily industrial, federal government and local government
   agencies located in the United States. The transaction was effected through a
   two-step process for a total purchase price of $303.4 million consisting of
   (a) the acquisition of 54% of the total outstanding shares through a cash
   tender offer (Tender

                                       6
<PAGE>
 
                              THE IT GROUP, INC.

             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

   Offer), which was consummated on February 25, 1998, at $11.50 per share for
   13.9 million shares of OHM common stock, for a total consideration of $160.2
   million plus $4.6 million in acquisition costs and (b) the acquisition on
   June 11, 1998 of the remaining 46% of the total outstanding shares through
   the exchange of 12.9 million shares of Company common stock valued at $8.04
   per share, or $103.8 million and payment of $30.8 million plus $4.0 million
   in acquisition costs.


   This transaction was accounted for as a step acquisition and therefore the
   effects of the first phase of the merger were included in the March 27, 1998
   financial statements and the effects of both phases were included in the June
   26, 1998 financial statements. The excess of the purchase price over the fair
   value of assets acquired and liabilities assumed in the merger of $328.5
   million is classified as cost in excess of net assets of acquired businesses
   with amortization over forty years.



   The estimated fair value of the assets acquired and liabilities assumed of
   OHM as adjusted are as follows:



<TABLE>
<CAPTION>

   Description                                                                             Amount
   ------------                                                                         -------------
                                                                                        (In thousands)
<S>                                                                                      <C>
   Current assets...................................................................       $117,309
   Property and equipment...........................................................         19,324
   Cost in excess of net assets of acquired businesses..............................        328,495
   Other long term assets...........................................................         72,666
   Current liabilities..............................................................        126,385
   Long term liabilities, primarily debt............................................        107,924
</TABLE>



   As a result of the merger with OHM (the OHM Merger), the Company adopted a
   plan and completed the process of closing specific overlapping facilities and
   reducing consolidated employment. The acquired balance sheet includes an
   accrual of $13.9 million for the estimated OHM severance, office closure
   costs and lease termination costs of which $10.0 million has been paid
   through March 26, 1999. The balance relating primarily to office lease costs
   is anticipated to be paid over the next seven years.

                                       7
<PAGE>
 
                              THE IT GROUP, INC.

             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)


3.    Earnings per share:

   The following table sets forth the computation of basic and diluted earnings
   per share:

<TABLE>
<CAPTION>
  
                                                                                      For the three months ended
                                                                                     ---------------------------
                                                                                          March 26,  March 27,
                                                                                           1999         1998
                                                                                     --------------  -----------
                                                                                 (In thousands, except per share data)
<S>                                                                              <C>                 <C>
 Numerator:
  Net income (loss) from continuing operations and before extraordinary
   items.............................................................                     $ 5,783    $ (3,528)
  Preferred stock dividends..........................................                      (1,590)     (1,558)
                                                                                          -------    --------
  Numerator for basic earnings per share - net income (loss)
   available to common stockholders..................................                       4,193      (5,086)
  Discontinued operations -- closure costs (net of income
   tax benefit)......................................................                           -      (4,960)
  Extraordinary charge for early retirement of debt (net of
   income tax benefit)...............................................                           -      (5,706)
                                                                                          -------    --------
  Net income (loss) applicable to common stock.......................                     $ 4,193    $(15,752)
                                                                                          =======    ========
 
  Effect of conversion of dilutive securities:
   Preferred stock dividends.........................................                         692           -
                                                                                          -------    --------
 
  Numerator for diluted earnings per share net income
   (loss) applicable to common stock.................................                     $ 4,885    $(15,752)
                                                                                          =======    ========
 
Denominator:
  Denominator for basic earnings per share-
   weighted average shares...........................................                      22,640       9,733
 
  Effect of conversion of dilutive securities:
   Common equivalent shares..........................................                         560           -
   Convertible preferred stock.......................................                       6,073           -
                                                                                          -------    --------
 
  Denominator for diluted earnings per
   share-adjusted weighted-average shares
   and assumed conversions...........................................                      29,273       9,733
                                                                                          =======    ========
 
Net income (loss) per share basic:
  Earnings from continuing operations (net of preferred stock
   dividends)........................................................                     $  0.19    $  (0.52)
  Earnings from discontinued operations..............................                           -       (0.51)
  Extraordinary item - early extinguishment of debt..................                            -       (0.59)
                                                                                          -------    --------
                                                                                            $0.19     $ (1.62)    
                                                                                          =======    ========
Net income (loss) per share diluted..................................                     $  0.17    $  (1.62)
                                                                                          =======    ========
</TABLE>

  In June 1998, approximately 12.9 million shares were issued in connection with
  the second step of the OHM Merger (see Item 1. Financial Statements - Notes to
  Condensed Consolidated Financial Statements, Note 2).

                                       8
<PAGE>
 
                              THE IT GROUP, INC.

             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)


4.  Recent accounting pronouncements:

    In June of 1998, the Financial Accounting Standards Board (FASB) issued
    Statement No. 133, "Accounting for Derivative Instruments and Hedging
    Activities" which is required to be adopted as of the first fiscal quarter
    of the year 2000. The Company intends to adopt FASB No. 133 by the effective
    date although earlier adoption is permitted. The statement requires the swap
    agreements, used by the Company to manage the interest rate risks associated
    with the variable nature of the Company's Credit Facilities, to be recorded
    at fair market value and reflected in earnings. The Company has evaluated
    its existing interest rate contracts and management does not believe that
    the impact of adopting this new standard will be material to the Company's
    financial statements.

5.  Discontinued operations:

    In December 1987 the Company's Board of Directors adopted a strategic
    restructuring program which included a formal plan to divest the
    transportation, treatment and disposal operations through the sale of some
    facilities and closure of certain other facilities. As of March 26, 1999,
    two of the Company's inactive disposal sites have been formally closed, a
    third is substantially closed, and the fourth is in the process of closure.
    At March 26, 1999, the Company's condensed consolidated balance sheet
    included accrued liabilities of $5.7 million to complete the closure and
    post-closure of its disposal facilities and the PRP matters, net of certain
    trust fund and annuity investments, restricted by trust agreements with the
    California EPA Department of Toxic Substance Control to closure and post-
    closure use. There were no significant developments with these operations
    during the quarter.

    The provision for loss on disposition of transportation, treatment and
    disposal discontinued operations is based on various assumptions and
    estimates. The adequacy of the provision for loss is periodically
    reevaluated in light of the developments since the adoption of the
    divestiture plan, and management believes that the provision as adjusted is
    reasonable; however, the ultimate effect of the divestiture on the
    consolidated financial condition, liquidity and results of operations of the
    Company is dependent upon future events, the outcome of which cannot be
    determined at this time. Outcomes significantly different from those used to
    estimate the provision for loss could result in a material adverse effect on
    the consolidated financial condition, liquidity and results of operations of
    the Company.

6.  Contingencies:

    For information regarding legal proceedings of the Company's continuing
    operations, please see the note "Commitments and contingencies" in the Notes
    to Consolidated Financial Statements in the Company's Transition Report on
    Form 10-K for the fiscal year ended December 25, 1998 (as amended through
    Amendment No. 1); current developments regarding continuing operations'
    legal proceedings are discussed in Part II of this filing. See Management's
    Discussion and Analysis of Results of Operations and Financial Condition -
    Financial Condition - Transportation, Treatment and Disposal Discontinued
    Operations for information regarding the legal proceedings of the
    discontinued operations of the Company.

7.  Contract accounting and accounts receivable:

    Included in accounts receivable, net at March 26, 1999 are billed
    receivables, unbilled receivables and retention in the amounts of $270.7
    million, $60.9 million and $9.5 million, respectively. Billed receivables,
    unbilled receivables and retention from the U.S. Government as of March 26,
    1999 were $144.3 million, $44.1 million and $2.6 million, respectively. At
    December 25, 1998, billed receivables, unbilled receivables and retention
    were $269.0 million, $60.6 million and $9.0 million, respectively. Billed
    receivables, unbilled receivables and retention from the U.S. Government as
    of December 25, 1998 were $145.6 million, $37.5 million and $2.2 million,
    respectively.

    Unbilled receivables typically represent amounts earned under the Company's
    contracts but not yet billable according to the contract terms, which
    usually consider the passage of time, achievement of certain milestones,
    negotiation of change orders or completion of the project. Generally,
    unbilled receivables are expected to be billed and collected in the
    subsequent year.

                                       9
<PAGE>
 
                              THE IT GROUP, INC.

             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)


    Billings in excess of revenues represent amounts billed in accordance with
    contract terms, which are in excess of the amounts includable in revenue.

    Included in accounts receivable at March 26, 1999 is approximately $30.9
    million associated with claims and unapproved change orders, which are
    believed by management to be probable of realization. Most of these claims
    and change orders are being negotiated or are in arbitration and should be
    settled within one year. This amount includes contract claims in litigation
    (see Item 1. Financial Statements - Notes to Condensed Consolidated
    Financial Statements, Note 6). While management believes no material loss
    will be incurred related to these claims and change orders, the actual
    amounts realized could be materially different than the amount recorded.

8.  Special charges:

    A special charge of $5.7 million was recorded in the fiscal quarter ended
    March 27, 1998 for integration costs associated with the acquisition of OHM,
    including $2.2 million of costs for severance and $3.5 million of costs and
    other related items for closing and consolidating the Company's offices with
    OHM's offices. As part of the plan of integration, the Company identified
    slightly more than 100 IT employees in the operating group and
    administrative support functions, to be laid off. In addition, the Company
    approved a plan for restructuring IT offices in which it would close three
    leased facilities, reduce the size of three more facilities and sublease a
    portion of eight additional facilities. As of March 26, 1999, $0.8 million
    of the integration charge remained to be paid. The remaining costs relate to
    the facility closures and office consolidations and will be paid over the
    remaining terms of the leases. Most of these lease commitments will be paid
    within the next three years. One lease requires payments over the next six
    years.

9.  Income taxes:

    For the first quarter ended March 26, 1999, the Company recorded an income
    tax provision of $3.9 million, reflecting an income tax rate of 40% on
    income of $9.6 million which is based upon the estimated tax rate for the
    entire year.


    Based on a net deferred tax asset of $106.3 million (net of a valuation
    allowance of $50.3 million) at March 26, 1999 and assuming a net federal and
    state effective tax rate of 40%, the level of future earnings necessary to
    fully realize the deferred tax asset would be approximately $266.0 million.
    The Company evaluates the adequacy of the valuation allowance and the
    realizability of the deferred tax asset on an ongoing basis. Because of the
    Company's position in the industry, recent acquisitions, restructuring and
    existing backlog, management expects that its future taxable income will
    more likely than not allow the Company to fully realize its net deferred tax
    asset.

10. Long-term debt:

    As amended to date, the Company's credit facilities consist of an eight-year
    amortizing term loan (term loans) of $228.0 million and a six-year revolving
    credit facility (revolving loans) of $185.0 million that contains a sublimit
    of $50.0 million for letter of credit issuance. The term loans made under
    the credit facilities bear interest at a rate equal to LIBOR plus 2.75% as
    adjusted per annum (or the lender's base rate plus 1.75% per annum) and
    amortize on a semi-annual basis in aggregate annual installments of $4.5
    million until June, 2004, with the remainder payable in eight equal
    subsequent quarterly installments. The revolving loans made under the credit
    facilities bear interest at a rate equal to LIBOR plus 2.25% as adjusted per
    annum (or the lender's base rate plus 1.25% per annum).

    On March 5, 1999, the lenders under the Company's credit facilities approved
    the third amendment to the loan agreement. The third amendment allowed for
    the acquisitions of the Environment and Facilities Management Group (EFM) of
    ICF Kaiser International, Inc. and Roche Limited Consulting Group (Roche)
    (see Item 1. Financial Statements - Notes to Condensed Consolidated
    Financial Statements, Note 11) as permitted acquisitions under the credit
    facilities, increased the amount of subordinated notes that could be issued
    by the Company from $150.0 million to $250.0 million and amended the
    definition of change of control to permit certain sales by the Carlyle
    Investors of the 6% Preferred Stock (or Common Stock into which such
    preferred stock may have been converted). The third amendment further
    provides that excess proceeds from the issuance of subordinated notes
    utilized to reduce the revolving credit facility portion of the credit
    facilities would not affect the future availability to the Company under the
    revolving facility.

                                       10
<PAGE>
 
                              THE IT GROUP, INC.

             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

    On April 9, 1999, the Company issued $225.0 million of 11.25% subordinated
    notes due 2009. Proceeds were utilized to fund the acquisitions of EFM and
    Roche, pay certain expenses of the subordinated notes offering and to pay
    down $125.0 million under the revolving credit facility (see Item 1.
    Financial Statements - Notes to Condensed Consolidated Financial Statements,
    Note 11).

    Letters of credit outstanding at March 26, 1999 were $12.4 million, of which
    $8.6 million were issued under the revolving credit facility.


    The Company also has various miscellaneous outstanding notes payable and
    capital lease obligations totaling $10.0 million. These notes payable mature
    at various dates between April 1999 and November 2000, at interest rates
    ranging from 7.5% to 8.6%.

11. Subsequent events:

    On February 5, 1999, the Company signed an agreement to acquire all of the
    stock of Roche for $10.0 million plus two potential earnout payments. Roche
    is based in Quebec City, Canada and provides engineering and construction
    services to wastewater, paper, mining and transportation industries
    worldwide. Roche had revenue of approximately $28.0 million in its most
    recent year ended December 31, 1998. The acquisition closed on March 31,
    1999.


    On March 8, 1999, the Company signed an agreement to acquire specified
    assets of EFM from ICF Kaiser International, Inc. (Kaiser) for $82.0 million
    in cash reduced by $8.0 million representing working capital retained by
    Kaiser. EFM provides environmental remediation, program management and
    technical support for United States Government agencies including the DOD,
    National Aeronautics and Space Administration and the DOE as well as private
    sector environmental clients. EFM had revenue of approximately $106.0
    million for the calendar year ended December 31, 1998. The acquisition
    closed on April 9, 1999.

    On April 9, 1999, the Company completed the private placement of $225.0
    million of subordinated notes (Notes). The Company received $215.8 million
    in proceeds from this offering, net of expenses of $9.2 million. The Notes
    have an 11.25% fixed rate of interest payable every six months in cash
    commencing in 1999 and will be redeemable in or after 2004 at a premium. The
    Notes are general unsecured obligations of the Company, subordinated to the
    Company's credit facilities (see Item 1. Financial Statements - Notes to
    Condensed Consolidated Financial Statements, Note 10) and other senior
    indebtedness and pari passu with other existing future indebtedness unless
    the terms of that indebtedness expressly provide otherwise. The proceeds of
    the Notes were used to fund the Roche and EFM acquisitions and to refinance
    existing indebtedness under the Company's revolving credit facility.
    Paydowns of the Company's revolving facility allow for subsequent re-
    borrowing under the facility.

12. Operating segments:

    Organization


    The IT Group, Inc. has four reportable segments: Engineering & Construction
    (E & C), Consulting & Ventures (C & V), Outsourced Services and
    International. The Company's E & C segment manages complex hazardous waste
    remediation projects of all sizes involving the assessment, planning and
    execution of the decontamination and restoration of property, plant and
    equipment that have been contaminated by hazardous substances. The C & V
    segment provides a wide range of consulting services including environmental
    permitting, facility siting and design, strategic environmental management,
    environmental compliance/auditing, risk assessment/management, pollution
    prevention, waste minimization, environmental information systems, and data
    management. The Outsourced Services segment provides full service
    capabilities for operations, maintenance, management and construction at
    federal, state and local government facilities and in the private sector.
    The Company's International segment is designed to meet the global needs of
    the Company's U.S. based clients and to invest in businesses or enter into
    joint ventures to pursue and perform international projects. The Company's
    international operations include a 50.1% investment in a Taiwan-based
    wastewater treatment design/build firm and with the acquisition

                                       11
<PAGE>
 
                              THE IT GROUP, INC.

             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

    of GTI in December 1998, the Company expanded its international presence and
    provides environmental services through offices located in Europe and
    Australia.

 
    Segment Information
<TABLE>
<CAPTION>

 
                                                                                          Outsourced
                                                                E & C           C & V      Services     International     Total
                                                               --------        -------     --------     -------------    -------
                                                                                      (In thousands)
     <S>                                                        <C>            <C>         <C>          <C>              <C>
     Quarter ended March 26, 1999
      Revenues...............................................  $178,670        $48,782     $ 23,332        $ 7,190       $257,974
                                                                                                                                   
      Segment profit.........................................    19,850          7,539        1,325            206         28,920
                                                                                                                                   
     Quarter ended March 27, 1998                                                                                                
      Revenues...............................................  $105,744        $23,475     $  6,819        $     -       $136,038
                                                                                                                                   
      Segment profit (loss)..................................    11,751          2,963          948         (1,363)        14,299
 
 
</TABLE> 

<TABLE> 
<CAPTION> 

                                                                                                    Quarter ended
                                                                                              ------------------------
                                                                                              March 26,      March 27,
                                                                                                1999           1998   
                                                                                              ---------      --------- 
<S>                                                                                           <C>            <C>
     Profit or Loss
      Total profit for reportable segments..................................................  $ 28,920        $14,836
      Unallocated amounts:
       Corporate selling, general and administrative expense................................   (10,449)        (8,228)
       Special charges (a)..................................................................        -          (5,694)
       Interest expense, net................................................................    (8,833)        (4,583)
                                                                                              ---------      ---------

      Income (loss) before income taxes, extraordinary item
       and discontinued operations..........................................................  $  9,638        $(3,669)
                                                                                              ========       =========
</TABLE>
    (a) Special charges, not included in the measurement of segment profit
        (loss), represents OHM integration costs, primarily severance and office
        consolidations.

13. Other accumulated comprehensive income

    Other accumulated comprehensive income, which consists of foreign currency
    translation adjustments, was $0.6 million and $0.2 million for the three
    months ended March 26, 1999 and March 27, 1998, respectively.

                                       12
<PAGE>
 
Item 2.   Management's Discussion and Analysis of Results
          of Operations and Financial Condition.

                              THE IT GROUP, INC.

                       FOR QUARTER ENDED MARCH 26, 1999

RESULTS OF OPERATIONS

Overview


We are a leading provider of diversified, value-added services in the areas of
environmental consulting, engineering and construction and remediation. In
addition, we are leveraging our core project management competencies to offer
our clients a variety of outsourcing services such as facilities management. We
have a strong reputation for both the high quality of our work and the breadth
of the services we provide.

Our clients are federal, state and local governments in the U.S. and commercial
businesses worldwide. We obtained 61% of our revenues for the three months ended
March 26, 1999 from the federal government under more than 100 contracts that
range in length from one to ten years. In addition, we serve 1,500 commercial
clients on projects which range in length from one month to more than one year.
For the three months ended March 26, 1999, our revenues were $258.0 million.
Approximately 90% of our backlog at March 26, 1999 was under federal government
programs, and approximately 84% is expected to be charged to our clients on a
cost-reimbursable basis. Many of our commercial contracts are evergreen
contracts and are typically not part of our backlog.


In the course of providing our services, we routinely subcontract services.
These subcontractor costs are passed through to clients and, in accordance with
industry practice, and are included in our revenue. Our cost of revenue includes
subcontractor costs, salaries, direct and indirect overhead costs such as rents,
utilities and travel directly attributable to projects. Our selling, general and
administrative expenses are comprised primarily of costs related to the
executive offices, corporate accounting, information technology, marketing and
bid and proposal costs. These costs are generally unrelated to specific client
projects. In addition, we include in these expenses amortization of intangible
assets such as goodwill resulting from acquisitions.

Revenues and Gross Margins

Company.  Revenues for the three months ended March 26, 1999 increased $122.0
million or 84.7% to $258.0 million, compared to revenues of $136.0 million
reported in the three months ended March 27, 1998.  This significant increase in
revenues is primarily attributable to the acquisitions of OHM Corporation (OHM)
and Fluor Daniel GTI, Inc. (GTI).

Our gross margin for the quarter ended March 26, 1999 increased to 12.9% of
revenues, a slight increase from 12.6% of revenues reported in the quarter ended
March 27, 1998.  In the 1999 fiscal year, we expect to maintain these gross
margin levels.  However, our ability to maintain or improve our gross margin
levels is heavily dependent on various factors including utilization of
professional staff, proper execution of projects, successful bidding of new
contracts at adequate margin levels and continued realization of overhead
savings achieved upon the complete integration of recent acquisitions.


Engineering & Construction.  Revenues from the Engineering & Construction
segment were $178.7 million for the three months ended March 26, 1999 compared
to $105.7 million for the three months ended March 27, 1998, an increase of
approximately 70% primarily attributable to the OHM acquisition.  Our
Engineering & Construction segment includes revenues from the Department of
Defense (DOD), Department of Energy (DOE) and commercial clients.  Revenues from
the DOD and a small number of other government agencies were $115.6 million in
the three months ended March 26, 1999 or $52.5 million greater than the $63.1
million of DOD revenues in the three months ended March 27, 1998.  DOE revenues
of $23.5 million in the three months ended March 26, 1999 were $10.3 million
higher than the $13.2 million of DOE revenues reported in the three months ended
March 27, 1998.  Commercial revenues were $39.5 million in the three months
ended March 26, 1999 or $9.5 million higher than the $30.0 million of commercial
revenues reported in the three months ended March 27, 1998.

                                       13
<PAGE>
 
                              THE IT GROUP, INC.

                       RESULTS OF OPERATIONS (CONTINUED)

A substantial percentage of our revenues continue to be earned from federal
government contracts with various federal agencies.  Revenues from federal
governmental contracts accounted for 61% of our consolidated revenues in both
the three months ended March 26, 1999 and the three months ended March 27, 1998.
Although the percentage of revenues from federal government contracts remained
about the same for the two comparable periods, the absolute dollars of federal
government revenues increased to $158.4 million in the three months ended March
26, 1999 compared to $83.4 million in the three months ended March 27, 1998.
This increase is primarily attributable to the OHM acquisition.  Federal
government revenues are derived principally from work performed for the DOD and,
to a lesser extent, the DOE.  We expect to continue to earn a substantial
portion of our Engineering & Construction revenues from the DOD indefinite
delivery order contracts which are primarily related to remedial action work.
In addition, management expects to increase our revenues from the DOE in the
future due to an expected transition by the DOE over the next several years to
emphasize remediation, as opposed to studies, combined with our favorable
experience in winning and executing similar work for the DOD and our past
performance on DOE contracts.  We have begun to benefit from this transition
with the commencement in 1998 of a $122.0 million project to perform the
excavation, pretreatment and drying of an estimated one million tons of
materials for the DOE's Fernald Environmental Management Project.

The increase in commercial revenues in this segment for the three months ended
March 26, 1999 is primarily attributable to the OHM acquisition.  However,
revenue growth from the commercial sector, excluding recent acquisitions, could
be restricted in fiscal 1999 partly due to increased emphasis on competitive
bids and commercial clients delaying certain work until final Congressional
action is taken on the reauthorization of CERCLA.  As for CERCLA, it is
uncertain when reauthorization will occur or what the details of the
legislation, including retroactive liability, cleanup standards, and remedy
selection, may include.  Uncertainty regarding possible rollbacks of
environmental regulation and/or reduced enforcement could further decrease the
demand for our services, as clients anticipate and adjust to the new
regulations.  These factors have been partially offset by an increased desire on
the part of commercial clients for strategic environmental services that provide
an integrated, proactive approach to environmental issues and that are driven by
economic, as opposed to legal or regulatory, concerns.  Further, legislative or
regulatory changes could also result in increased demand for our services if
such changes decrease the cost of remediation projects or result in more funds
being spent for actual remediation.  The ultimate impact of any such changes
will depend upon a number of factors, including the overall strength of the U.S.
economy and clients' views on the cost effectiveness of the remedies available.


Our Engineering & Construction segment profit was $19.9 million for the three
months ended March 26, 1999 compared to the $11.8 million segment profit for the
three months ended March 27, 1998. This increase is primarily attributable to
the OHM acquisition. The Engineering & Construction segment profit was 11.1% of
Engineering & Construction revenues for the three months ended March 26, 1999
and March 27, 1998.


Consulting & Ventures.  Revenues from our Consulting & Ventures (C & V)segment
were $48.8 million for the three months ended March 26, 1999 compared to $23.5
million reported during the three months ended March 27, 1998, an increase of
approximately 108%.  Most of the revenues from Consulting & Ventures are derived
from commercial clients.  The increase in these revenues is primarily due to the
GTI acquisition in December 1998.  Excluding any future acquisitions, revenue
growth from the commercial sector could be restricted as discussed above under
Engineering & Construction.

Our Consulting & Ventures segment profit was $7.5 million in the three months
ended March 26, 1999, an increase of 154% when compared to the $3.0 million
segment profit reported in the three months ended March 27, 1998. The Consulting
& Ventures segment profit was 15.5% and 12.6% of Consulting & Ventures revenues
for the three months ended March 26, 1999 and the three months ended March 27,
1998, respectively. The increase in absolute dollars and as a percentage of
revenue is primarily attributable to the cost savings related to the acquisition
of GTI.

Outsourced Services.   Outsourced Services revenues were $23.3 million for the
three months ended March 26, 1999 compared to $6.8 million reported in the three
months ended March 27, 1998.  This increased revenue is attributable to the OHM
acquisition and the inclusion of its outsourcing operations in our results of
operations for the entire three months ended March 26, 1999, as opposed to the
one month of revenues included in the three months ended March 27, 1998.  Our
outsourcing operations provide a range of project, program and construction
management services to the DOD as well as state and local government agencies.

Our Outsourced Services segment profit was $1.3 million for the three months
ended March 26, 1999, an increase of $0.4 million when compared to the $0.9
million segment profit reported in the three months ended March 27, 1998. The

                                       14
<PAGE>
 
                              THE IT GROUP, INC.

                       RESULTS OF OPERATIONS (CONTINUED)

outsourcing segment profit was 5.7% of the outsourcing revenues for the
three months ended March 26, 1999.

International.   International revenues were $7.2 million for the three months
ended March 26, 1999 compared to no revenues for the three months ended March
27, 1998.  The increase is the result of the GTI acquisition on December 3, 1998
and an adjustment to certain projects performed in Taiwan by our 50.1% owned
subsidiary CMIT for the three months ended March 27, 1998.


Our International segment reported a profit of $0.2 million for the
three months ended March 26, 1999 compared to a loss of $1.4 million in the
three months ended March 27, 1998.  This improvement is primarily due to
improved project margins on several projects in Taiwan in the three months ended
March 26, 1999.  We undertook to improve management oversight, project
management skills and change order negotiation efforts.  We believe these
efforts will minimize future potential losses and provide the basis for
profitable Taiwan operations.  The GTI acquisition increased the size of the
International platform with operations primarily in Australia, the United
Kingdom and Italy.  The GTI acquisition included approximately $80.0 million of
contract backlog for work to be performed for the U.S. Air Force Center for
Environmental Excellence under a worldwide five-year indefinite delivery order
cost-reimbursable contract.  We expect to increase the segment further with the
acquisition of Roche completed on March 31, 1999 (see Item 1. Financial
Statements - Notes to Condensed Consolidated Financial Statements, Note 11).

Backlog.  Our total funded and unfunded backlog at March 26, 1999 was
approximately $3.5 billion.  We expect to earn revenues from our backlog
primarily over the next one to five years, with a substantial portion of the
backlog consisting of federal government contracts many of which are subject to
annual funding and definition of project scope.  The backlog at March 26, 1999
includes $2.6 billion of future work we estimate we will receive (based on
historical experience) under existing indefinite delivery order programs.  In
accordance with industry practices, substantially all of our contracts are
subject to cancellation, delay or modification by the customer.

Our backlog at any given time is subject to changes in scope of services which
may lead to increases or decreases in backlog amounts.  These scope changes have
led to a number of contract claims requiring negotiations with clients in the
ordinary course of business. (See Item 1. Financial Statements - Notes to
Condensed Consolidated Financial Statements--Summary of significant accounting
policies -- Contract accounting and accounts receivable.)

Selling, General and Administrative Expenses

Selling, general and administrative expenses were 5.7% of revenues for the three
months ended March 26, 1999 compared to 7.8% of revenues in the three months
ended March 27, 1998.  This decrease is primarily attributable to the
elimination of certain duplicative overhead functions and other cost savings
achieved as a result of the OHM acquisition.  In fiscal 1999, management expects
selling, general and administrative expenses to decrease slightly as a
percentage of revenue because we anticipate additional cost savings to be
achieved from the GTI acquisition that occurred on December 3, 1998, as well as
cost savings from the recently completed EFM acquisition.

Selling, general and administrative expenses include goodwill amortization
expense of $2.6 million for the three months ended March 26, 1999 and $0.3
million for the three months ended March 27, 1998.  The significant increase to
goodwill amortization is primarily due to the OHM acquisition.  Selling, general
and administrative expenses (excluding goodwill) were 4.7% of revenues for the
three months ended March 26, 1999 and 7.6% of revenues for the three months
ended March 27, 1998.

                                       15
<PAGE>
 
                              THE IT GROUP, INC.

                       RESULTS OF OPERATIONS (CONTINUED)

Special Charges

A special charge of $5.7 million for integration costs associated with the
acquisition of OHM was recorded in the quarter ended March 27, 1998 as outlined
below:

<TABLE>
<CAPTION>
 
                                                                    Three Months Ended March 27, 1998
                                                                    ----------------------------------
                                                                    
                                                 Cash/                    Special                           Reserve balance
                                                Noncash                   Charges            Activity          at 3/26/99
                                                -------                   -------            --------       ---------------
<S>                                             <C>                   <C>                    <C>            <C>
                                                                      (In thousands)
Integration costs--OHM acquisition
  Severance ................................     Cash                    $ (2,197)             $ 2,197             $   --
  Duplicative offices/assets................     Cash                      (2,478)               1,658              (820)
  Other.....................................     Cash                      (1,019)               1,019                --
                                                                         --------              -------             ------
  Total.....................................                             $ (5,694)             $ 4,874             $ (820)
                                                                         ========              =======             ======
</TABLE>

The $5.7 million special charge for integration costs associated with the
acquisition of OHM included $2.2 million of costs for severance and $3.5 million
of costs and other related items for closing and eliminating duplicative
offices. As part of the plan of integration, we laid-off more than 100 IT
employees, primarily in the operating group and administrative support
functions. In addition, as part of the plan we closed three leased facilities,
reduced the size of three more facilities and subleased a portion of eight
additional facilities. As of March 26, 1999, $0.8 million of the integration
charge remained to be paid. The remaining costs relate to the facility closures
and office consolidations and will be paid over the remaining terms of the
leases. Most of these lease commitments will be paid within the next three
years. One lease requires payments over the next six years.

Interest, Net

Net interest expense represented 3.4% of revenues in both the quarter ended
March 26, 1999 and the quarter ended March 27, 1998.  In absolute dollars, net
interest expense was $8.8 million and $4.6 million for the three months ended
March 26, 1999 and March 27, 1998, respectively.  This increase in the net
interest expense is due principally to the increased level of debt required to
finance the OHM and GTI acquisitions.

Income Taxes

The Company recorded an income tax provision (benefit) for the three month
period ended March 26, 1999 and March 27, 1998 in the amount of $3.9 million and
($0.1) million, respectively. The provision for income tax was calculated
utilizing an effective tax rate of 40% of income for the three months ended
March 26, 1999. The benefit for income taxes for the three months ended March
27, 1998 was calculated utilizing a 38% effective rate on income excluding
special charges and giving effect to changes in the Company's deferred tax
valuation allowance. See Item 1. Financial Statements - Notes to Condensed
Consolidated Financial Statements, Note 9.


Extraordinary Item

For the three months ended March 27, 1998, we recorded a $5.7 million charge,
net of income tax benefit of $3.5 million, for the early extinguishment of $65.0
million of senior debt which was refinanced in connection with the acquisition
of OHM. We incurred a $5.6 million payment for the make whole interest provision
as a result of retiring our $65.0 million senior debt early in accordance with
the loan agreement. In addition, we also expensed approximately $3.6 million
related to the unamortized loan origination expenses associated with issuing the
$65.0 million senior debt.


Dividends


Our reported dividends for the first quarter ended March 26, 1999 and March 27,
1998 were $1.6 million for each quarter.  Our reported dividends for first
quarter ended March 27, 1998 include imputed dividends of $.5 million, which are
not payable in cash or stock.

                                       16
<PAGE>
 
                              THE IT GROUP, INC.

                       RESULTS OF OPERATIONS (CONTINUED)


Our dividends are summarized below:

<TABLE>
<CAPTION>
 
                                            Fiscal quarter ended
                                           ----------------------
                                            March 26,   March 27,
Dividend Summary on Preferred Stock           1999        1998
-----------------------------------        ----------  ----------
<S>                                        <C>         <C>
7% Cumulative convertible exchangeable
  Cash dividend..........................  $  898,000  $  899,000
 
6% Cumulative convertible participating
  Cash dividend..........................     692,000           -
  Imputed non-cash dividend..............           -     480,000
  In kind 3% stock dividend..............           -     179,000
                                           ----------  ----------
 
     Total...............................  $1,590,000  $1,558,000
                                           ==========  ==========
 
</TABLE>
Discontinued Operations

In the three months ended March 27, 1998, we increased our provision for loss on
disposition of our discontinued transportation, treatment and disposal business
by $5.0 million net of income tax benefit of $3.0 million. This increased
provision primarily related to an additional accrual for closure costs related
to the former Panoche disposal site. In March 1998, we obtained approval by the
California Department of Toxic Substances Control (DTSC) of the final closure
and post closure plan for the last of our four inactive treatment, storage and
disposal facilities. The approved plans allow us to proceed with the completion
of final closure construction and provides for future submittal of technical
studies that will be utilized to determine final aspects and costs of closure
construction and monitoring programs for the former Panoche disposal site.

For further information regarding our discontinued operations, see Item 1. Notes
to Consolidated Financial Statements - Discontinued Operations and Management's
Discussion and Analysis of Results of Operations and Financial Condition -
Financial Condition Transportation, Treatment and Disposal Discontinued
Operations.

                                       17
<PAGE>
 
                               THE IT GROUP, INC.
                                        
FINANCIAL CONDITION

Working capital at March 26, 1999 was $140.9 million which is an increase of
$20.6 million from the December 25, 1998 working capital of $120.3 million.  The
current ratio at March 26, 1999 was 1.54:1 which compares to 1.44:1 at December
25, 1998.

Cash used by operating activities, which includes cash outflows related to
discontinued operations, for the three months ended March 26, 1999 totaled $8.9
million compared to $6.2 million used by operating activities in the
corresponding period of last year primarily due to the increase in accounts
receivable resulting from the payment of liabilities accrued in connection with
the OHM and GTI acquisitions and payment of certain transaction and financing
costs previously accrued. Capital expenditures of $3.5 million for the three
months ended March 26, 1999 were $1.3 million greater than the prior fiscal year
principally due to increased capital expenditure requirements as a result of the
acquisitions of OHM and GTI.

Cash used for the acquisition of businesses, net of cash acquired was $2.2
million and $157.8 million for the three months ended March 26, 1999 and the
three months ended March 27, 1998, respectively.  For the three months ended
March 27, 1998, cash used to acquire businesses includes the purchase of 54% of
OHM for $152.8 million net of $12.0 million of cash acquired, the purchase of
Jellinek Schwartz and Connolly, Inc. for $4.5 million and the purchase of
Landbank, Inc. for $0.5 million.  For the three months ended March 26, 1999, the
$2.2 million cash used to acquire businesses is also due to payments related to
these smaller acquisitions.


Long-term debt of $426.8 million at March 26, 1999 increased from $405.1 million
at December 25, 1998 primarily due to seasonal working capital requirements. The
ratio of total debt, including current portion, to equity was 1.83:1 at March
26, 1999 and was 1.77:1 at December 25, 1998.  With the April 9, 1999 closing of
the $225.0 million subordinated note offering and the acquisition of EFM and
Roche, availability under the revolving credit facility and cash balances
totaled $150.0 million.  (See Item 1. Financial Statements - Notes to Condensed
Consolidated Financial Statements, Note 10.)

The Company continues to have significant cash requirements, including interest,
operating lease payments, preferred dividend obligations, the potential
requirements of future acquisitions as the Company pursues its growth and
diversification strategy, expenditures for the closure of its inactive disposal
sites and PRP matters (see Transportation, Treatment and Disposal Discontinued
Operations), required term loan and subordinated debenture principal payments,
and contingent liabilities. In connection with the Company's plans for continued
internal growth and growth through acquisitions, additional capital sources may
be required.

On April 9, 1999, the Company completed the private placement of $225.0 million
of subordinated notes (Notes).  The Notes have a 11.25% fixed rate of interest
payable semiannually in cash commencing October 1999 and will be redeemable in
or after 2004 at a premium. The Notes are general unsecured obligations of the
Company, subordinated to the Company's credit facilities (see Item 1. Financial
Statements - Notes to Condensed Consolidated Financial Statements, Note 10) and
other senior indebtedness and pari passu with other existing future indebtedness
unless the terms of that indebtedness expressly provide otherwise. The proceeds
of the Notes were used to fund the Roche and EFM acquisitions, pay expenses of
the offering and to refinance existing indebtedness.

                                       18
<PAGE>
 
                               THE IT GROUP, INC.
                  LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)

Transportation, Treatment and Disposal Discontinued Operation

As a part of the Company's discontinued transportation, treatment, and disposal
operations, the Company operated a series of treatment, storage and disposal
facilities in California, including four major disposal facilities.  Closure
plans for all four of these facilities have now been approved by all applicable
regulatory agencies.  As of March 26, 1999, two of the Company's inactive
disposal sites have been formally closed, a third is substantially closed, and
the fourth is in the process of closure.

On March 18, 1998, the DTSC certified the Environmental Impact Report and
approved the Closure Plan for the Panoche facility.  The approved plans provide
for submittal of technical studies that will be utilized to determine final
aspects, details and costs of closure construction and monitoring programs.
While IT believes that the approved closure plans substantially reduce future
cost uncertainties to complete the closure of the Panoche facility, the ultimate
costs will depend upon the results of the technical studies called for in the
approved plans.  Closure construction for the plan is scheduled to be completed
in the fall of 2000.

Closure and post-closure costs are incurred over a significant number of years
and are subject to a number of variables including, among others, negotiations
regarding the details of site closure and post-closure, with DTSC, the United
States Environmental Protection Agency (USEPA), the California State Water
Resources Control Board, the California Air Resources Board, Regional Water
Quality Control Boards, Air Quality Management Districts, various other state
authorities and certain applicable local regulatory agencies. Operation of the
facilities in the closure and post-closure periods is also subject to regulation
by the same agencies. Closure costs are comprised principally of engineering,
design and construction costs and of caretaker and monitoring costs during
closure. Upon completion of closure construction, the Company is required to
perform post-closure monitoring and maintenance of its disposal facilities for
at least 30 years. The Company has estimated the impact of closure and post-
closure costs in the provision for loss on disposition of transportation,
treatment and disposal discontinued operations; however, closure and post-
closure costs could be higher than estimated if regulatory agencies were to
require closure and/or post-closure procedures significantly different than
those in the approved plans, or if the Company is required to perform unexpected
remediation work at the facilities in the future or to pay penalties for alleged
noncompliance with regulations or permit conditions.

With regard to the residual land at the inactive disposal facilities (a
substantial component of which is adjacent to those facilities and was never
used for waste disposal), there were no significant developments during the
quarter.

With respect to the Operating Industries, Inc. Superfund site in Monterey
Park, California, for which USEPA notified a number of entities, including the
Company, that they were PRPs, there were no significant developments during the
quarter.

With respect to the GBF Pittsburg landfill site near Antioch, California, there
were no significant developments during the quarter.

Year 2000 Compliance

The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of our computer
programs or hardware that have date-sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.


State of Readiness

Our core financial and administrative software systems are certified as Year
2000 compliant by the vendor. During the twelve months ended March 27, 1998, we
established an integration test plan to test this software and verify Year 2000
compliance. In February 1998, we completed the integration tests which verified
that the Company's core financial and administrative software systems were Year
2000 compliant. Our core hardware was also tested and was found to be fully
compliant with the Year 2000 requirements.  We have been communicating with
clients, suppliers, financial institutions and others with which we do business
to coordinate Year 2000 conversion. A significant portion of our business (61%)
is attributable to the U.S. federal government (see "Business--Operations--
Clients"). If the U.S. federal government is not Year 2000 compliant, there
could be a delay in the collection of accounts receivable from the U.S. federal
government in January 2000. At this time, we cannot predict the impact

                                       19
<PAGE>
 
                               THE IT GROUP, INC.
                  LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)

on our consolidated financial condition, liquidity and results of operations of
the U.S. federal government's Year 2000 readiness. However, we do not believe
there will be any significant delays in the collection of our accounts
receivable.


Costs

We have prepared a detailed conversion plan and have estimated the total cost of
Year 2000 compliance to be approximately $3.1 million. As of March 26, 1999, we
have incurred costs of approximately $1.3 million to address year 2000 issues.
All of the costs have been or will be charged to operating expense and funded
through operating cash flows.


Risks and Contingencies

We are currently developing a contingency plan to address how we will handle the
most reasonably likely worst case scenarios including situations where our
clients, suppliers, financial institutions and others are not Year 2000
compliant on January 1, 2000. We do not have control over these third parties
and, as a result, cannot currently estimate to what extent future operating
results may be adversely affected by the failure of these third parties to
successfully address their Year 2000 issues. However, our contingency plan will
include actions designed to identify and minimize any third party exposures and
management believes that, based on third party exposures identified to date,
these issues should be resolved by the year 2000.

FORWARD LOOKING STATEMENTS

Statements of the Company's or management's intentions, beliefs, expectations or
predictions for the future, denoted by the words "anticipate", "believe",
"estimate", "expect", "project", "imply", "intend", "foresee", and similar
expressions are forward-looking statements that reflect the current views of the
Company and its management about future events and are subject to certain risks,
uncertainties and assumptions.  Such risks, uncertainties and assumptions
include those identified in the "Business - Operations" and "Legal Proceedings"
sections of the Company's Transition Report on Form 10-K (as amended) for the
year ended December 25, 1998, and the business opportunities (or lack thereof)
that may be presented to and pursued by the Company, changes in laws or
regulations affecting the Company's operations, as well as competitive factors
and pricing pressures, bidding opportunities and success, project results,
management's judgment regarding revenue recognition and adequacy of reserves,
success in pursuing claims and change orders, ability to collect receivables on
a timely basis, to manage its cash resources, results of litigation, funding of
backlog, matters affecting contracting and engineering businesses generally,
such as the seasonality of work and weather and clients' timing of projects, the
ability to generate a sufficient level of future earnings to utilize the
Company's deferred tax assets, the ultimate costs and results of closure and
divestiture of the Company's discontinued operations, the effects of the
integration of OHM, GTI, EFM and any other major acquisitions and achievement of
expected synergies therefrom, and industry-wide market factors other general
economic and business conditions and other factors, many of which are beyond the
control of the Company. The Company's actual results could differ materially
from those projected in such forward-looking statements as a result of such
factors.



Item 3.  Quantitative and Qualitative Disclosures about Market Risk

There were no material changes in the Company's exposure to market risk from
December 25, 1998.

                                       20
<PAGE>
 
                                    PART II

                                    THE IT GROUP, INC.

Item 1.  Legal Proceedings.

The continuing operations litigation to which the Company is a party is more
fully discussed in the note "Commitments and Contingencies" in the Notes to
Consolidated Financial Statements in the Company's Annual Report on Form 10-K,
as amended, for the fiscal year ended December 25, 1998.  See also Management's
Discussion and Analysis of Results of Operations and Financial Condition -
Transportation, Treatment and Disposal Discontinued Operations for information
regarding litigation related to the discontinued operations of the Company.
Except as noted, there have been no material changes in any of the Company's
legal proceedings since the date of the Company's Annual Report on Form 10-K.

                                       21
<PAGE>
 
                               THE IT GROUP, INC.
                                        
Item 6.  Exhibits and Reports on Form 8-K.

     (a)  Exhibits.  These exhibits are numbered in accordance with the Exhibit
          Table of Item 601 of Regulation S-K.

<TABLE> 
<CAPTION> 

          Exhibit No.                              Description
          -----------        --------------------------------------------------------------             
          <S>                <C>
           4(ii)             Indenture Agreement, dated as of April 9, 1999, between
                             IT, certain subsidiary guarantors of IT and The Bank of
                             New York, as trustee. (1)

           10(ii)       29.  Amendment Agreement, dated March 31, 1999, between the
                             Company, Roche Limited Consulting Group and others. (2)

                        30.  Purchase Agreement, dated as of April 6, 1999, between IT,
                             certain subsidiary guarantors of IT, Donaldson, Lufkin & Jenrette
                             Securities Corporation and Salomon Smith Barney. (1)

                        31.  Registration Rights Agreement, dated as of April 9, 1999,
                             between IT, certain subsidiary guarantors of IT, Donaldson,
                             Lufkin & Jenrette Securities Corporation and Salomon Smith Barney. (1)

              99.            "The Company" section from the Offering Memorandum Summary for
                             the Company's 11.25% Senior Subordinated Notes due 2009. (3)

          ________________

           (1)          Filed as an Exhibit to Registrant's Registration Statement
                        on Form S-4, filed April 23, 1999.

           (2)          Filed as an Exhibit to Registrant's Current Report on Form
                        8-K, filed April 23, 1999.

           (3)          Filed as an Exhibit to Registrant's Current Report on Form
                        8-K filed March 22, 1999.

     (b)  Reports on Form 8-K

          1.            Current Report on Form 8-K, filed March 12, 1999, reporting under Item 5
                        the announcement of the Asset Purchase Agreement entered into by the Registrant
                        and ICF Kaiser International, Inc.

          2.            Current Report on Form 8-K, filed March 22, 1999, reporting under Item 5
                        the commencement of the offering of the 11.25% Senior Subordinated Notes due
                        2009.

          3.            Current Report on Form 8-K, filed April 23, 1999, reporting under Item 2
                        the completion of the Asset Purchase Agreement with ICF Kaiser International,
                        Inc. and the completion of the acquisition of Roche Limited Consulting Group.


</TABLE> 

                                       22
<PAGE>
 
                              THE IT GROUP, INC.


                                  SIGNATURES



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



THE IT GROUP, INC.
(Registrant)



    /s/ ANTHONY J. DELUCA                                 May 7, 1999
----------------------------------------             ------------------------
Anthony J. DeLuca
 President and Chief Executive Officer
    and Duly Authorized Officer


   /s/ PHILIP O. STRAWBRIDGE                              May 7, 1999
----------------------------------------             ------------------------
Philip O. Strawbridge
 Senior Vice President, Chief
    Administrative Officer and
    Principal Financial Officer



  /s/ HARRY J. SOOSE, JR.                                 May 7, 1999
----------------------------------------             ------------------------
Harry J. Soose, Jr.
 Vice President, Finance and
    Principal Accounting Officer

                                       23