<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549


                                   FORM 10-Q



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


For the quarterly period ended March 31, 1999   Commission File No. 1-12248


                        ICF KAISER INTERNATIONAL, INC.
            (Exact name of registrant as specified in its charter)


Delaware                                   54-1437073
(State or other jurisdiction of            (I.R.S. Employer
incorporation or organization)             Identification No.)


9300 Lee Highway, Fairfax, Virginia        22031-1207
(Address of principal executive offices)   (Zip Code)


       Registrant's telephone number including area code: (703) 934-3600

     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

     On May 11, 1999, there were 24,833,890 shares of ICF Kaiser International,
Inc. Common Stock, par value $0.01 per share, outstanding.
<PAGE>
 
                        ICF KAISER INTERNATIONAL, INC.

                              INDEX TO FORM 10-Q


<TABLE>
<CAPTION>
                                                                          Page
<S>                                                                       <C>
Part I - Financial Information

  Item 1. Financial Statements:

          Consolidated Balance Sheets -
          March 31, 1999 and December 31, 1998..........................      3

          Consolidated Statements of Operations and Comprehensive
           Income (Loss)-
          Three Months Ended March 31, 1999 and 1998....................      4

          Consolidated Statements of Cash Flows -
          Three Months Ended March 31, 1999 and 1998....................      5

          Notes to Consolidated Financial Statements....................   6-16

  Item 2  Management's Discussion and Analysis of Financial Condition
          and Results of Operations.....................................  17-26

  Item 3  Quantitative and Qualitative Disclosures About Market Risk....     26


Part 11 - Other Information

  Item 1. Legal Proceedings.............................................     26

  Item 2. Changes in Securities and Use of Proceeds.....................     26

  Item 3. Defaults Upon Senior Securities...............................     26

  Item 4. Submission of Matters to a Vote of Security Holders...........     26

  Item 5. Other Information.............................................     26

  Item 6. Exhibits and Reports on Form 8-K..............................  26-27
</TABLE> 

                                       2
<PAGE>
 
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands, except shares)

<TABLE> 
<CAPTION> 
======================================================================================================================
                                                                                  March 31,               December 31,
                                                                                    1999                      1998
----------------------------------------------------------------------------------------------------------------------
                                                                                             (Uaudited)
<S>                                                                               <C>                     <C>  
Assets                                                                           
Current Assets                                                                   
    Cash and cash equivalents                                                     $   14,282               $  15,248
    Contract receivables, net                                                        214,312                 234,320
    Prepaid expenses and other current assets                                         13,831                  11,918
    Deferred income taxes                                                             34,205                  34,673
    Net assets of discontinued operations                                             66,458                  65,862
                                                                                   ---------                --------
            Total Current Assets                                                     343,088                 362,021
                                                                                   ---------                --------
                                                                                                         
Fixed Assets                                                                                             
    Furniture, equipment, and leaseholds                                              17,498                  17,970
    Less depreciation and amortization                                               (13,184)                (13,665)
                                                                                   ---------                --------
                                                                                       4,314                   4,305
                                                                                   ---------                --------
                                                                                                         
Other Assets                                                                                             
    Goodwill, net                                                                     22,967                  23,323
    Investments in and advances to affiliates                                          7,708                   7,571
    Capitalized software development costs                                             1,533                   1,618
    Other                                                                             12,119                  12,745
                                                                                   ---------                --------
                                                                                      44,327                  45,257
                                                                                   ---------                --------
                                                                                                         
                   Total Assets                                                   $  391,729               $ 411,583
                                                                                   =========                ========
                                                                                                         
Liabilities and Shareholders' Equity (Deficit)                                                           
Current Liabilities                                                                                      
    Debt currently payable                                                        $   36,876               $  30,729
    Accounts payable                                                                 168,036                 179,451
    Accrued salaries and benefits                                                     31,231                  31,141
    Other accrued expenses                                                            59,162                  46,865
    Deferred revenue                                                                  13,037                  36,847
    Income taxes payable                                                               2,422                   2,147
                                                                                   ---------                --------
            Total Current Liabilities                                                310,764                 327,180
                                                                                                         
Long-term Liabilities                                                                                    
    Long-term debt                                                                   137,610                 137,488
    Other                                                                              8,704                   9,584
                                                                                   ---------                --------
            Total Liabilities                                                        457,078                 474,252
                                                                                   ---------                --------
                                                                                                         
Commitments and Contingencies                                                                            
                                                                                                         
Minority Interest                                                                      2,582                     449
                                                                                                         
                                                                                                         
Shareholders' Equity (Deficit)                                                                           
    Preferred stock                                                                        -                       -
    Common stock, par value $.01 per share:                                                              
       Authorized-90,000,000 shares                                                                      
       Issued and outstanding- 23,790,995 and  24,257,828 shares                         238                     242
    Additional paid-in capital                                                        75,218                  75,422
    Notes receivable collateralized by common stock                                        -                    (638)
    Accumulated deficit                                                             (140,476)               (134,757)
    Accumulated other comprehensive income (loss)                                     (2,911)                 (3,387)
                                                                                   ---------                --------
           Total Shareholders' Equity (Deficit)                                      (67,931)                (63,118)
                                                                                   ---------                --------
                                                                                                         
                   Total Liabilities and Shareholders' Equity (Deficit)           $  391,729               $ 411,583
                                                                                   =========                ======== 
=====================================================================================================================
</TABLE>

See notes to consolidated financial statements.
                                                                 
                                       3
<PAGE>
 
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES

Consolidated Statements of Operations and Comprehensive Income (Loss)

<TABLE> 
<CAPTION>  
(In thousands, except per share amounts)
----------------------------------------------------------------------------------------------------------------------------------

                                                                                                  Three Months Ended March 31,
                                                                                              ------------------------------------
                                                                                              1999                            1998
----------------------------------------------------------------------------------------------------------------------------------
                                                                                              (Unaudited)
<S>                                                                                           <C>                        <C> 
Gross Revenue                                                                                   $225,497                 $ 256,839
    Subcontract and direct material costs                                                       (162,858)                 (183,334)
                                                                                                --------                 ---------
Service Revenue                                                                                   62,639                    73,505
Operating Expenses
    Direct labor and fringe benefits                                                              48,459                    53,465
    Group overhead                                                                                10,937                    11,283
    Corporate general and administrative                                                           3,804                     3,844
    Depreciation and amortization                                                                  1,481                     1,592
    Other unusual charges                                                                            895                         -
                                                                                                --------                 ---------

Operating Income (Loss)                                                                           (2,937)                    3,321

Other Income (Expense)
    Interest income                                                                                  268                       466
    Interest expense                                                                              (5,852)                   (4,821)
     Equity in net income of
          unconsolidated subsidiaries                                                              1,520                     1,027
                                                                                                --------                 ---------

Income (Loss)  From Continuing Operations
    Before Income Taxes and Minority Interest                                                     (7,001)                       (7)

    Income tax (benefit)                                                                          (1,020)                     (468)
                                                                                                --------                 ---------

Income (Loss) From Continuing Operations                                                          (5,981)                      461
    Before Minority Interest

    Minority interest in net income of subsidiaries                                                2,082                     2,511 
                                                                                                --------                 ---------

Income (Loss) Before Discontinued Operations                                                      (8,063)                   (2,050)

    Income from discontinued operations (net of tax 
      of $1,546 and $1,617, respectively)                                                          2,344                     2,495
                                                                                                --------                 ---------

Net Income (Loss)                                                                               $ (5,719)                $     445
                                                                                                ========                 =========

Basic and Fully Diluted Earnings (Loss)  Per Share:
    Continuing operations                                                                       $  (0.34)                $   (0.08)
    Discontinued operations                                                                         0.10                      0.10
                                                                                                --------                 ---------
                                                                                                 $ (0.24)                $    0.02
                                                                                                ========                 =========

Weighted average shares for basic earnings per share                                              24,068                    23,925
    Effect of dilutive stock options                                                                   -                     1,571
                                                                                                --------                 ---------

Weighted average shares for diluted earnings per share                                            24,068                    25,496
                                                                                                ========                 =========

Comprehensive Income (Loss)
    Net Income (Loss)                                                                           $ (5,719)                $     445
    Other Comprehensive Income (Loss)
      Foreign currency translation adjustments                                                       467                       554
                                                                                                --------                 ---------
Total Comprehensive Income (Loss)                                                               $ (5,252)                $     999
                                                                                                =========                =========
----------------------------------------------------------------------------------------------------------------------------------
</TABLE> 
See notes to consolidated financial statements.

                                       4
<PAGE>
 
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows

<TABLE> 
<CAPTION> 
-------------------------------------------------------------------------------------------------------------------  

                                                                                       Three Months Ended March 31,
                                                                                      -----------------------------
                                                                                         1999              1998
-------------------------------------------------------------------------------------------------------------------
                                                                                              (Unaudited)
<S>                                                                                   <C>                 <C> 
Operating Activities
Net income (loss)                                                                        $ (5,719)         $    445
Adjustments to reconcile net income (loss) to net cash
    (used in) operating activities:
    Income from discontinued operations                                                    (2,344)           (2,495)
    Depreciation and amortization                                                           1,481             1,592
    Provision (credit) for losses                                                          (2,555)              667
    Provision for deferred income taxes                                                       468               780
    Note receivable write-off                                                                 638                 -
    Earnings in excess of cash distributions from
      joint ventures and affiliated companies                                                (137)              539
    Minority interest in net income of subsidiaries                                         2,082             2,511
    Changes in operating assets and liabilities, net of acquisitions and
      dispositions:
      Contract receivables, net                                                            19,880            22,936
      Prepaid expenses and other current assets                                            (1,653)            2,960
      Accounts payable and accrued expenses                                                11,550           (19,017)
      Deferred revenue                                                                    (23,810)            1,393
      Income tax payable                                                                      275               158
                                                                                         --------          --------
    Net Cash Provided by Operating Activities                                                 156            12,469
                                                                                         --------          --------

Investing Activities
Investments in subsidiaries and affiliates, net of cash acquired                                -             3,841
Sales of subsidiaries and/or investments                                                        -             2,400
Investments in net assets of discontinued operations                                         (596)           (2,424)
Purchases of fixed assets                                                                    (557)           (1,033)
                                                                                         --------          --------
    Net Cash Provided by (Used in) Investing Activities                                    (1,153)            2,784
                                                                                         --------          --------

Financing Activities
Borrowings under revolving credit facility                                                 57,064            35,000
Principal payments on revolving credit facility                                           (50,942)          (34,500)
Change in book overdraft                                                                   (6,117)            5,988
Distribution of income to minority interest                                                    51            (3,071)
Proceeds from issuances of common stock                                                        38                47
                                                                                         --------          --------
    Net Cash Provided by Financing Activities                                                  94             3,464
                                                                                         --------          --------
Effect of Exchange Rate Changes on Cash                                                       (63)               74
                                                                                         --------          --------
Increase (Decrease) in Cash and Cash Equivalents                                             (966)           18,791
Cash and Cash Equivalents at Beginning of Period                                           15,248            20,009
                                                                                         --------          --------
Cash and Cash Equivalents at End of Period                                               $ 14,282          $ 38,800
                                                                                         ========          ========

Supplemental cash flow information is as follows:

Cash payments for interest                                                               $      -          $     90
Cash payments for income taxes                                                                 28                 -
Non-cash transactions:
    Issuance of common stock                                                                    -             8,455
    Reacquisition of common stock                                                            (247)             (218)
--------------------------------------------------------------------------------------------------------------------
</TABLE> 

See notes to consolidated financial statements.

                                       5
<PAGE>
 
               ICF KAISER INTERNATIONAL, INC.  AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

1.   Basis of Presentation

The accompanying consolidated financial statements of ICF Kaiser International,
Inc. and subsidiaries (the Company), except for the December 31, 1998 balance
sheet (derived from audited financial statements), are unaudited and have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. These statements should be
read in conjunction with the Company's audited consolidated financial statements
and footnotes thereto for the year ended December 31, 1998 and the information
included in the Company's Annual Report to the Securities and Exchange
Commission (SEC) on Form 10-K for the year ended December 31, 1998. Certain
reclassifications have been made to the prior period financial statements to
conform them to the presentation used in the March 31, 1999 financial
statements.

2.   Earnings Per Share

Basic earnings per share (EPS) is computed by dividing net income by the
weighted average number of common shares outstanding for the period. The assumed
proceeds from the exercise of dilutive securities are used to purchase common
stock at the average market price during the period. The difference between the
number of shares assumed issued and the number of shares assumed purchased is
added to the basic EPS denominator in order to derive the diluted EPS
denominator. The Company's common stock equivalents that would be antidilutive 
have been excluded from the fully diluted EPS calculation.

3.   Segment Information

The Company uses several segments for internal management reporting purposes.
The segments are compiled based on the similarities in each of their underlying
services, customers, and regulatory environments. The segment operating results
represent all activities that were controllable by the respective segment
business leaders and that had sole direct benefit to the respective segment.
Operating activities that are deemed to benefit more than one segment are not
managed by segment business leaders but are instead managed by the Company's
corporate overhead structure and are not allocated to the segments. The
accounting policies of the operating segments are the same as those described in
the Company's summary of significant accounting policies.

Discontinued Operating Segments: Pursuant to a plan intended to respond to
significant liquidity constraints followed by substantial cost overruns on four
fixed price projects, the Company announced its intention to sell two of its
major operating segments. As of the date of this report, the Company has either
completed or has committed to complete the sales of the two segments. The net
financial position and operating results of the two segments have been presented
in the accompanying financial statements as discontinued operations for the 
entire period. All prior period financial information has also been restated to
conform to the current presentation.

 .    Sale of the Environment and Facilities Management Group (EFM): On April 9,
     1999, the Company sold the majority of the active contracts and
     investments, and transferred a substantial number of employees of EFM, to
     The IT Group, Inc. (IT) for a cash purchase price of $82 million, less $8
     million which was retained by IT for EFM's working capital requirements.
     EFM contracts that were not sold to IT will be completed by the Company in
     the near term. The gain on the sale has not been reflected in the 
     accompanying financial statements.

 .    Intent to sell the Consulting Group: On March 8, 1999, the Company signed a
     non-binding letter of intent for the sale of its Consulting Group to CM
     Equity Partners, L.P. and the Group's management. While final terms of the
     sale are being negotiated, the transaction is expected to be completed by
     mid-year 1999.

Continuing Business Segments: For purposes of providing segment information, the
Company's continuing business segments are:

 .    the Engineers and Constructors Group (E&C), which provides engineering and
     construction services to commercial and federal, state, and local entities
     in the areas of industry, infrastructure, transportation, water, and clean-
     room technologies;

                                       6
<PAGE>
 
 .  the Kaiser-Hill Company, LLC (Kaiser-Hill), a 50% owned subsidiary, which
   performs and manages the Department of Energy's multibillion-dollar
   management contract at Rocky Flats. The Company, through a majority
   representation on Kaiser-Hill's board of directors, has a controlling
   interest in Kaiser-Hill and therefore consolidates Kaiser-Hill's results of
   operations with those of its now only other remaining business segment, E&C.
   Although the Company has a controlling interest in Kaiser-Hill, as defined by
   generally accepted accounting principles, the subsidiary's operations are
   primarily directed by its own dedicated management team. Neither the
   management of the Company nor the management of the other 50% owner has an
   active role in Kaiser-Hill's day-to-day operations.

   After the effective discontinuance of the operations discussed above, the
   financial information for Kaiser-Hill represents a substantial portion of
   many components of the Company's financial statements. Accordingly,
   management believes that a separate presentation of Kaiser-Hill's financial
   statements is meaningful in interpreting the financial results of the
   remaining core E&C operations. See Note 5 for the condensed financial
   statements of Kaiser-Hill Company, LLC.

Financial data for the three months ended March 31 for the remaining business
segments are as follows (in thousands):

<TABLE>
<CAPTION>
 
       1999                                                                      Kaiser-Hill            E&C               TOTAL     
       ----                                                                      -----------        -----------         ----------
       <S>                                                                     <C>                  <C>                 <C>       
       Gross revenue........................................................         $ 145,103            $ 80,344        $ 225,497
        Subcontracts and materials..........................................          (110,341)            (52,517)        (162,858)
                                                                                     ---------            --------        ---------

       Service revenue......................................................            34,762              27,877           62,639
       Operating expenses:
        Direct labor and fringe.............................................            30,622              17,837           48,459
        General and administrative..........................................                --              10,937           10,937
                                                                                     ---------            --------        ---------
       Segment income.......................................................         $   4,140            $   (897)           3,243
                                                                                     =========            ========

         Reconciliation of segment income to operating income (loss) from
          continuing operations:
        Corporate overhead..................................................                                                  3,804
        Depreciation and amortization.......................................                                                  1,481
        Other unusual charges...............................................                                                    895
                                                                                                                          ---------
       Operating income (loss) from continuing operations...................                                              $ ( 2,937)

                                                                                                                          =========

       1998
       ----
       Gross revenue........................................................         $ 141,042            $115,797        $ 256,839
        Subcontracts and materials..........................................          (105,356)            (77,978)        (183,334)

                                                                                     ---------            --------        ---------
       Service revenue......................................................            35,686              37,819           73,505
       Operating expenses:
        Direct labor and fringe.............................................            30,686              22,779           53,465
        General and administrative..........................................                --              11,283           11,283
                                                                                     ---------            --------        ---------
       Segment income.......................................................         $   5,000            $  3,757            8,757
                                                                                     =========            ========

       Reconciliation of segment income to operating income from continuing
        operations:
        Corporate overhead..................................................                                                  3,844
        Depreciation and amortization.......................................                                                  1,592
        Other unusual charges...............................................                                                      0
                                                                                                                          ---------
       Operating income from continuing operations..........................                                              $   3,321
                                                                                                                          ========= 

</TABLE>

The levels of corporate overhead reflected in the costs reported above were
incurred by the Company prior to the completion of the sales of the recently
discontinued segments. Subsequent to those sales, corporate overhead as well as
segment overhead will need to be restructured and reduced to levels appropriate
for the Company's remaining core E&C operations.

                                       7
<PAGE>
 
4.   Condensed Financial Information for Kaiser-Hill Company, LLC

Unaudited financial information for the 50%-owned, controlled and consolidated
Kaiser-Hill subsidiary as of March 31, 1999 and December 31, 1998 and for each
of the three months then ended are as follows (see Note 3):

       BALANCE SHEETS
       --------------
<TABLE>
<CAPTION>
                                                                                         MARCH 31,            December 31,   
                                                                                           1999                   1998       
                                                                                           ----                   ----       
<S>                                                                                      <C>                  <C>            
       Assets                                                                                                                
       Cash and cash equivalents....................................................         $  5,770               $  3,644 
       Contract receivables, net....................................................          125,528                127,163 
                                                                                             --------               -------- 
                    Total Assets....................................................          131,298                130,807 
                                                                                                                             
       LIABILITIES AND SHAREHOLDER'S EQUITY                                                                                  
       Liabilities                                                                                                           
         Accounts payable...........................................................          110,944                115,730 
           Accrued salaries and benefits............................................           13,779                 12,666 
                                                                                             --------               -------- 
              Total Liabilities.....................................................          124,723                128,396 
                                                                                                                             
       Commitments and contingencies                                                                                         
                                                                                                                             
       Net Assets...................................................................         $  6,575               $  2,411 
                                                                                             ========               ======== 
                                                                                                                             
            INCOME STATEMENTS                                                                                                
            -----------------                                                                                                
            FOR THE THREE MONTHS ENDED MARCH 31,                                                                             
                                                                                                                             
                                                                                            1999                    1998     
                                                                                            ----                    ----      
       Gross Revenue................................................................        $ 145,103               $ 141,042
           Subcontract and direct material costs....................................         (110,341)               (105,356)
                                                                                            ---------               ---------
       Service Revenue..............................................................           34,762                  35,686
                                                                                                                             
       Operating Expenses                                                                                                    
           Direct labor and fringe benefits.........................................           30,622                  30,686
                                                                                            ---------               ---------
                                                                                                                             
       Operating Income Before Income Tax...........................................        $   4,140               $   5,000
                                                                                            =========               =========
                                                                                                                             
       Minority's interest in Kaiser-Hill net income................................        $   2,070               $   2,500
                                                                                            =========               =========
                                                                                                                             
       Company's interest in Kaiser-Hill net income.................................        $   2,070               $   2,500
                                                                                            =========               =========
                                                                                                                             
            STATEMENTS OF CASH FLOWS                                                                                         
            ------------------------                                                                                         
            FOR THE THREE MONTHS ENDED MARCH 31,                                                                             
                                                                                                                             
       Operating Activities                                                                 1999                    1998     
                                                                                            -----                   ----     
       Net Income...................................................................          $ 4,140                 $ 5,000
           Changes in operating assets and liabilities:                                                                      
               Accounts receivable, net.............................................            1,635                  10,195
               Accounts payable and accrued expenses................................           (3,673)                 (6,747)
                                                                                              -------                 -------
          Net cash provided by operating activities.................................            2,102                   8,448
                                                                                              -------                 -------
                                                                                                                             
       Financing Activities                                                                                                  
            Distributions to shareholders...........................................                -                  (3,968)
                                                                                              -------                 -------
          Net cash used in financing activities.....................................                -                  (3,968)
                                                                                              -------                 -------
                                                                                                                             
       Increase in cash and cash equivalents........................................            2,126                   4,556
       Cash and cash equivalents at beginning of period.............................            3,644                  10,181
                                                                                              -------                 -------
       Cash and cash equivalents at end of period...................................          $ 5,746                 $14,661
                                                                                              =======                 ======= 
</TABLE>

                                       8
<PAGE>
 
5.   Contingencies

Certain Contracts: In March 1998, the Company entered into a $187 million
maximum price contract to construct a shipbuilding facility. The Company
subsequently learned that estimated costs to perform the contract as reflected
in actual proposed subcontracts were approximately $30 million higher than the
cost estimates used as the basis for contract negotiation between the Company
and the customer. After learning this, the Company advised the customer that it
was not required to perform the contract in accordance with its terms.
Negotiations with the customer resulted in an interim agreement under which both
parties reserved their rights and, on a day-to-day basis, the Company continued
to execute certain transitional on-site activities. The customer terminated the
interim agreement with the Company effective August 14, 1998. In October 1998,
the customer presented an initial draft of a claim against the Company
requesting payment for estimated damages and entitlements pursuant to the
terminated contract. The Company and the customer are currently discussing the
customer's draft claim. No provision for loss for this matter has been included
in the Company's financial results to date as management does not believe that
it has sufficient information at this time to reasonably estimate the outcome as
there has not yet been significant activity in the negotiation process.

As a result of uncertainties surrounding the costs to complete certain large
fixed-price contracts, including the Nitric Acid Projects, the Company
established $66.0 million in reserves intended to cover its estimate of the
nitric acid contract cost overruns. Although management believes that, based on
information currently available, an adequate provision for loss reserves for
these fixed-price contracts has been reflected in the financial statements, no
assurance can be given that the full amount of any claims will be realized or
that the loss provision is entirely adequate.

Acquisition Contingency: The ICF Kaiser common shares exchanged for the stock of
ICT Spectrum in the March, 1998 acquisition, carry the guarantee that the fair
market value of each share of stock will reach $5.36 by March 1, 2001. In the
event that the fair market value does not attain the guaranteed level, the
Company is obligated to make up the shortfall either through the payment of cash
or by issuing additional shares of common stock with a total value equal to the
shortfall, depending upon the Company's preference. Pursuant to the terms of the
Agreement, however, the total number of contingently issuable shares of common
stock cannot exceed an additional 1.5 million. Given that the quoted fair market
value of the stock at March 31, 1999 was [$0.75] per share, and that the
Company's current debt instruments restrict the amount of cash that can be used
for acquisitions, the assumed issuance of an additional 1.5 million shares would
not completely extinguish the purchase price contingency. The Company therefore
would be required to obtain an amendment to current debt instruments or replace
them in order to complete a cash fill-up. Any future distribution of cash or
common stock would be recorded as a charge to the Company's paid-in-capital.

Until the earlier of the contingent purchase price resolution or March 1, 2001,
any additional shares assumed to be issued because of shortfalls in fair market
value will be included in the Company's diluted earnings per share calculations,
unless they are antidilutive. The exchanged shares also contain restrictions
preventing their sale prior to March 1, 2001.

On March 29, 1999, one ex-ICT Spectrum shareholder, individually and on behalf
of all others similarly situated, filed a class action lawsuit alleging false
and misleading statements made in a private offering memorandum, and otherwise,
in connection with the Company's acquisition of ICT Spectrum in 1998.

Litigation, Claims and Assessments: In the course of the Company's normal
business activities, various claims or charges have been asserted and litigation
commenced against the Company arising from or related to properties, injuries to
persons, and breaches of contract, as well as claims related to acquisitions and
dispositions. Claimed amounts may not bear any reasonable relationship to the
merits of the claim or to a final court award. In the opinion of management,
adequate reserves have been provided for final judgments, if any, in excess of
insurance coverage, that might be rendered against the Company in such
litigation. The continued adequacy of reserves is reviewed periodically as
progress on such matters ensues.

The Company may from time to time, either individually or in conjunction with
other government contractors operating in similar types of businesses, be
involved in U.S. government investigations for alleged violations of procurement
or other federal laws and regulations. The Company currently is the subject of a
number of U.S. government investigations and is cooperating with the responsible
government agencies involved. No charges presently are known to have been filed
against the Company by these agencies. The Company has provided for its estimate
of the potential effect of these investigations, and the continued adequacy of
reserves is reviewed periodically as progress on such matters ensues.

                                       9
<PAGE>
 
The Company has a substantial number of cost-reimbursement contracts with the
U.S. government, the costs of which are subject to audit by the U.S. government.
As a result of pending audits related to fiscal years 1986 forward, the
government has asserted, among other things, that certain costs claimed as
reimbursable under government contracts either were not allowable or not
allocated in accordance with federal procurement regulations. The Company is
actively working with the government to resolve these issues. The Company has
provided for its estimate of the potential effect of issues that have been
quantified, including its estimate of disallowed costs for the periods currently
under audit and for periods not yet audited. Neither the government nor the
Company, however, has quantified many of the issues, and others are qualitative
in nature, and their potential financial impact, if any, is not quantifiable by
the government or the Company at this time. The adequacy of provisions for
reserves is reviewed periodically as progress with the government on such
matters ensues.

Contract warranties and performance guarantees: In the course of the Company's
normal business activities, many of its contracts contain provisions for
warranties and performance guarantees. As progress on contracts ensues, the
Company regularly updates the estimates of the costs to perform such
contingencies and reserves a proportionate amount of the total related contract
value until such time as the contingency is resolved.

Discontinued Operations Indemnities: In connection with the sales of the
discontinued operations, the Company has made commitments to indemnify the
buyers of those businesses on certain matters, including, but not limited to
amounts incurred, if any, relating to unfavorable settlements and outcomes from
government audits. The Company intends to provide for estimates of such
contingencies at the time it records the gains from the respective sales.

6.   Guarantor Subsidiaries

Pursuant to SEC rules regarding publicly held debt, the Company is required to
provide financial information for wholly owned subsidiaries of ICF Kaiser
International, Inc. (Subsidiary Guarantors) which unconditionally guarantee the
payment of the principal, premium, if any, and interest on the Company's Senior
Subordinated Notes and Series B Senior Notes. The Subsidiary Guarantors are
Cygna Consulting Engineers and Project Management, Inc; ICF Kaiser Government
Programs, Inc; Systems Applications International, Inc; EDA, Incorporated;
Global Trade & Investment, Inc; ICF Kaiser Europe, Inc; ICF Kaiser/Georgia
Wilson, Inc; ICF Kaiser Overseas Engineering, Inc; ICF Kaiser Engineers Pacific,
Inc; ICF Kaiser Remediation Company; and ICF Kaiser Advanced Technology, Inc.
ICF Kaiser Remediation Company was included in the sale of the EFM Group to IT
on April 9, 1999 and accordingly will no longer be a guarantor.

Presented below is condensed consolidating financial information for ICF Kaiser
International, Inc. (Parent Company), the Subsidiary Guarantors, and the Non-
Guarantor Subsidiaries. The information, except for the December 31, 1998
condensed consolidating balance sheet, is unaudited.

Investments in subsidiaries have been presented using the equity method of
accounting. The Company does not have a formal tax-sharing arrangement with its
subsidiaries and has allocated taxes to its subsidiaries based on the Company's
overall effective tax rate.

                                       10
<PAGE>
 
ICF Kaiser International, Inc. and Subsidiaries
Condensed Consolidating Balance Sheet
March 31, 1999
(In thousands)

<TABLE> 
<CAPTION> 
---------------------------------------------------------------------------------------------------------------------------------
                                                                                                                     ICF Kaiser 
                                                                                                                   International, 
                                              Parent   Subsidiary   Non-Guarantor   Discontinued                         Inc.  
                                             Company   Guarantors    Subsidiaries    Operations     Eliminations     Consolidated 
                                            ---------  ----------  --------------   ------------    ------------   ---------------
                                                                                Unaudited        
<S>                                         <C>        <C>          <C>             <C>             <C>            <C> 
Assets                                                                                                                             
Current Assets                                                                                                                 
Cash and cash equivalents                   $     440  $   5,569     $   8,292       $     (19)     $        -      $  14,282      
Contract receivables, net                        (347)   132,870       135,404         (53,615)              -        214,312      
Intercompany receivables, net                 190,419     12,253      (202,672)              -               -              0      
Prepaid expenses and other current assets       4,050        456         9,326              89               -         13,831      
Deferred income taxes                          30,096      3,284           825               -               -         34,205      
Net assets of discontinued operations               -          -             -          66,458               -         66,458      
                                            ---------  ---------     ---------       ---------      ----------      ---------      
Total Current Assets                          224,658    154,432       (48,915)         12,913               -        343,088      
                                            ---------  ---------     ---------       ---------      ----------      ---------      
                                                                                                                                   
Fixed Assets                                                                                                                       
Furniture, equipment, and leaseholds            4,891      3,219        35,362         (25,974)              -         17,498      
Less depreciation and amortization             (4,122)    (2,963)      (29,884)         23,785               -        (13,184)     
                                            ---------  ---------     ---------       ---------      ----------      ---------      
                                                  769        256         5,478          (2,189)              -          4,314      
                                            ---------  ---------     ---------       ---------      ----------      ---------      
Other Assets                                                                                                                       
Goodwill, net                                       -      8,545        40,031         (25,609)              -         22,967      
Investment in and advances to affiliates      (60,090)        14        12,805          (5,242)         60,221          7,706      
Capitalized software development costs          3,968                    1,103          (3,538)                         1,533      
Other                                           5,238         22         6,960            (101)              -         12,119      
                                            ---------  ---------     ---------       ---------      ----------      ---------      
                                              (50,884)     8,581        60,899         (34,490)         60,221         44,327      
                                            ---------  ---------     ---------       ---------      ----------      ---------      
                                                                                                                                   
Total Assets                                $ 174,543  $ 163,269     $  17,462       $ (23,766)     $   60,221      $ 391,729      
                                            =========  =========     =========       =========      ==========      =========      
                                                                                                                                   
Liabilities and Shareholders' Equity                                                                                               
Current Liabilities                                                                                                                
Debt currently payable                      $  36,876  $       -     $       -       $       -      $        -      $  36,876      
Accounts payable and other accrued expenses    56,341    116,029        67,965         (13,137)              -        227,198      
Accrued salaries and employee benefits          4,666     15,291        19,502          (8,228)              -         31,231      
Other                                           2,507        895        14,458          (2,401)              -         15,459      
                                            ---------  ---------     ---------       ---------      ----------      ---------      
Total Current Liabilities                     100,390    132,215       101,925         (23,766)              -        310,764      
                                                                                                                                   
Long-term Liabilities                                                                                                              
Long-term debt, less current portion          137,609          -             1               -               -        137,610      
Other                                           1,955         26         6,723               -               -          8,704      
                                            ---------  ---------     ---------       ---------      ----------      ---------      
Total Liabilities                             239,954    132,241       108,649         (23,766)              -        457,078       
                                            ---------  ---------     ---------       ---------      ----------      ---------      
                                                                                                                                    
Minority Interests in Subsidiaries                  -      2,582             -               -               -          2,582      
                                                                                                                                   
Shareholders' Equity                                                                                                               
Common Stock                                      225      8,179           122               -          (8,288)           238      
Additional Paid-in Capital                     74,996      2,596        58,544               -         (60,918)        75,218      
Accumulated Earnings (Deficit)               (140,632)    17,998      (147,269)              -         129,427       (140,476)     
Other Equity                                       -        (327)       (2,584)              -               -         (2,911)     
                                            ---------  ---------     ---------       ---------      ----------      ---------      
Total Shareholders' Equity                    (65,411)    28,446       (91,187)              -          60,221        (67,931)     
                                            ---------  ---------     ---------       ---------      ----------      ---------      
                                                                                                                                   
Total Liabilities and Shareholders' Equity  $ 174,543  $ 163,269     $  17,462       $ (23,766)     $   60,221      $ 391,729       
                                            =========  =========     =========       =========      ==========      =========  

</TABLE> 
                                      11

<PAGE>
 
ICF Kaiser International, Inc. and Subsidiaries
Condensed Consolidating Statement of Operations
Three Months Ended March 31, 1999
(In thousands)

<TABLE> 
<CAPTION> 
---------------------------------------------------------------------------------------------------------------------------------
                                                                       Parent       Subsidiary    Non-Guarantor   Discontinued  
                                                                      Company       Guarantors    Subsidiaries     Operations   
                                                                    -----------     ----------    -------------   ------------ 
                                                                                           (Unaudited)  
<S>                                                                 <C>             <C>           <C>             <C>           
Gross Revenue                                                       $        21     $  156,509    $     125,368   $    (56,401) 
                                                                                                                               
    Subcontract and direct material costs                                   (71)      (116,301)         (67,942)        21,456   
                                                                    -----------     ----------    -------------   ------------ 
                                                                                                                               
Service Revenue                                                             (50)        40,208           57,426        (34,945) 
                                                                                                                               
Operating Expenses                                                                                                             
    Operating expenses                                                    2,362         33,406           57,718        (30,286) 
    Depreciation and amortization                                           780            245            1,251           (795) 
    Other unusual charges                                                   895              -                -              -  
                                                                    -----------     ----------    -------------   ------------  
                                                                                                                               
Operating Income (Loss)                                                  (4,087)         6,557           (1,543)        (3,864) 
                                                                                                                               
Other Income (Expense)                                                                                                         
    Interest income                                                          57             77              134              -  
    Interest expense                                                     (5,798)           (46)              (8)             -  
    Equity in net income of unconsolidated subsidiaries                   4,543              -            2,608              -  
                                                                    -----------     ----------    -------------   ------------ 
                                                                                                                               
Income (Loss) From Continuing Operations                                                                                       
    Before Income Taxes and Minority Interest                            (5,285)         6,588            1,191         (3,864) 
                                                                                                                               
    Income tax expense (benefit)                                              0             13              487         (1,520)
                                                                    -----------     ----------    -------------   ------------ 
                                                                                                                               
Income (Loss) From Continuing Operations                                                                                       
    Before Minority Interest                                             (5,285)         6,575              704         (2,344) 
                                                                                                                               
    Minority interests in net income of subsidiaries                          -          2,082                -              -  
                                                                    -----------     ----------    -------------   ------------ 
                                                                                                                               
Income (Loss) Before Discontinued Operations                             (5,285)         4,493              704         (2,344) 
                                                                                                                               
    Income from discontinued operations (net of tax)                          -              -                -          2,344  
                                                                    -----------     ----------    -------------   ------------ 
                                                                                                                               
Net Income (Loss)                                                   $    (5,285)    $    4,493    $         704   $          -   
                                                                    ===========     ==========    =============   ============   

<CAPTION> 
---------------------------------------------------------------------------------------------------------
                                                                                       ICF Kaiser
                                                                                   International, Inc.
                                                                    Eliminations      Consolidated
                                                                    ------------    ---------------- 
<S>                                                                 <C>            <C> 
Gross Revenue                                                       $          -    $        225,497
                                                                                     
    Subcontract and direct material costs                                      -            (162,858)
                                                                    ------------    ---------------- 
                                                                                     
Service Revenue                                                                -              62,639
                                                                                     
Operating Expenses                                                                   
    Operating expenses                                                         -              63,200
    Depreciation and amortization                                                              1,481
    Other unusual charges                                                      -                 895
                                                                    ------------    ---------------- 
                                                                                     
Operating Income (Loss)                                                        -              (2,937)
                                                                                     
Other Income (Expense)                                                               
    Interest income                                                            -                 268
    Interest expense                                                           -              (5,852)
    Equity in net income of unconsolidated subsidiaries                   (5,631)              1,520
                                                                    ------------    ---------------- 
                                                                                     
Income (Loss) From Continuing Operations                                             
    Before Income Taxes and Minority Interest                             (5,631)             (7,001)
                                                                                     
    Income tax expense (benefit)                                               -              (1,020)
                                                                    ------------    ---------------- 
                                                                                     
Income (Loss) From Continuing Operations                                             
    Before Minority Interest                                              (5,631)             (5,981)
                                                                                     
    Minority interests in net income of subsidiaries                           -               2,082
                                                                    ------------    ---------------- 
                                                                                     
Income (Loss) Before Discontinued Operations                              (5,631)             (8,063)
                                                                                     
    Income from discontinued operations (net of tax)                           -               2,344
                                                                    ------------    ---------------- 
                                                                                     
Net Income (Loss)                                                   $     (5,631)   $         (5,719)
                                                                    ============    ================  
</TABLE> 

                                       12
<PAGE>
 
ICF Kaiser International, Inc. and Subsidiaries
Condensed Consolidating Statement of Cash Flows
Three Months Ended March 31, 1999
(In thousands)

<TABLE> 
<CAPTION> 
----------------------------------------------------------------------------------------------------------------------------
                                                                                                                               
                                                                    Parent        Subsidiary    Non-Guarantor   Discontinued   
                                                                    Company       Guarantors    Subsidiaries     Operations    
                                                                  -----------     ----------    -------------   ------------ 
                                                                                                         (Unaudited) 
<S>                                                               <C>             <C>           <C>             <C> 
Net Cash Provided by (Used in) Operating Activities               $   (2,017)     $    1,704    $       4,697   $     (4,228) 
                                                                  -----------     ----------    -------------   ------------   
                                                                                                                               
Investing Activities                                                                                                           
Investments in subsidiaries and affiliates, net of cash acquired           -               -           (4,374)         4,374  
Sales of subsidiaries and/or investments                                   -               -                -              -  
Investments in net assets of discontinued operations                       -               -                -           (596) 
Purchases of fixed assets                                                  -               -           (1,007)           450   
                                                                  -----------     ----------    -------------   ------------ 
      Net Cash Provided by (Used in) Investing Activities                 -               -           (5,381)         4,228   
                                                                  -----------     ----------    -------------   ------------ 
                                                                                                                               
Financing Activities                                                                                                           
Borrowings under credit facility                                      57,064               -                -              -  
Principal payments on credit facility                                (50,942)              -                -              -  
Change in book overdraft                                              (6,117)              -                -              -  
Distribution of income to minority interest                                -              51                -              -  
Proceeds from issuances of common stock                                   38               -                -              -   
                                                                  -----------     ----------    -------------   ------------   
      Net Cash Provided by (Used in) Financing Activities                 43              51                -              -   
                                                                  -----------     ----------    -------------   ------------   
Effect of Exchange Rate Changes on Cash                                    -               -              (63)             -   
                                                                  -----------     ----------    -------------   ------------ 
Increase (Decrease) in Cash and Cash Equivalents                      (1,974)          1,755             (747)             -  
Cash and Cash Equivalents at Beginning of Period                       2,414           3,814            9,039            (19) 
                                                                  -----------     ----------    -------------   ------------ 
                                                                                                                               
Cash and Cash Equivalents at End of Period                        $      440      $    5,569    $       8,292   $        (19) 
                                                                  ===========     ==========    =============   ============   

<CAPTION> 
----------------------------------------------------------------------------------------------------
                                                                                     ICF Kaiser
                                                                                 International, Inc.
                                                                  Eliminations     Consolidated
                                                                  ------------   -------------------
<S>                                                               <C>            <C> 
Net Cash Provided by (Used in) Operating Activities               $          -     $         156 
                                                                  ------------     -------------   
                                                                                                 
Investing Activities                                                                             
Investments in subsidiaries and affiliates, net of cash acquired             -                 - 
Sales of subsidiaries and/or investments                                     -                 - 
Investments in net assets of discontinued operations                         -              (596)
Purchases of fixed assets                                                    -              (557)
                                                                  ------------     -------------   
      Net Cash Provided by (Used) in Investing Activities                    -            (1,153)
                                                                  ------------     -------------   
                                                                                                 
Financing Activities                                                                             
Borrowings under credit facility                                             -            57,064 
Principal payments on credit facility                                        -           (50,942)
Change in book overdraft                                                     -            (6,117)
Distribution of income to minority interest                                  -                51 
Proceeds from issuances of common stock                                      -                38 
                                                                  ------------     -------------   
      Net Cash Used in Financing Activities                                  -                94 
                                                                  ------------     -------------   
Effect of Exchange Rate Changes on Cash                                      -               (63)
                                                                  ------------     -------------   
Increase (Decrease) in Cash and Cash Equivalents                             -              (966)
Cash and Cash Equivalents at Beginning of Period                             -            15,248 
                                                                  ------------     -------------   
                                                                                                 
Cash and Cash Equivalents at End of Period                        $          -     $      14,282  
                                                                  ============     =============   
</TABLE> 

                                       13
<PAGE>
 
ICF Kaiser International, Inc. and Subsidiaries
Condensed Consolidating Balance Sheet
March 31, 1998
(In thousands)

<TABLE> 
<CAPTION> 
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                      ICF Kaiser
                                               Parent     Subsidiary   Non-Guarantor   Discontinued                  International,
                                               Company    Guarantors   Subsidiaries     Operations    Eliminations Inc. Consolidated
                                               -------    ----------   ------------     ----------    ------------ -----------------
<S>                                           <C>         <C>          <C>             <C>            <C>          <C> 
Assets
Current Assets
Cash and cash equivalents                      $  2,414   $   3,814    $   9,039       $     (19)     $        -       $    15,248
Contract receivables, net                        (5,283)    133,618      155,743         (49,758)              -           234,320
Intercompany receivables, net                   184,700      10,943     (195,643)              -               -                 -
Prepaid expenses and other current assets         2,185         431       10,225            (923)              -            11,918
Deferred income taxes                            30,367       3,245        1,061               -               -            34,673
Net assets of discontinued operations                 -           -            -          65,862               -            65,862
                                              ---------   ---------    ---------       ---------      ----------       -----------
Total Current Assets                            214,383     152,051      (19,575)         15,162               -           362,021
                                              ---------   ---------    ---------       ---------      ----------       -----------
                                                       
Fixed Assets                                           
Furniture, equipment, and leaseholds              4,589       3,456       35,951         (26,026)              -            17,970
Less depreciation and amortization               (4,040)     (3,155)     (30,216)         23,746               -           (13,665)
                                              ---------   ---------    ---------       ---------      ----------       -----------
                                                    549         301        5,735          (2,280)              -             4,305
                                              ---------   ---------    ---------       ---------      ----------       ----------- 

Other Assets                                           
Goodwill, net                                         -       8,745       40,547         (25,969)              -            23,323
Investment in and advances to affiliates        (64,556)         14        6,494            (157)         65,776             7,571
Capitalized software development costs            4,296         766       (3,444)                          1,618
Other                                             4,910         523        8,094            (782)              -            12,745
                                              ---------   ---------    ---------       ---------      ----------       ----------- 
                                                (55,350)      9,282       55,901         (30,352)         65,776            45,257
                                              ---------   ---------    ---------       ---------      ----------       ----------- 

Total Assets                                  $ 159,582   $ 161,634    $  42,061       $ (17,470)     $   65,776       $   411,583
                                              =========   =========    =========       =========      ==========       ===========

Liabilities and Shareholders' Equity
Current Liabilities
Debt currently payable                        $  30,729   $       -    $       -       $       -      $        -       $    30,729
Accounts payable and other accrued expenses      39,759     121,833       72,160          (7,436)              -           226,316
Accrued salaries and employee benefits            7,818      13,997       16,116          (6,790)              -            31,141
Other                                             1,910       1,282       38,966          (3,164)              -            38,994
                                              ---------   ---------    ---------       ---------      ----------       -----------
Total Current Liabilities                        80,216     137,112      127,242         (17,390)              -           327,180

Long-term Liabilities
Long-term debt, less current portion            137,487           -            1               -               -           137,488
Other                                             2,000          26        7,638             (80)              -             9,584
                                              ---------   ---------    ---------       ---------      ----------       -----------
Total Liabilities                               219,703     137,138      134,881         (17,470)              -           474,252
                                              ---------   ---------    ---------       ---------      ----------       -----------

Minority Interests in Subsidiaries                    -         449            -               -               -               449

Shareholders' Equity
Common Stock                                        230       8,179          121               -          (8,288)              242
Additional Paid-in Capital                       75,200       2,596       58,544               -         (60,918)           75,422
Accumulated Earnings (Deficit)                 (134,913)     13,542     (148,368)              -         134,982          (134,757)
Other Equity                                       (638)       (270)      (3,117)              -               -            (4,025)
                                              ---------   ---------    ---------       ---------      ----------       -----------
Total Shareholders' Equity                      (60,121)     24,047      (92,820)              -          65,776           (63,118)
                                              ---------   ---------    ---------       ---------      ----------       -----------

Total Liabilities and Shareholders' Equity    $ 159,582   $ 161,634    $  42,061       $ (17,470)     $   65,776       $   411,583
                                              =========   =========    =========       =========      ==========       ===========
</TABLE> 

                                       14
<PAGE>
 
ICF Kaiser International, Inc. and Subsidiaries
Condensed Consolidating Statement of Operations
Three Months Ended March 31, 1998
(In thousands)

<TABLE> 
<CAPTION> 
------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                 
                                                         Parent        Subsidiary    Non-Guarantor   Discontinued                
                                                        Company       Guarantors     Subsidiaries     Operations  Eliminations 
                                                                                    (Unaudited)                                  
                                                        --------      ----------     ------------    ----------   ------------
<S>                                                     <C>           <C>            <C>             <C>          <C>   
Gross Revenue                                           $   (164)      $ 146,340       $ 159,080      $ (48,417)     $       -   
                                                                                                                                
    Subcontract and direct material costs                   (175)       (107,396)        (91,449)        15,686              -   
                                                        --------       ---------       ---------      ---------      ---------   
                                                                                                                                
Service Revenue                                             (339)         38,944          67,631        (32,731)             -    
                                                                                                                                
Operating Expenses                                                                                                              
    Operating expenses                                     4,288          32,600          59,580        (27,876)             -   
    Depreciation and amortization                            663             292           1,380           (743)             -   
                                                        --------       ---------       ---------      ---------      ---------   
                                                                                                                                
Operating Income (Loss)                                   (5,290)          6,052           6,671         (4,112)             -    
                                                                                                                                
Other Income (Expense)                                                                                                          
    Interest income                                          131             123             270              -            (58)  
    Interest expense                                      (4,816)            (46)            (12)             -             53   
    Equity in net income of unconsolidated subsidiaries   10,593               -           2,084              -        (11,650)  
                                                        --------       ---------       ---------      ---------      ---------   
                                                                                                                                
Income (Loss) From Continuing Operations                                                                                        
    Before Income Taxes and Minority Interest                618           6,129           9,013         (4,112)       (11,655)  
                                                                                                                                
    Income tax expense (benefit)                             173           1,716           2,523         (1,617)        (3,263)  
                                                        --------       ---------       ---------      ---------      ---------   
                                                                                                                                
Income (Loss) From Continuing Operations                                                                                        
    Before Minority Interest                                 445           4,413           6,490         (2,495)        (8,392)  
                                                                                                                                
    Minority interests in net income of subsidiaries           -           2,538             (27)             -              -   
                                                        --------       ---------       ---------      ---------      ---------   
                                                                                                                                
Income (Loss) Before Discontinued Operations                 445           1,875           6,517         (2,495)        (8,392)  
                                                                                                                                
    Income from discontinued operations (net of tax)           -               -               -          2,495              -   
                                                        --------       ---------       ---------      ---------      ---------   
                                                                                                                                
Net Income (Loss)                                       $    445       $   1,875       $   6,517      $       -      $  (8,392)  
                                                        ========       =========       =========      =========      =========   

<CAPTION> 
--------------------------------------------------------------------------
                                                           ICF Kaiser        
                                                       International, Inc.
                                                          Consolidated 
                                                       -------------------
<S>                                                    <C>   
Gross Revenue                                                $ 256,839      
                                                                           
    Subcontract and direct material costs                     (183,334)      
                                                             ---------       
                                                                           
Service Revenue                                                 73,505        
                                                                           
Operating Expenses                                                         
    Operating expenses                                          68,592        
    Depreciation and amortization                                1,592         
                                                                           
                                                                           
Operating Income (Loss)                                          3,321         
                                                                           
Other Income (Expense)                                                     
    Interest income                                                466           
    Interest expense                                            (4,821)
    Equity in net income of unconsolidated subsidiaries          1,027         
                                                                           
                                                                           
Income (Loss) From Continuing Operations                                   
    Before Income Taxes and Minority Interest                       (7)   
                                                                           
    Income tax expense (benefit)                                  (468) 
                                                                           
                                                                           
Income (Loss) From Continuing Operations                                   
    Before Minority Interest                                       461           
                                                                           
    Minority interests in net income of subsidiaries             2,511         
                                                                           
                                                                           
Income (Loss) Before Discontinued Operations                    (2,050)
                                                                           
    Income from discontinued operations (net of tax)             2,495         
                                                                           
                                                                           
Net Income (Loss)                                            $     445         
                                                             =========          
</TABLE> 

                                       15
<PAGE>
 
ICF Kaiser International, Inc. and Subsidiaries
Condensed Consolidating Statement of Cash Flows

<TABLE> 
<CAPTION> 
Three Months Ended March 31, 1998
(In thousands)
------------------------------------------------------------------------------------------------------------------------------------

                                                                                                                            
                                                                    Parent      Subsidiary   Non-Guarantor  Discontinued    
                                                                    Company     Guarantors   Subsidiaries   Operations      
                                                                                      (Unaudited) 
                                                                                                                            
Net Cash Provided by (Used in) Operating Activities                 $ (3,558)    $ 7,586       $ 6,450         $ 1,991      
                                                                    ---------   --------      --------        --------      
<S>                                                                 <C>         <C>           <C>             <C>                 
Investing Activities                                                                                                        
Investments in subsidiaries and affiliates, net of cash acquired       3,841           -             -               -    
Sales of subsidiaries and/or investments                               2,400           -             -               -    
Investments in net assets of discontinued operations                                   -                        (2,424)   
Purchases of fixed assets                                               (369)          -        (1,108)            444    
                                                                     -------     -------      --------        --------   
      Net Cash Provided by (Used in) Investing Activities              5,872           -        (1,108)         (1,980)  
                                                                     -------     -------      --------        --------
                                                                                                                            
Financing Activities                                                                                                        
Borrowings under credit facility                                      35,000           -             -               - 
Principal payments on credit facility                                (34,500)          -             -               - 
Change in book overdraft                                               5,988           -             -               - 
Distribution of income to minority interest                                -      (3,071)            -               - 
Proceeds from issuances of common stock                                   47           -             -               - 
                                                                     -------     -------       -------        -------- 
      Net Cash Provided by (Used in) Financing Activities              6,535      (3,071)            -               - 
                                                                     -------     -------       -------        -------- 
Effect of Exchange Rate Changes on Cash                                    -           -            74               - 
                                                                     -------     -------       -------        -------- 
Increase in Cash and Cash Equivalents                                  8,849       4,515         5,416              11 
Cash and Cash Equivalents at Beginning of Period                      (4,843)     10,259        14,604             (11)
                                                                     -------     -------       -------        -------- 
                                                                                                                            
Cash and Cash Equivalents at End of Period                           $ 4,006     $14,774       $20,020        $      -  
                                                                     =======     =======       =======        ======== 

<CAPTION> 
                                                                                                        ICF Kaiser
                                                                                                   International, Inc.
                                                                                   Eliminations        Consolidated
                                                                                   ------------    ------------------ 
<S>                                                                                 <C>                <C>      
                                                                                                                
                                                                                 
Net Cash Provided by (Used in) Operating Activities                                  $      -           $  12,469     
                                                                                     --------           ---------      
                                                                                                                    
Investing Activities                                                                                                
Investments in subsidiaries and affiliates, net of cash acquired                            -               3,841   
Sales of subsidiaries and/or investments                                                    -               2,400   
Investments in net assets of discontinued operations                                        -              (2,424)  
Purchases of fixed assets                                                                   -              (1,033) 
                                                                                     --------           --------- 
      Net Cash Used in Investing Activities                                                 -               2,784   
                                                                                     --------           --------- 
                                                                                                                    
Financing Activities                                                                                                
Borrowings under credit facility                                                            -              35,000
Principal payments on credit facility                                                       -             (34,500
Change in book overdraft                                                                    -               5,988
Distribution of income to minority interest                                                 -              (3,071
Proceeds from issuances of common stock                                                     -                  47
                                                                                     --------           --------- 
      Net Cash Used in Financing Activities                                                 -               3,464
                                                                                     --------           --------- 
Effect of Exchange Rate Changes on Cash                                                     -                  74
                                                                                     --------           --------- 
Increase (Decrease) in Cash and Cash Equivalents                                            -              18,791
Cash and Cash Equivalents at Beginning of Period                                            -              20,009 
                                                                                     --------           ---------  
                                                                                                                    
Cash and Cash Equivalents at End of Period                                           $      -           $  38,800 
                                                                                     =========          =========  
</TABLE> 

                                       16
<PAGE>
 
Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

Overview

During the three months ended March 31, 1999, the Company made significant
progress toward completion of four large fixed price contracts, involving the
construction of plants to produce nitric acid (the Nitric Acid Projects), which
caused the Company to recognize contract cost overruns in 1998 totaling $66.0
million.  A significant amount of management activities have since been focused
on responding to the various cash flow consequences stemming from the
substantial loss.  Management has now addressed the predominant issues related
to completing the Nitric Acid Projects and funding the related cost overruns.
Three of the four plants were complete and operating in 1998, while the fourth
became operational on  April 15, 1999. The Company entered into arrangements
with several of the Nitric Acid Project customers and subcontractors in order to
minimize the remaining cost uncertainties.  The Company may also continue to
pursue claims recoveries against certain subcontractors, but has not included
any estimate for recoveries in the total recorded cost overrun.

Anticipating the cash flow and liquidity issues that would result from the
Nitric Acid Project cost overruns and from significant ensuing restructuring
activities, the Company proceeded down two parallel paths addressing liquidity;
one intended to recognize significant cash from values inherent in the Company's
businesses; the other, involving the Company's revolving credit, was intended to
bridge short term needs.

In 1999, the Company announced its intention to sell the two major operating
segments described below:

 .    On March 8, 1999, the Company entered into a definitive asset purchase
     agreement (the EFM Agreement) with The IT Group, Inc. (IT) for the sale of
     the Company's Environment and Facilities Management Group (EFM). Pursuant
     to the terms of the EFM Agreement, on April 9, 1999, the Company sold the
     majority of the active contracts and investments, and transferred a
     substantial number of employees to IT, for a purchase price of $82 million,
     less $8 million to be retained by IT for EFM's working capital
     requirements. IT also acquired the Company's interest in various operating
     leases for equipment and facilities used by EFM.

 .    Also in March 1999, the Company announced its intention to sell its
     Consulting Group. On March 8, 1999, a non-binding letter of intent was
     signed with CM Equity Partners, L.P. (CMEP), an equity investment firm
     based in New York City, and the Group's management for the sale of the
     majority of the assets associated with the Consulting Group. Although terms
     of the sale are not completely negotiated, the Company expects to sell 90%
     of the Consulting Group for an amount in excess of $70 million. The sale is
     expected to be completed by mid-year 1999.

The accompanying quarterly financial statements reflect these segments'
operations as "discontinued" and present the results separate from those of the
Company's continuing operations.

The erosion on the Nitric Acid Projects, combined with recent growth in the
Company's federal government business, pushed the Company to maximum available
borrowing levels and resulted in restrictive amendments to the recently secured
revolving line of credit.  The amendments now limit cash borrowing and letter of
credit access only up to an aggregate of $30 million and require $10 million in
cash collateral for existing letters of credit.  The Company's revolving credit
facility expires on June 30, 1999.  Additionally, until the completion of the
sale of the discontinued Consulting Group segment, the Company has had and may
continue to extend the average age of its vendor obligations and to carefully
manage all cash disbursement activity. The payment delays to trade creditors
may, at least in the short term, have a negative impact upon the Company's
current and future ability to generate and secure business opportunities.  The
Company is actively exploring means by which the available cash proceeds from
the sale of the Consulting Group may be used to facilitate transactions that
would reduce the Company's outstanding debt to levels supportable over the long
term by anticipated cash flows from operations remaining after the sale of the
Consulting Group.  Such transactions may include proposals for the exchange of
cash, new debt, and equity for some or all of the Company's outstanding notes.

Some of the net cash proceeds from the completed sale of EFM and the pending
Consulting Group sale has been and will continue to be used to pay down the cash
borrowings on the Company's revolving line of credit and contribute to resolving
existing liquidity constraints.  The Company also will continue to pursue
reductions in its cost structure.  This effort, together with an increased focus
on risk mitigation and effective resource allocation, are aimed at improving the
profitability of the Company's remaining operations. The Company is committed to
implementing proper management controls and the processes necessary to deliver
high-quality, profitable projects throughout its 

                                       17
<PAGE>
 
operations. A plan that management began implementing late in 1998 provides for
the discontinuance of unprofitable market areas, the realignment of staff within
the Company to meet current needs, and the reduction of significant overhead
costs in light of the divestitures of two of its operating groups. The Company
anticipates that it will recognize a future charge for additional costs of the
restructuring once the plan is fully developed.

The Company ended the first quarter of 1999 with approximately $1.8 billion in 
contract backlog for its continuing operations; $1.3 billion for Kaiser-Hill and
$0.5 billion for E&C.  The backlog of the discontinued EFM and Consulting 
Groups approximated [$600] million and [$500] million, respectively, as of
March 31, 1999.


Results of Continuing Operations

Gross Revenue

The Company's gross revenue by operating group for each of the three month
periods ended March 31 are as follows (in millions):

<TABLE>
<CAPTION>
                                                                    1999            1998
                                                                   ------          ------   
     <S>                                                           <C>             <C> 
     Kaiser-Hill...........................................        $145.1          $141.0
     Engineering and Construction (E&C)....................          80.4           115.8
                                                                   ------          ------
          Total............................................        $225.5          $256.8
                                                                   ======          ======
</TABLE>
                                                                                
Kaiser-Hill


Kaiser-Hill is a 50% owned, board-controlled and consolidated joint venture
between ICF Kaiser International, Inc. and CH2M Hill formed solely to perform
the U.S. Department of Energy's Rocky Flats Closure Project awarded in late
1995. The contract is cost-plus incentive fee in nature.  Accordingly, the
changes in gross revenue earned by Kaiser-Hill during the comparable periods are
largely reflective of increased levels of reimburseable subcontractor costs
being incurred as the contract progress ensues.

Engineers & Constructors Group (E&C)


The E&C Group provides design engineering, procurement, and construction
services to domestic and international clients in the industrial, water,
transportation and transit, infrastructure, and semi-conductor (or clean room
technologies) markets.  The decrease in gross revenue of $35.4 million during
the three months ended March 31, 1999 compared to 1998 is comprised primarily 
of the following:

 .    a decline of $31.1 million in gross revenue generated by the Company's
     construction management activities specializing in fabrication plants and
     other facilities for semiconductor and microelectronics customers.

 .    an increase of $12.3 million in gross revenue generated by the Nova Hut
     steel mini-mill contract in the Czech Republic primarily from completing
     activities of the project involving the procurement of significant amounts
     of subcontracted labor and direct materials. Currently contracted portions
     of this project are expected to be completed during the latter half of
     1999.

 .    a reduction of $13.8 million in gross revenue recognized from the Nitric
     Acid Projects, partially reflective of the decreasing volume of activity on
     the projects as they neared completion and partially of the reversal of
     revenue as a result of changes in estimates of contract losses at
     completion.

Service Revenue

The Company's service revenue for the three months ended March 31, as well 
as the related percentage of service revenue to gross revenue, is as follows
(in millions):

<TABLE>
                                                                                                      1998
                                                                                                      ----
                                                           1999                  1998                CHANGE 
                                                           -----                 -----               ------
     <S>                                                   <C>        <C>        <C>         <C>     <C>          
     Kaiser-Hill...................................        $34.7      24%        $35.7       25%      (3)%
     Engineering and Construction (E&C)............         27.9      35%         38.8       33%     (26)%
                                                           -----                 -----
                                                           $62.6      28%        $73.5       29%     (15)%
                                                           =====                 =====
</TABLE>

                                       18
<PAGE>
 
Kaiser-Hill
------------

Kaiser-Hill's service revenue is generated in part by fees earned as a
percentage of costs incurred to execute the project and in part by incentive
fees earned for attaining specified contract performance thresholds.  The
incentive fees are not based on incurred costs.   The service revenue decrease
of $0.9 million during the three months ended March 31, 1999 compared to 1998 is
reflective of changes in recorded incentive fee estimates between the periods as
current phases of the contract contain increased minimum performance levels.

Engineers & Constructors Group (E&C)
-------------------------------------

The decrease in service revenue of $9.9 million during the three months ended
March 31, 1999 compared to the same quarter in 1998 is comprised primarily of:

 .    a reduction of $1.8 million previously generated from the Nitric Acid
     Projects. The Projects generated no service revenue in 1999, largely
     reflective of the large provisions for cost overruns recorded during 1998
     and of the fact that the last phases of the contracts were more
     subcontractor intensive. The related service revenue recognized during the
     three months ended March 31, 1998 was on two Nitric Acid Projects for
     which, as of March 31, 1998, the Company had not yet projected losses at
     completion.. Although management believes that adequate provision for loss
     reserves and profit estimates for these fixed-price contracts has been
     reflected in these results, no assurance can be given that there will be no
     additional future adjustments.

 .    a reduction of $2.2 million generated by the Asia-Pacific activities. The
     effect on profits of this service revenue decline was somewhat offset by 
     increases over the prior quarter in Australian joint venture activities. 
     The Company records its ownership percentage of the joint venture's 
     results as equity in net income of unconsolidated subsidiaries.

 .    a reduction of $1.0 million representing the late 1998 discontinuance of
     certain E&C operations in several foreign markets.

 .    other total net reductions of $4.9 million as current projects neared 
     completion compared to the same period in 1998 or entered phases
     requiring proportionately more subcontractor and direct material costs than
     the Group's own professional services. This result reflects the overall
     decline in the Group's contract backlog and is the primary contributor to
     the Company's operating losses for the three months ended March 31, 1999 -
     since much of the direct labor that was previously deployed on such
     projects is decreasingly utilized.

Operating Expenses

Segment operating expenses as a percentage of service revenue for each of the
three months ended March 31 are as follows:

<TABLE>
<CAPTION>
                                                                         KAISER-HILL                  E&C
                                                                         -----------                  ---         
                                                                     1999         1998         1999        1998
                                                                    ------      -------      -------     ------- 
<S>                                                                 <C>         <C>          <C>         <C> 
          Service Revenue  .                                          100%         100%         100%         100%
          Operating Expenses
            Direct labor and fringe benefits....................       88%          86%          64%          60%
            Group overhead......................................        -            -           39%          30%
                                                                      ----         ----         ----        ----
          Segment income........................................       12%          14%          (3)%         10%
                                                                      ====         ====         ====        ====
</TABLE>
                                                                               
The segment operating results include all direct and overhead activities that
are typically controllable by the respective segment's business leaders and
consist of activities that had sole direct benefit to the respective segment.
Operating activities that are deemed to benefit more than one segment are not
managed by segment business leaders but are instead managed by the Company's
corporate overhead structure and are not allocated to the segments but instead
classified as corporate overhead on the Company's income statement.

The decline in Kaiser-Hill's operating income as a percentage of service
revenue for the three months ended March 31, 1999 versus 1998 is again
indicative of the profit-earning nature of the underlying contract  - some
profit is earned as a percent of actual costs incurred and some profit is earned
based on incentives for attaining specified, qualitative contract performance
thresholds.  Therefore, total profits may vary as a percentage of service
revenue.   The reduced profit percentage of 12% above reflects changes in
recorded incentive fee estimates included in service 

                                       19
<PAGE>
 
revenue as compared to the same period in 1998 due to the current phase of the
contract containing increased minimum performance levels required to earn the
incentive fees. Actual direct labor of Kaiser-Hill remained consistent quarter
over quarter at $30.6 million.

The declining E&C results, quarter over quarter, stem from lower gross margins 
being earned on projects and significant increases and volumes of indirect 
labor, resulting from completion of projects and the declining backlog 
prohibiting the redeployment of direct labor to more profitable projects.

There were no significant changes, quarter over quarter (amounts not depicted
above), in corporate general and administrative expense.  However in light of
the significant 1998 contract overruns and ensuing activities directed at
resolving the resulting liquidity issues, the Company has been incurring costs
that it ordinarily would not incur without these strains.  Such costs, including
divestiture-related expenses of professional fees as well as increased bank
fees, and fines and penalties, have been presented as unusual items in the
accompanying income statement.

It should also be noted that the levels of corporate overhead incurred during
the three months ended March 31, 1999 and 1998 were for the Company's
organization and size prior to the completion of the sales of the recently
discontinued segments.  Subsequent to those sales, however, corporate overhead
and general and administrative spending will need to be restructured and reduced
to levels appropriate for the Company's continuing core E&C operations.
Management believes it can significantly reduce or "right-size" these costs.
The plan is currently being developed and should take effect beginning late in
the second quarter of 1999 - essentially following the completion of the sales
of the two discontinued business segments.

Interest Expense

The Company's average outstanding debt and the related average effective
interest rates for three months ended March 31, 1999 were $175.8 million and
13.3%, respectively, and $143.8 million and 13.4%, respectively for the three
months ended March 31, 1998.   The increased borrowings were primarily necessary
to fund cost overruns on the Nitric Acid Projects and is the direct cause of the
$1.0 million increase in interest expense during the first quarter of 1999
compared to the first quarter of 1998.

Income Tax Expense

The net effect of the income tax activity for the three months ended March 31,
1999 was to continue with recently established practice of not recognizing
current financial statement benefits created by the future deductibility of net
operating losses, created largely by domestic operations in the current period.
Rather, the Company only provided for income taxes that will be due as a result
of current period foreign earnings.  In addition to this quarter's operating
losses, the Company's balance sheet contains a deferred tax asset totaling $34.7
million.  The asset is comprised of total future income tax credits of $60.0
million less $25.3 million in valuation allowances.  The valuation allowances
have been recorded to reflect the current uncertainty over the Company's ability
to realize and use all of the net operating loss deductions in the future.
Management believes, however, that future earnings, including anticipated gains
from the sales of the discontinued segments will generate sufficient taxable
income within the next year to realize the entire net $34.7 million deferred tax
asset in addition to $24.1 million of benefits currently included in the
valuation allowance.

The income tax provision for the three months ended March 31, 1998 was computed
using an estimated average effective income tax rate of 28%.  The effective rate
method was used at March 31, 1998, because the Company had not yet estimated 
that it would incur significant net operating losses in 1998.  Had the losses 
been projected as of the end of March, 1998, the Company would have only 
recorded income tax expense on foreign earnings similar to the methodology 
used for the three months ended March 31, 1999.

The income tax provision for all periods presented excludes the minority's
interest in Kaiser-Hill's operating income because it is only 50% owned and is a
flow-through entity for income tax purposes.

                                       20
<PAGE>
 
Results of Discontinued Operations

The operating results of the two discontinued segments has been included in the
accompanying financial statements, in accordance with generally accepted
accounting principles, in the form of their net results only.  Summarized
results for the discontinued segments is as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                  EFM                      CONSULTING
                                                                      ---------------------------  -----------------------------
                                                                                
     THREE MONTHS ENDED MARCH 31,                                          1999           1998          1999           1998
                                                                      -------------  ------------  ------------  ---------------
     <S>                                                              <C>            <C>           <C>           <C>    
     Gross revenue.................................................      $ 29,939      $ 22,994        $26,462         $25,423
       Subcontracts and materials..................................       (16,377)      (10,158)         5,079          (5,528)
                                                                         --------      --------        -------         -------
     Service revenue...............................................        13,562        12,836         21,383          19,895
     Operating expenses:
       Direct labor and fringe.....................................         6,975         6,566          9,973           9,404
       Group overhead..............................................         4,722         5,139          8,615           6,767
       Depreciation and amortization...............................           455           455            340             288
                                                                         --------      --------        -------         -------
     Segment income before income tax..............................      $  1,410      $    676        $ 2,455         $ 3,436
                                                                         ========      ========        =======         =======
</TABLE>
                                                                                
Total segment income from the discontinued operations of $3.9 million and $4.1
million for the three months ended March 31, 1999 and 1998, respectively, is
presented in the accompanying income statement net of an applicable 40% income
tax rate of $1.6 million and $1.6 million, respectively.  Regardless of the
income tax expense recognized on the earnings from the discontinued operations,
the Company's consolidated tax position has no net current income tax expense
(other than for foreign income taxes) - see Income Tax Expense.  Therefore, the
tax expense attributable to the earnings from the discontinued operations has
been offset in the income tax provision from continuing operations by a similar
amount of income tax benefit.


LIQUIDITY AND CAPITAL RESOURCES

Operating activities:   Apart from operating cash flows of $2.1 million
generated by Kaiser-Hill for the three months ended March 31, 1999, the
Company's remaining continuing operations used $2.0 million in cash during the
quarter - primarily for the additional funding of the Nitric Acid Project
overruns, as well as growth in its federal government contracts which, 
generally, require that subcontractor invoices be paid by the Company prior to 
the Company issuing an invoice to the government customer.
 
Investing activities:  Fixed asset purchases in the first quarter of 1999 and
1998 consisted largely of the capitalized costs of either purchased or
internally developed software necessitated by the Company's software replacement
efforts for Year 2000 issues.   The cash flows from the operations of the
discontinued segments, as well as net changes in working capital and investing
activities are all presented net in the Cash Flow Statement as "Investments in
Net Assets of Discontinued Operations".

During the first quarter of 1998, the Company collected $2.4 million from the
sale of its 1997 sale of a remaining minority investment in a pulverized coal
injection facility.  Also during the first quarter of 1998, the Company acquired
cash of approximately $3.8 million when it completed the acquisition of the
former ICT Spectrum using common stock.

Financing activities: During the first quarter of 1999, the Company's trade
payables were aged significantly as operating activities continued to use cash.
Including the effects of book overdrafts, all available financing was fully
utilized during the entire quarter - therefore there were no net financing cash
flows during the quarter.  During the first quarter of 1998, Kaiser-Hill
distributed $3.1 million to CH2M Hill.  

As of March 31, 1999, the Company had $36.8 million in cash borrowings and $25.2
million in letters of credit outstanding under the revolver credit line, with no
additional availability.


                                       21
<PAGE>
 
Liquidity and Capital Resource Outlook

Based on current plans and expectations, management believes that the net cash
proceeds from the completed EFM sale and the pending Consulting Group sale will
yield sufficient short-term liquidity to bridge the Company's financing needs
until such time as the Company can secure other longer-term funding
alternatives. Specifically, the cash proceeds from divestitures will be used to
retire outstanding cash borrowings from the revolving credit facility, provide
required collateral for contract performance guarantees (including letters of
credit), pay overdue vendor obligations and contribute to supporting the future
working capital requirements and capital expenditures of the Company's remaining
operations including the $9.1 million interest obligations due June 30, 1999 to
the Series B Senior and the Senior Subordinated Notes.

The Company's amended $30 million revolving line of credit (the Amended
Revolver) from its current lenders expires June 30, 1999.  The terms of the
Amended Revolver include similar restrictive financial covenants as the Revolver
and in addition require the Company to cash collateralize $10.0 million of its  
letters of credit previously secured by assets of the Company.  To extend the 
Amended Revolver beyond June 8, 1999, if necessary, through to June 30, 1999 a 
substantial fee would have to be paid to the Company's existing lenders.  Such 
an extension of the Amended Revolver would be required in the event that the 
sale of the Consulting Group is not consummated before June 8, 1999.  Moreover,
based on preliminary discussions with existing and prospective senior lenders, 
the Company does not presently expect to have available a revolving line of 
credit after June 30, 1999.  Accordingly, following the anticipated close of 
the sale of the Consulting Group, the Company's present plan is to cash 
collateralize all of the outstanding letters of credit, as well as any 
additional letters of credit of the type often required to support certain 
contract performance obligations, and utilize other available cash for working 
capital purposes.  This situation could limit the availability of letters of 
credit to support the growth of the Company's business.

In the event the Consulting Group sale is not consummated, the Company currently
believes the cash flows from ongoing operations of the Consulting Group, Kaiser-
Hill, and the E&C Group would most likely generate sufficient collateral, in the
form of current trade accounts receivable, to adequately support a borrowing
base in the amount needed to secure the size of revolving credit line needed to
fund short-term borrowing needs of the Company's for those operations, as well
as the letter-of-credit capacity needed primarily by the E&C Group.   However,
it is difficult to predict with certainty and no assurances can be given as to
whether a revolving credit facility would be available to the Company upon such
sale or as to the terms on which such a facility might be made available.  The
Company does not currently have any commitments from lenders for a new line of
credit and there can be no assurances as to its ability to secure one.

Whether or not the sale of the Consulting Group is completed, management
believes that a factor critical to the Company's success in securing a
sufficient and affordable working capital facility in the near term is its
ability to immediately reduce sufficient overhead costs from remaining
operations and achieve improved operating results. Although management has taken
certain steps to accomplish these milestones, there can be no assurance that it
will be able to do so.   In addition, management believes it is necessary for
the Company to realign its capital structure.  The Company is actively exploring
means by which the available cash proceeds from the sale of the Consulting Group
may be used to facilitate transactions that would reduce the Company's
outstanding debt to levels supportable over the long term by anticipated cash
flows from operations remaining after the sale of the Consulting Group.  Such
transactions may include proposals for the exchange of cash, new debt and equity
for some or all of the Company's outstanding notes.  Any issuance of new debt
could impose restrictive covenants upon the Company's business operations.
Additionally, any equity issuance could result in substantial dilution to
current holders of the Company's common stock.

The Company also will continue to explore options that would provide additional
capital for longer-term objectives and operating needs, including the
possibility for divestiture of additional operating assets and additional equity
infusions.

                                       22
<PAGE>
 
Other Matters

Bath Contingency:   In March 1998, the Company entered into a $187 million
maximum price contract to construct a ship building facility. In May 1998, the
Company subsequently learned that estimated costs to perform the contract as
reflected in actual proposed subcontracts were approximately $30 million higher
than the cost estimates originally used as the basis for contract negotiation
between the Company and the customer. After learning this, the Company advised
the customer that it was not required to perform the contract in accordance with
its terms as a result of a mutual mistake among them in negotiating that
contract. In October 1998, the customer presented an initial draft of a claim
against the Company requesting payment for estimated damages and entitlements
pursuant to the terminated contract. The Company and the customer are currently
discussing the customer's draft claim. No provision for loss for this matter has
been included in the Company's financial results to date as management does not
believe that it has sufficient information to reasonably estimate the outcome as
negotiation activity has not been significant to date.

Acquisition Contingency:   The ICF Kaiser common shares exchanged for the stock
of ICT Spectrum in the March, 1998 acquisition, carry the guarantee that the
fair market value of each share of stock will reach $5.36 by March 1, 2001. In
the event that the fair market value does not attain the guaranteed level, the
Company is obligated to make up the shortfall either through the payment of cash
or by issuing additional shares of common stock with a total value equal to the
shortfall, depending upon the Company's preference. Pursuant to the terms of the
Agreement, however, the total number of contingently issuable shares of common
stock cannot exceed an additional 1.5 million. Given that the quoted fair market
value of the stock at March 31, 1999 was [$1.44] per share, and that the
Company's current debt instruments restrict the amount of cash that can be used
for acquisitions, the assumed issuance of an additional 1.5 million shares would
not completely extinguish the purchase price contingency. The Company therefore
would be required to obtain an amendment to current debt instruments or replace
them in order to complete a cash fill-up. Any future distribution of cash or
common stock would be recorded as a charge to the Company's paid-in-capital.

Until the earlier of the contingent purchase price resolution or March 1, 2001,
any additional shares assumed to be issued because of shortfalls in fair market
value will be included in the Company's diluted earnings per share calculations,
unless they are antidilutive. The exchanged shares also contain restrictions
preventing their sale prior to March 1, 2001.

On March 29, 1999, one ex-ICT Spectrum shareholder, individually and on behalf
of all others similarly situated, filed a class action lawsuit alleging false
and misleading statements made in a private offering memorandum, and asserting
other claims, in connection with the Company's acquisition of ICT Spectrum in
1998.

Year-2000 Readiness:   Similar to many organizations that use computer programs
in their operations, the Company is addressing the impact of the Year-2000 issue
on its business. The Year-2000 issue is the result of computer programs that
were written using two digits rather than four to identify the year in a date
field. Although it is possible that certain programs could function if left
uncorrected, there is a significant risk that computer programs will recognize
any two digit date containing ''00'' to be referring to the year 1900 rather
than the year 2000. This could result in system failures and miscalculations
causing disruptions to regular operations.

The Company has developed and implemented a plan to achieve Year-2000 readiness.
The Year-2000 program, led and coordinated at the corporate level, consists of
senior management from all Company disciplines, and is being executed and
implemented by teams in each of the Company's operating groups throughout the
world. The Company has identified the following five areas in which Year-2000
readiness and/or risk assessment are critical operations:

     (1) software applications used by management to run and monitor the
     business (''Internal Systems'');
 
     (2) the hardware and related software used internally to run the core
     business--such as desk-top hardware and software applications,
     communications networks, and systems used in the operation of office
     facilities (''Hardware, Network, and Facilities Systems'');

     (3) software that the Company has either purchased, designed, developed,
     written, or interfaced, and sold to customers (''Customer Systems'');

     (4) software used by the Company's significant vendors or subcontractors
     that could disrupt the flow of the Company's activities in the event that
     the system malfunctions (''Vendor Systems''); and

                                       23
<PAGE>
 
     (5) systems critical to the operations of Kaiser-Hill (''Kaiser-Hill
     Systems'').

Within each category, the Company has identified and assigned criticality
priorities to the various systems. Levels of system criticality were defined as
those that might have a significant adverse effect to the Company in any of the
areas of safety, environmental, legal, financial, and service-delivery
capabilities.

Internal Systems: Management's ongoing assessment of the majority of its
Internal Systems began in 1995 and 1996 with the replacement of its main-frame
based financial and project management software systems with new client-server
applications which will be Year 2000 ready. The phased conversion to the new
systems began in 1996 and will be completed by September 1999. The costs of the
new software, external consultants, and the internal cost of implementation
labor is being capitalized and amortized over a period of five years. The total
remaining costs, excluding internal labor, of this aspect of the Year-2000
project, including nonrecurring costs associated with the historical archival of
main-frame-based computer data, is estimated to be less than $1.0 million.

Hardware, Network and Facilities Systems: The Company is finalizing the
inventory and assessment of these systems and is currently in the replacement
mode. Estimated costs of $0.2 million will be incurred to replace these critical
systems, primarily including the replacement of embedded technology in items
such as telephone switches. The Company will most likely finance the majority of
this obligation through operating leases just as it does for the majority of its
annual ongoing needs for technology updates for desk-top hardware and software.
Accordingly, the charges will be expensed as the lease financing is paid.

Customer Systems:   The Company also is assessing the risk surrounding Year-2000
readiness in its customer systems, i.e. risk that may have been created through
the Company's contracts for services in which the Company's professionals wrote
and delivered software source code, or procured third party software for
modification and/or resale to customers. Based on the service orientations of
the Company's business, which historically did not make wide use of computer
software applications, management does not anticipate significant contract
exposures emanating from the improper functioning of delivered source code that
would still be covered under nonexpired contract warranty provisions. There can
be no assurances that the Company's customers would be unable to seek such
compensation even if the contracts do not provide for it.

Vendor Systems:   The Company is also corresponding with all vendors and
subcontractors related to the Vendor Systems that have been identified through
reasonable risk assessment techniques as critical to the Company's operations
regarding their Year-2000 readiness. Compliance assessment in this area will be
ongoing throughout 1999. The Company will devise contingency plans in the event
it believes significant risk to a disruption of service to the Company is not
being adequately mitigated. Currently, management does not anticipate the need
for contingency plans. Of course, the ability of parties to be compensated for
monetary or other damages resulting from Year-2000 readiness risks is unknown.

Kaiser-Hill Systems:   Kaiser-Hill also has a Year-2000 readiness program,
separate from that of the Company. The United States Department of Energy (DOE)
owns all property and equipment at the Rocky Flats Environmental Technology Site
near Denver, Colorado. While DOE bears the Year-2000 risk at Rocky Flats,
Kaiser-Hill manages and uses the DOE property in its execution of the site
closure contract. One work element of the Rocky Flats contract requires that
Kaiser-Hill plan and execute DOE's Year-2000 readiness activities at the site.
Costs incurred by Kaiser-Hill in the execution of the readiness activities are
fully reimbursed by the DOE. Additionally, Kaiser-Hill is eligible for
performance award fees for attaining certain plan performance milestones, and is
susceptible to penalties in the event certain plan milestones are not attained.
Successful progress on the plan execution to date has resulted in Kaiser-Hill
being awarded $0.5 million in performance award fees through March 31, 1999, as
well as attaining reductions to the total amount of potential penalties,
limiting the remaining potential penalty exposure to $0.5 million.

Although there can be no guarantee of complete readiness by the beginning of the
year 2000, the Company believes each of the business areas described above will
be Year-2000 ready or be substantially ready by November 1999 such that further
remediation and testing, if any, will not be significant. In the event the
Company does not complete its program, or fails to properly identify and modify
critical business applications, there may be an interruption to the Company's
business that may have a material adverse affect on its business, future
financial condition and results of 

                                       24
<PAGE>
 
operations. In addition, Year-2000-related disruptions in the general economy
may also have a materially adverse effect on the Company's future financial
condition and results of operations.

At this time, the Company has not developed a ''worst case'' scenario or an
overall Year-2000 contingency plan but will do so when, if ever, management
believes such plans are warranted. Management believes that the majority of the
risks to its critical business operations are within the Company's control and
ability to address. (see ''Forward-Looking Information'' below).


Forward-Looking Statements

From time to time, certain disclosures in reports and statements released by the
Company, or statements made by its officers or directors, will be forward-
looking in nature. These forward-looking statements may contain information
related to the Company's intent, belief, or expectation with respect to contract
awards and performance, potential acquisitions and joint ventures, and cost-
cutting measures. In addition, these forward-looking statements contain a number
of factual assumptions made by the Company regarding, among other things, future
economic, competitive, and market conditions. Because the accurate prediction of
any future facts or conditions may be difficult and involve the assessment of
events beyond the Company's control, actual results may differ materially from
those expressed or implied in such forward-looking statements.

The Company is availing itself of the safe harbor provisions provided in the
Private Securities Litigation Reform Act of 1995 by cautioning readers that the
forward-looking statements that use words such as the Company ''believes,''
''anticipates,'' ''expects,'' ''estimates,'' and ''believes'' are subject to
certain risks and uncertainties which could cause actual results of operations
to differ materially from expectations. These forward-looking statements will be
contained in the Company's federal securities laws filings or in written or oral
statements made by the Company's officers and directors to press, potential
investors, securities analysts, and others. Any such written or oral forward-
looking statements should be considered in context with the risk factors
discussed below:

 .    the Company requires access to a revolving credit line to fund short-term
     borrowing needs of the Company's total remaining operations, as well as the
     letter of credit capacity needed primarily by the E&C Group. The Company
     may not be able to generate collateral to support a borrowing base of
     sufficient size to obtain such credit or may not be able to improve
     operating results enough, by removing overhead costs or otherwise, to be
     able to obtain such credit.

 .    the Company may be precluded from attaining other satisfactory contract
     performance guarantee mechanisms, such as performance bonding capabilities.

 .    the Company may consider the sale of various operating groups in order
     togenerate liquidity sufficient to meet its obligations. In the event that
     planned sales of operations cannot be consummated on a timely basis, the
     Company will need access to other sources of working capital to adequately
     fund its remaining operations.

 .    the Company may not be able to maintain the existing volume or size of
     contracts and may not be able to realize increased contract performance
     levels. The Company is involved in a number of fixed-price contracts under
     which the Company can benefit from cost savings or performance
     efficiencies, but if certain pricing and performance assumptions prove
     inaccurate, unrecoverable cost overruns can occur.

 .    the Company may not be awarded new contracts for which it is competing in
     its established markets or these awards may be delayed; in addition, the
     Company may not be able to win contracts in new markets it chooses to
     target. General economic conditions in the international arena, especially
     Asia and Latin America, could negatively impact the Company's current
     international business and its ability to expand in international markets.

 .    the Company's EFM and Consulting Groups are very dependent on federal
     government contracts, which are subject to annual funding approvals and
     cost audits, and may be terminated at any time, with or without cause; a
     large number of federal government contracts are included in the Company's
     contract backlog, which potentially means that not all contract backlog
     will become future revenue of the Company;

                                       25
<PAGE>
 
 .    the Company may not be able to make acquisitions and or enter into joint
     ventures, and if made, acquisitions and joint ventures may take more time
     to contribute favorably to the Company's financial results than was
     formerly assumed. The Company is highly leveraged and is subject to
     restrictive covenants that limit its ability to fund potential acquisitions
     and joint ventures beyond certain levels established in its debt
     agreements.

 .    a large portion of the Company's business has been and is generated either
     directly or indirectly as a result of federal and state environmental laws,
     regulations, and programs; a reduction in the number or scope of these
     laws, regulations, or programs could materially affect the Company's
     business. In addition, environmental work poses risks of large civil and
     criminal liabilities for violations of environmental laws and regulations,
     and liabilities to customers and to third parties for damages arising from
     the Company's performing environmental services to its clients. A large
     fine or penalty imposed on the Company could negatively impact contract
     performance fees under certain existing contracts or otherwise negatively
     affect the Company's financial results.


Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

The Company does not believe that it has significant exposures to market risk.
The majority of its foreign contracts are denominated and executed in the
applicable local currency. The interest rate risk associated with the majority
of the Company's borrowing activities is fixed, however, a 10% increase or
decrease in the average annual prime rate would result in an increase or
decrease of .72% multiplied by the weighted-average amount of fluctuating rate
borrowings outstanding during a period.



                          Part II - Other Information

Item 1.  Legal Proceedings

         As previously reported in the Annual Report on Form 10-K for the year
ended December 31, 1998.

Item 2.  Changes in Securities
 
         (a) None    (b)  None  (c) None    (d) Not applicable

Item 3.  Defaults Upon Senior Securities

         (a) See Management's Discussion and Analysis of Financial Condition and
Results of Operations.
         (b) None

Item 4.  Submission of Matters to a Vote of Security Holders

         None
 
Item 5.  Other Information

         None

Item 6.  Exhibits and Reports on Form 8-K

         (a)  The exhibits filed as part of this report are listed below:
 
No. 4(a)(8)   Eighth Supplemental Indenture dated as of April 9, 1999
No. 4(f)(3)   Third Supplemental Indenture dated as of April 9, 1999
No. 4(g)      Form of 12% Senior Note due 2003, Series B
No. 21        Consolidated Subsidiaries of the Registrant as of April 12, 1999
No. 27        Financial Data Schedule
 

                                       26
<PAGE>
 
         (b)  Reports on Form 8-K

On March 10, 1999, ICF Kaiser filed a Form 8-K referencing the Letter of Intent
with CM Equity Partners, L.P. and a Definitive Purchase Agreement for the assets
of the company's Environmental and Facilities Management Group with The IT
Group.

On April 23, 1999, ICF Kaiser filed a Form 8-K referencing the sale of the
majority of the active contracts and investments of its Environmental and
Facilities Management Group with The IT Group.

On May 12, 1999, ICF Kaiser filed a Form 8-K referencing changes in senior
management.


                                   Signatures

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report on Form 10-Q to be signed on its behalf
by the undersigned thereunto duly authorized.

                              ICF KAISER INTERNATIONAL, INC.
                              (Registrant)
Date: May 17, 1999

                              /s/ Timothy P. O'Connor
                              -----------------------
                              Timothy P. O'Connor
                              Senior Vice President and Chief Financial Officer
                              (Duly authorized officer and principal financial
                              officer)

                                       27