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

---

FORM 10-Q


(Mark One)

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

       ACT OF 1934

For quarter ended June 29, 2001

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

      EXCHANGE ACT OF 1934

For the transition period from _______________________________ to _______________________________

Commission file number1-9037

|                                                                | The IT Group, Inc.                                           |                                      
|--------------------------------------------------------------- | ------------------------------------------------------------ | -------------------------------------
|                                                                | (Exact name of registrant as specified in its charter)       |                                      
|Delaware                                                        |                                                              | 33-0001212                           
|(State or other jurisdiction of

incorporation or organization) |                                                              | (I.R.S. Employer

Identification No.)
|                                                                |                                                              |                                      
|                                                                | 2790 Mosside Boulevard, Monroeville, Pennsylvania 15146-2792 |                                      
|(Address of principal executive offices)                        |                                                              | (Zip Code)                           

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ..X.. No .....

At August 8, 2001 the registrant had issued and outstanding an aggregate of 21,974,779 shares of its common stock.

THE IT GROUP, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED JUNE 29, 2001

|PART I.  | FINANCIAL INFORMATION |                                                       |      
|-------- | --------------------- | ----------------------------------------------------- | -----
|         |                       |                                                       | Page 
|         |                       |                                                       |      
|         |                       |                                                       |      
|         | Item 1.               | Financial Statements.                                 |      
|         |                       |                                                       |      
|         |                       | Condensed Consolidated Balance Sheets                 |      
|         |                       | as of June 29, 2001 (unaudited) and                   |      
|         |                       | December 29, 2000.                                    | 3    
|         |                       |                                                       |      
|         |                       | Condensed Consolidated Statements of Operations       |      
|         |                       | for the Fiscal Quarters and Two Fiscal Quarters ended |      
|         |                       | June 29, 2001 and June 30, 2000 (unaudited)           | 4    
|         |                       |                                                       |      
|         |                       | Condensed Consolidated Statements of Cash Flows       |      
|         |                       | for the Two Fiscal Quarters ended June 29, 2001       |      
|         |                       | and June 30, 2000 (unaudited).                        | 5    
|         |                       |                                                       |      
|         |                       | Notes to Condensed Consolidated Financial             |      
|         |                       | Statements (unaudited)                                | 6-13 
|         |                       |                                                       |      
|         | Item 2.               | Management's Discussion and Analysis of               |      
|         |                       | Results of Operations and Financial Condition         | 14-19
|         |                       |                                                       |      
|         | Item 3.               | Quantitative and Qualitative Disclosures about        |      
|         |                       | Market Risk                                           | 19   
|         |                       |                                                       |      
|PART II. | OTHER INFORMATION     |                                                       |      
|         |                       |                                                       |      
|         | Item 1.               | Legal Proceedings                                     | 20   
|         |                       |                                                       |      
|         | Item 4.               | Submission of Matters to a Vote of Security Holders   | 20   
|         |                       |                                                       |      
|         | Item 6.               | Exhibits and Reports on Form 8-K                      | 21   
|         |                       |                                                       |      
|         |                       | Signatures                                            | 22   

2

PART I

Item 1. Financial Statements

THE IT GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS





|                                                                   |                | June 29,    |   |   | December 29, |  
|------------------------------------------------------------------ | -------------- | ----------- | - | - | ------------ | -
|                                                                   |                | 2001        |   |   | 2000         |  
|                                                                   |                |             |   |   |              |  
|                                                                   |                | (Unaudited) |   |   |              |  
|ASSETS                                                             | (In thousands)
|Current assets:                                                    |                |             |   |   |              |  
|Cash and cash equivalents                                          | $              | 14,293      |   | $ | 15,624       |  
|Receivables, net                                                   |                | 454,238     |   |   | 440,566      |  
|Prepaid expenses and other current assets                          |                | 47,693      |   |   | 44,177       |  
|Deferred income taxes                                              |                | 38,081      |   |   | 38,101       |  
|                                                                   |                |             |   |   |              |  
|Total current assets                                               |                | 554,305     |   |   | 538,468      |  
|Property, plant and equipment, at cost:                            |                |             |   |   |              |  
|Land, buildings and improvements                                   |                | 11,289      |   |   | 10,939       |  
|Machinery and equipment                                            |                | 110,171     |   |   | 107,097      |  
|                                                                   |                |             |   |   |              |  
|                                                                   |                | 121,460     |   |   | 118,036      |  
|Less accumulated depreciation and amortization                     |                | 57,866      |   |   | 54,902       |  
|                                                                   |                |             |   |   |              |  
|Net property, plant and equipment                                  |                | 63,594      |   |   | 63,134       |  
|Cost in excess of net assets of acquired businesses                |                | 538,936     |   |   | 538,757      |  
|Other assets                                                       |                | 78,263      |   |   | 82,039       |  
|Deferred income taxes                                              |                | 99,126      |   |   | 100,593      |  
|                                                                   |                |             |   |   |              |  
|Total assets                                                       | $              | 1,334,224   |   | $ | 1,322,991    |  
|                                                                   |                |             |   |   |              |  
|                                                                   |                |             |   |   |              |  
|LIABILITIES AND STOCKHOLDERS' EQUITY                               |                |             |   |   |              |  
|                                                                   |                |             |   |   |              |  
|Current liabilities:                                               |                |             |   |   |              |  
|Accounts payable                                                   | $              | 240,253     |   | $ | 254,689      |  
|Accrued liabilities                                                |                | 87,125      |   |   | 82,850       |  
|Billings in excess of revenues                                     |                | 44,320      |   |   | 45,744       |  
|Short-term debt, including current portion of long-term debt       |                | 11,576      |   |   | 14,600       |  
|                                                                   |                |             |   |   |              |  
|Total current liabilities                                          |                | 383,274     |   |   | 397,883      |  
|Long-term debt                                                     |                | 674,051     |   |   | 644,623      |  
|Other long-term accrued liabilities                                |                | 14,520      |   |   | 18,560       |  
|Stockholders' equity:                                              |                |             |   |   |              |  
|Preferred stock, $100 par value; 180,000 shared authorized:        |                |             |   |   |              |  
|7% cumulative convertible exchangeable, 20,556 shares issued       |                |             |   |   |              |  
|and outstanding, 24,000 shares authorized                          |                | 2,056       |   |   | 2,056        |  
|6% cumulative convertible participating, 46,095 shares issued      |                |             |   |   |              |  
|and outstanding                                                    |                | 4,609       |   |   | 4,609        |  
|Common stock, $.01 par value; 50,000,000 shares authorized;        |                |             |   |   |              |  
|22,913,154 and 22,918,154 shares issued, respectively              |                | 229         |   |   | 229          |  
|Treasury stock at cost, 938,375 and 1,037,671 shares, respectively |                | (4,657      | ) |   | (5,151       | )
|Additional paid-in capital                                         |                | 351,058     |   |   | 351,063      |  
|Unearned compensation, restricted stock                            |                | (1,163      | ) |   | (826         | )
|Deficit                                                            |                | (85,006     | ) |   | (89,010      | )
|Accumulated other comprehensive income (loss)                      |                | (4,747      | ) |   | (1,045       | )
|                                                                   |                |             |   |   |              |  
|Total stockholders' equity                                         |                | 262,379     |   |   | 261,925      |  
|                                                                   |                |             |   |   |              |  
|Total liabilities and stockholders' equity                         | $              | 1,334,224   |   | $ | 1,322,991    |  
|                                                                   |                |             |   |   |              |  

See accompanying notes

3





THE IT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

|                                             | Fiscalquartersended |              | Two fiscalquarters ended
|-------------------------------------------- | ------------------- | ------------ | ------------------------
|                                             |                     |              |                         
|                                             | June 29,2001        | June 30,2000 |                         
|                                             |                     |              |                         
|                                             | (Unaudited)        
|Revenues                                     | $                   | 364,666      |                         
|Cost and expenses:                           |                     |              |                         
|Cost of revenues                             |                     | 318,401      |                         
|Selling, general and administrative expenses |                     | 13,529       |                         
|Amortization of goodwill                     |                     | 5,109        |                         
|                                             |                     |              |                         
|Operating income                             |                     | 27,627       |                         
|                                             |                     |              |                         
|Interest expense, net                        |                     | 19,495       |                         
|                                             |                     |              |                         
|Income before income taxes                   |                     | 8,132        |                         
|Provision for income taxes                   |                     | 3,131        |                         
|                                             |                     |              |                         
|Net income                                   |                     | 5,001        |                         
|                                             |                     |              |                         
|Preferred stock dividends                    |                     | (1,590       | )                       
|                                             |                     |              |                         
|Net income applicable to common stock        | $                   | 3,411        |                         
|                                             |                     |              |                         
|                                             |                     |              |                         
|Net income per common share basic            | $                   | 0.16         |                         
|                                             |                     |              |                         
|                                             |                     |              |                         
|Net income per common share diluted          | $                   | 0.15         |                         
|                                             |                     |              |                         
|                                             |                     |              |                         
|Weighted average common shares outstanding:  |                     |              |                         
|Basic                                        |                     | 21,776       |                         
|                                             |                     |              |                         
|Diluted                                      |                     | 28,109       |                         
|                                             |                     |              |                         

See accompanying notes

4

THE IT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

|                                                  | Two fiscalquarters ended
|------------------------------------------------- | ------------------------
|                                                  |                         
|                                                  | June 29,2001            
|                                                  |                         
|                                                  | (Unaudited)             
|                                                  |                         
|Cash flows from operating activities:             |                         
|Net income                                        | $                       
|Adjustments to reconcile net income to net cash   |                         
|used for operating activities:                    |                         
|Depreciation and amortization                     |                         
|Deferred income taxes                             |                         
|Other                                             |                         
|Changes in assets and liabilities, net of effects |                         
|from acquisitions:                                |                         
|Changes in assets and liabilities                 |                         
|Discontinued operations                           |                         
|                                                  |                         
|Net cash used for operating activities            |                         
|Cash flows from investing activities:             |                         
|Capital expenditures                              |                         
|Acquisition of businesses                         |                         
|Other, net                                        |                         
|                                                  |                         
|Net cash used for investing activities            |                         
|Cash flows from financing activities:             |                         
|Financing costs                                   |                         
|Net borrowing of long-term debt                   |                         
|Dividends paid on preferred stock                 |                         
|                                                  |                         
|Net cash provided by financing activities         |                         
|                                                  |                         
|Net decrease in cash and cash equivalents         |                         
|Cash and cash equivalents at beginning of period  |                         
|                                                  |                         
|Cash and cash equivalents at end of period        | $                       
|                                                  |                         

See accompanying notes.

5

THE IT GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.Summary of significant accounting policies:

Basis of presentation and principles of consolidation

The condensed consolidated financial statements included herein have been prepared by The IT Group, Inc. (IT or the Company), without audit, and include all adjustments of a normal,
recurring nature which are, in the opinion of management, necessary for a fair presentation of the results of operations for the fiscal quarter and year to date period ended June 29, 2001, pursuant to the rules of the Securities and Exchange
Commission. The Company uses the equity method to account for certain joint ventures in which the Company does not have in excess of 50% of voting control. Certain information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations although the Company believes that the disclosures in such financial statements are adequate to make the
information presented not misleading.

These condensed consolidated financial statements should be read in conjunction with the Company's annual report on Form 10-K for the fiscal year ended December 29, 2000. The results of
operations for the fiscal period ended June 29, 2001 are not necessarily indicative of the results for the full fiscal year. The December 29, 2000 balance sheet amounts were derived from audited financial statements.

Recent accounting pronouncements

In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141,Business Combinations, and No. 142,Goodwill and Other Intangible Assets (SFAS No. 142), effective for fiscal years beginning after December 15, 2001. Under the new rules,
goodwill will no longer be amortized but will be subject to annual impairment tests in accordance with SFAS No. 142. Other intangible assets will continue to be amortized over their useful lives. The Company will apply the new rules on accounting
for goodwill and other intangible assets beginning in the first quarter of 2002. Application of the nonamortization provisions of SFAS No. 142 is expected to result in an increase in net income of approximately $20 million per year (between $0.60 to
$0.65 per common share diluted). During 2002, the Company will perform the first of the required impairment tests of goodwill and indefinite-lived intangible assets as of the first day of the Company's 2002 fiscal year, and has not yet determined
what the effectof these tests will be on the earnings and financial position of the Company.

Accounting for Derivative Instruments and Hedging Activities

The Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended, (SFAS No. 133) on December 30, 2000, the beginning of its 2001 fiscal year.
SFAS No. 133 requires the transition adjustment from adoption to be reported in net income or other comprehensive income, as appropriate, as the cumulative effect of a change in accounting principle. In accordance with the transition provisions of
SFAS No. 133, the Company recorded a cumulative transition adjustment to decrease other comprehensive income by $1.3 million, net of related tax effects, to recognize the fair value of its derivative instruments as of the date of adoption. During
2001, unrealized net losses on derivative instruments of $1.8 million, net of related tax effects, were also recorded in other comprehensive income. See Item 1. Financial Statements - Notes to Condensed Consolidated Financial Statements, Note 9,
"Comprehensive income".

The Company's credit facilities require it to have a portion of its credit facility borrowings converted from variable rate to fixed rate. The Company utilizes derivative financial
instruments, such as interest rate swaps, to fulfill this requirement. As of June 29, 2001, the Company has a $150 million interest rate swap agreement which expires in August 2003, fixing the rate on a like amount of variable rate borrowings where
the Company, as the fixed rate payer, pays (receives) the difference between 3-month LIBOR and a fixed rate of 6.455%. The fair value of the swap at June 29, 2001, which is designated as a cash flow hedge instrument, is a $5.5 million liability,
classified within other current liabilities on the Condensed Consolidated Balance Sheets. At the current fair value based on prevailing interest rates as of June 29, 2001, the $3.1 million

6

THE IT GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

of accumulated other comprehensive loss, net of related tax effects, related to the swap agreement is expected to be reclassified into earnings over the term of the agreement, which expires in August 2003. The Company
has an interest rate cap agreement with a notional amount of $126 million expiring in August 2004 which is classified as a cash flow hedge instrument. The Company also has an option which expires in August 2001 that provides the counter-party to the
$150 million swap agreement with the right to enter into a swap agreement whereby the Company would be the variable rate payer, and pays (receives) the difference between a fixed rate of 6.455% and 3-month LIBOR, which is classified as a fair value
hedge instrument. The fair values of the interest rate cap agreement and the option were not material.

Hedge ineffectiveness for derivative instruments for the quarter and year to date periods ending June 29, 2001 was not material. The Company recognizes all derivatives on the balance sheet
at fair value at the end of each quarter. Changes in the fair value of a derivative that is designated as and meets all the required criteria for a cash flow hedge are recorded in accumulated other comprehensive income and reclassified into earnings
as the underlying hedged item affects earnings. Amounts reclassified into earnings related to the interest rate swap agreement are included in interest expense. However, to the extent that the change in value of an interest rate swap contract does
not perfectly offset the change in the value of the interest rate being hedged, that ineffective portion is immediately recognized in income. Hedge effectiveness is assessed by comparing the cash flows on the forecasted transaction attributable to
the hedged risk with the cash flows from the derivative transaction. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge
transactions. This process includes relating all derivatives that are designated as fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Company also
formally assesses, both at the inception of the hedge and on an ongoing basis, whether each derivative is highly effective in offsetting changes in fair values or cash flows of the hedged item.

Contract accounting and accounts receivable

Included in receivables, net at June 29, 2001 are billed receivables of $333 million, costs and estimated profits in excess of billings of $57 million, contract claims and unapproved change
orders of $29 million, investments in federal privatization projects of $18 million, and retention of $17 million. Accounts receivable from the U. S. Government at June 29, 2001 were $195 million, or 43% of total accounts receivable. At December 29,
2000, net receivables included billed receivables of $315 million, costs and estimated profits in excess of billings of $59 million, contract claims and unapproved change orders of $26 million, investments in federal privatization projects of $22
million and retention of $18 million. Accounts receivable from the U. S. Government as of December 29, 2000 were $199 million, or 45% of total accounts receivable.

Costs and estimated profits in excess of billings typically represent amounts earned under the Company's contracts but not yet immediately billable according to the contract terms, which
usually consider the passage of time, achievement of certain milestones or completion of the project. Generally, these amounts are expected to be billed and collected in the subsequent year. Billings in excess of revenues represent amounts billed in
accordance with contract terms, which are in excess of the amounts includable in revenue.

Included in accounts receivable at June 29, 2001 is approximately $29 million associated with contract claims and unapproved change orders, which are believed by management to be probable
of realization. Most of these claims and change orders are being negotiated or are in arbitration. This amount includes contract claims in litigation (see Item 1. Financial Statements - Notes to Condensed Consolidated Financial Statements, Note 6,
"Contingencies"). The actual amounts realized could be materially different than the amounts recorded.

7

THE IT GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

2.Business acquisitions:

W&H Pacific, Inc.

On May 9, 2000, the Company acquired all of the outstanding capital stock of W&H Pacific, Inc. (W&H Pacific) for $10 million plus approximately $0.5 million in transaction costs,
and contingent consideration up to $9 million over the next two years. At June 29, 2001, approximately $5 million of contingent consideration was paid, with up to $4 million of additional contingent consideration potentially payable in 2002. W&H
Pacific is an engineering and design firm serving the northwestern United States in the telecommunications, transportation, and land development markets, with annual revenues of approximately $35 million.

The transaction was accounted for as a purchase in accordance with Accounting Principles Board Opinion No. 16, "Business Combinations". The excess of the purchase price over the fair value
of assets acquired and liabilities assumed of $10 million has been finalized and is classified as cost in excess of net assets of acquired businesses and is being amortized over twenty years. The estimated fair value of the assets acquired and
liabilities assumed of W&H Pacific, as adjusted, are as follows:



|Description                                         | Amount         |        
|--------------------------------------------------- | -------------- | -------
|                                                    | (In thousands) |        
|Current assets                                      |                | $ 6,701
|Property and equipment                              |                | 1,054  
|Cost in excess of net assets of acquired businesses |                | 10,434 
|Other long term assets                              |                | 1,698  
|Current liabilities                                 |                | 4,592  
|Long term liabilities, primarily debt               |                | 66     

As a result of the acquisition of W&H Pacific, the Company has adopted a plan and commenced the process of closing specific overlapping facilities and reducing consolidated employment.
The acquired balance sheet includes an accrual of $1 million for the estimated W&H Pacific severance and lease termination costs, which will principally be paid in 2001.

3.Facility closure reserves:

In 2000 the Company recorded a $1.0 million restructuring charge relating to a facility closure and downsizing plan. The facility restructuring plan includes closing ten offices and
warehouses, and downsizing eight offices and warehouses. All facility closure and downsizing actions were implemented by the second quarter of 2001. Charges to the reserve through June 29, 2001 were $0.4 million. Payments relating to lease
obligations, net of sublease recovery estimations, will primarily be incurred through 2002, although some leases on downsized facilities continue through 2006.

As a result of previous acquisitions, the Company established acquisition-related integration accruals for liabilities recognized in connection with purchase business combinations relating
to severance, facility closure and lease termination liabilities. Activity in these reserves for the six months ended June 29, 2001 were as follows:

|Acquisition-related reserves:               | Six Months Ended June 29, 2001(inthousands)
|------------------------------------------- | -------------------------------------------
|                                            |                                            
|                                            | Reserve balanceatDecember 29, 2000         
|                                            |                                            
|Severance                                   | $                                          
|Office closure, lease termination and other |                                            
|                                            |                                            
|Total                                       | $                                          
|                                            |                                            

8

THE IT GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

4.Income taxes:

For the two quarters ended June 29, 2001, the Company recorded an income tax provision of $4.5 million, reflecting an income tax rate of approximately 38.5% on pretax income of $11.7
million which is based upon the estimated tax rate for the entire year. Based on a net deferred tax asset of $137 million (net of a valuation allowance of $51 million) at June 29, 2001 and assuming a net federal and state effective tax rate of
38.5%, the level of future earnings necessary to fully realize the deferred tax asset would be approximately $355 million. The Company evaluates the adequacy of the valuation allowance and the realizability of the deferred tax asset on an ongoing
basis. Because of the Company's position in the industry and existing backlog, management expects that its future taxable income will more likely than not allow the Company to fully realize its net deferred tax asset.

5.Earnings per share:

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

|                                                      | Threemonthsended                      | Six monthsended
|----------------------------------------------------- | ------------------------------------- | ---------------
|                                                      |                                       |                
|                                                      | June 29,2001                          | June 30,2000   
|                                                      |                                       |                
|                                                      | (In thousands, except per share data)
|Numerator:                                            |                                       |                
|Net income                                            | $                                     | 5,001          
|Preferred stock dividends                             |                                       | (1,590         
|                                                      |                                       |                
|Numerator for basic earnings per share - net income   |                                       |                
|available to common stockholders                      | $                                     | 3,411          
|                                                      |                                       |                
|                                                      |                                       |                
|Effect of conversion of dilutive securities:          |                                       |                
|Preferred stock dividends(a)                          |                                       | 692            
|                                                      |                                       |                
|                                                      |                                       |                
|Numerator for diluted earnings per share  net income |                                       |                
|applicable to common stock                            | $                                     | 4,103          
|                                                      |                                       |                
|                                                      |                                       |                
|Denominator:                                          |                                       |                
|Denominator for basic earnings per share-             |                                       |                
|weighted average shares                               |                                       | 21,776         
|                                                      |                                       |                
|                                                      |                                       |                
|Effect of conversion of dilutive securities:          |                                       |                
|Common equivalent shares and nonvested stock          |                                       | 260            
|Convertible preferred stock (a)                       |                                       | 6,073          
|                                                      |                                       |                
|                                                      |                                       |                
|Denominator for diluted earnings per                  |                                       |                
|share-adjusted weighted-average shares                |                                       |                
|and assumed conversions                               |                                       | 28,109         
|                                                      |                                       |                
|                                                      |                                       |                
|Net income per share basic:                           | $                                     | 0.16           
|                                                      |                                       |                
|                                                      |                                       |                
|Net income per share diluted                          | $                                     | 0.15           
|                                                      |                                       |                



|(a) | The convertible preferred stock was not included in the earnings per share computation for the year to date period ended June 29, 2001 since it was anti-dilutive to the net income available to
common stockholders.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





9

THE IT GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

6.Contingencies:

For information regarding legal proceedings of the Company's continuing operations, please see Note 8, "Commitments    and contingencies" in the Notes to Consolidated Financial
Statements in the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 2000; current developments regarding continuing operations' legal proceedings are discussed in Part II of this filing. See Item 1. Financial Statements -
Notes to Condensed Consolidated Financial Statements, Note 8, "Discontinued    Operations" for information regarding the legal proceedings of the discontinued operations of the Company.

7.     Operating segments:

Organization

The IT Group, Inc. has four reportable segments: Government Services, Commercial Engineering & Construction (Commercial E&C), Consulting & Technology, and International. The
Government Services segment provides diversified services to the federal government in the areas of Hazardous, Toxic and Radiological Waste remediation, Outsourced Services for renovation, design/build and facilities management, and Civil Works. The
Commercial E&C segment provides comprehensive engineering and construction services to commercial clients, primarily in the petroleum, chemical, manufacturing, transportation, telecommunication, utility and solid waste industries through four
business lines: Commercial Engineering & Construction, Solid Waste, Transportation and Telecommunication, and Real Estate Restoration. The Consulting & Technology segment provides specialized consulting services in environmental health and
safety compliance, risk and cost allocation determination, chemical management planning, product registration, due diligence support and strategic environmental planning. The International segment provides comprehensive infrastructure and
environmental services to multi-national and foreign-based clients with principal operations in Canada, Europe, and Australia.

Segment Information



|                                 | GovernmentServices | CommercialE & C | Consulting &Technology | International | Total  
|-------------------------------- | ------------------ | --------------- | ---------------------- | ------------- | -------
|                                 |                    |                 |                        |               |        
|                                 | (In thousands)    
|Quarter ended June 29, 2001      |                    |                 |                        |               |        
|Revenues                         | $                  | 194,906         |                        | $             | 126,675
|                                 |                    |                 |                        |               |        
|Segment profit                   |                    | 24,190          |                        |               | 12,472 
|                                 |                    |                 |                        |               |        
|Quarter ended June 30, 2000      |                    |                 |                        |               |        
|Revenues                         | $                  | 169,417         |                        | $             | 132,710
|                                 |                    |                 |                        |               |        
|Segment profit                   |                    | 19,690          |                        |               | 16,381 
|                                 |                    |                 |                        |               |        
|Two quarters ended June 29, 2001 |                    |                 |                        |               |        
|Revenues                         | $                  | 361,712         |                        | $             | 256,381
|                                 |                    |                 |                        |               |        
|Segment profit                   |                    | 42,949          |                        |               | 26,741 
|                                 |                    |                 |                        |               |        
|Two quarters ended June 30, 2000 |                    |                 |                        |               |        
|Revenues                         | $                  | 336,741         |                        | $             | 245,527
|                                 |                    |                 |                        |               |        
|Segment profit                   |                    | 38,321          |                        |               | 31,461 

10



THE IT GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

|                                                   | Threemonths ended | Sixmonths ended
|-------------------------------------------------- | ----------------- | ---------------
|                                                   |                   |                
|                                                   | June 29,

2001    | June 30,2000   
|                                                   |                   |                
|                                                   |                   |                
|Total profit for reportable segments               | $                 | 41,590         
|Unallocated amounts:                               |                   |                
|Corporate selling, general and administrative, and |                   |                
|goodwill amortization expenses                     |                   | (13,963        
|Interest expense, net                              |                   | (19,495        
|                                                   |                   |                
|                                                   |                   |                
|Income before income taxes                         | $                 | 8,132          
|                                                   |                   |                

8.Discontinued operations:

Overview

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

Northern California Facilities

Final approval of closure by the California EPA, Department of Toxic Substance Control (DTSC) for the Panoche facility is expected later in 2001. The Company maintains environmental
insurance coverage which provides for reimbursement of post-closure costs up to the policy limits, which are in excess of the Company's post-closure cost estimates, for the four Northern California Facilities.

The carrying value of the long-term assets of discontinued operations of $39 million at June 29, 2001 is principally comprised of unused residual land at the inactive disposal facilities
and assumes that land sales will occur at market prices estimated by the Company based on certain assumptions (entitlements, etc.). During the quarter ended June 29, 2001, the Company sold a small parcel of land from the Northern California
Facilities for $1.3 million, net of transaction costs. The Company has negotiated a sale agreement for another parcel of the unused residual land for approximately $12 million, which is equivalent to the Company's market price assumption. The
agreement, which is subject to customary closing conditions including the successful completion of due diligence, is expected to be consummated in 2001. There is no assurance as to the timing of development or sales of any of the Company's residual
land, or, until sold, the Company's ability to ultimately liquidate the land for the estimated sale prices. If the assumptions used to determine such prices are not realized, the value of the land could be materially different from the current
carrying value.

11

THE IT GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Other Site Cleanup Actions

The Company, as a major provider of hazardous waste transportation, treatment and disposal operations in California prior to December 1987, has been named a PRP at a number of other sites
and may from time to time be so named at additional sites and may also face damage claims by third parties for alleged releases or discharges of contaminants or pollutants arising out of its discontinued operations.

9.     Comprehensive income:

Comprehensive income represents net income plus the results of certain non-stockholders' equity changes not reflected in the Condensed Consolidated Statements of Operations. The components
of comprehensive income, net of tax, were as follows:

|                                                  | Threemonths ended | Sixmonths ended
|------------------------------------------------- | ----------------- | ---------------
|                                                  |                   |                
|                                                  | June 29,2001      | June 30,2000   
|                                                  |                   |                
|Net income                                        | $                 | 5,001          
|Cumulative translation adjustment of a change in  |                   |                
|accounting principle (SFAS No. 133)               |                   |               
|Unrealized derivative gains (losses) on cash flow |                   |                
|hedges (SFAS No. 133)                             |                   | 166            
|Foreign currency translation gains (losses)       |                   | 906            
|                                                  |                   |                
|                                                  |                   |                
|Comprehensive income                              | $                 | 6,073          
|                                                  |                   |                

10.Financial information for subsidiary guarantors

On April 9, 1999, the Company issued $225 million of ten year senior subordinated notes (Notes). The Notes have an 11.25% fixed rate of interest payable every six months in cash commencing
in October 1999. There are no mandatory sinking fund payments, and the Notes have a stated maturity of April 1, 2009. The Notes are wholly or partially redeemable at the Company's option at a premium after 2004. Upon the issuance of capital stock
prior to April 1, 2002, up to 35% of the Notes are redeemable at the Company's option at 111.25% of face value. The Notes are general unsecured obligations of the Company, subordinated to the Company's credit facilities and other senior indebtedness
and pari passu with other existing and future indebtedness unless the terms of that indebtedness expressly provide otherwise. The Company's payment obligations under the Notes are fully and unconditionally guaranteed on a joint and several basis by
substantially all of the Company's wholly owned domestic subsidiaries. The Notes have not been guaranteed by the Company's captive insurance subsidiary nor any of the Company's foreign subsidiaries. The following summarized financial information
presents separately the composition of the Guarantor Subsidiaries and Non-Guarantor Subsidiaries. Separate complete financial statements of the respective Guarantor Subsidiaries are not presented because management has determined that they would not
provide additional material information that would be useful in assessing the financial composition of the guarantors and non-guarantors. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and
transactions.

12

THE IT GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Summarized Condensed Financial Information

Six Months Ended June 29, 2001

|                                                                           |                | Parent  |   |   | GuarantorSubsidiaries |   |   | Non-Guarantor

Subsidiaries |   |   | Eliminations |   |   | Consolidated |  
|-------------------------------------------------------------------------- | -------------- | ------- | - | - | --------------------- | - | - | --------------------------- | - | - | ------------ | - | - | ------------ | -
|                                                                           |                |         |   |   |                       |   |   |                             |   |  
|                                                                           | (In thousands) |        
|Current assets                                                             | $              | -       |   | $ | 521,138               |   | $ | 32,287                      |   | $ | 880          |   | $ | 554,305      |  
|Non current assets                                                         |                | 17,769  |   |   | 1,225,598             |   |   | 51,657                      |   |   | (515,106     | ) |   | 779,919      |  
|Current liabilities                                                        |                | 9,035   |   |   | 352,929               |   |   | 24,103                      |   |   | (2,793       | ) |   | 383,274      |  
|Revenues                                                                   |                | -       |   |   | 663,373               |   |   | 34,863                      |   |   | (78          | ) |   | 698,158      |  
|Gross margin                                                               |                | -       |   |   | 82,951                |   |   | 3,763                       |   |   | (133         | ) |   | 86,581       |  
|Net income (loss)                                                          |                | (9,864  | ) |   | 15,840                |   |   | 1,872                       |   |   | (664         | ) |   | 7,184        |  
|Net cash provided by (used in)                                             |                |         |   |   |                       |   |   |                             |   |   |              |   |   |              |  
|operating activities                                                       |                | (12,570 | ) |   | 2,668                 |   |   | (1,120                      | ) |   | 9,724        |   |   | (1,298       | )
|Net cash provided by (used in)                                             |                |         |   |   |                       |   |   |                             |   |   |              |   |   |              |  
|investing activities                                                       |                | 571     |   |   | (18,442               | ) |   | (5,088                      | ) |   | 1,481        |   |   | (21,478      | )
|Net cash provided by (used in)                                             |                |         |   |   |                       |   |   |                             |   |   |              |   |   |              |  
|financing activities                                                       |                | (562    | ) |   | 22,427                |   |   | (208                        | ) |   | (212         | ) |   | 21,445       |  
|                                                                           |                |         |   |   |                       |   |   |                             |   |   |              |   |   |              |  
|                                                                           |                |         |   |   |                       |   |   |                             |   |   |              |   |   |              |  
|Summarized Condensed Financial Information

Six Months Ended June 30, 2000
|                                                                           |                |         |   |   |                       |   |   |                             |   |   |              |   |   |              |  
|                                                                           |                | Parent  |   |   | GuarantorSubsidiaries |   |   | Non-Guarantor

Subsidiaries |   |   | Eliminations |   |   | Consolidated |  
|                                                                           |                |         |   |   |                       |   |   |                             |   |  
|                                                                           | (In thousands) |        
|Current assets                                                             | $              |        |   | $ | 515,431               |   | $ | 14,987                      |   | $ | (1,872       | ) | $ | 528,546      |  
|Non current assets                                                         |                | 18,904  |   |   | 1,250,776             |   |   | 28,077                      |   |   | (496,300     | ) |   | 801,457      |  
|Current liabilities                                                        |                | 8,187   |   |   | 311,152               |   |   | 17,061                      |   |   | (6,012       | ) |   | 330,388      |  
|Revenues                                                                   |                |        |   |   | 625,535               |   |   | 39,687                      |   |   | (173         | ) |   | 665,049      |  
|Gross margin                                                               |                |        |   |   | 85,378                |   |   | 4,187                       |   |   | (173         | ) |   | 89,392       |  
|Net income (loss)                                                          |                | (9,632  | ) |   | 19,475                |   |   | 2,019                       |   |   | (756         | ) |   | 11,106       |  
|Net cash provided by (used in)                                             |                |         |   |   |                       |   |   |                             |   |   |              |   |   |              |  
|operating activities                                                       |                | (9,220  | ) |   | (13,552               | ) |   | 6,117                       |   |   | (1,269       | ) |   | (17,924      | )
|Net cash provided by (used in)                                             |                |         |   |   |                       |   |   |                             |   |   |              |   |   |              |  
|investing activities                                                       |                | 545     |   |   | (47,098               | ) |   | 1,229                       |   |   | (5,948       | ) |   | (51,272      | )
|Net cash provided by (used in)                                             |                |         |   |   |                       |   |   |                             |   |   |              |   |   |              |  
|financing activities                                                       |                |        |   |   | 55,729                |   |   | 585                         |   |   | (71          | ) |   | 56,243       |  



13

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

THE IT GROUP, INC.

FOR QUARTER ENDED JUNE 29, 2001

RESULTS OF OPERATIONS

Overview

We are a leading provider of consulting, facilities management, water, engineering & construction, and remediation services addressing the infrastructure needs of both private and
public sector firms. Through our diverse group of highly specialized companies, with over 7,500 employees in over 80 domestic offices and over 10 international offices, clients are provided with a single, fully integrated delivery system and our
extensive expertise to meet their global environmental and facility support needs. Our broad range of services includes the identification of contaminants in soil, air and water and the subsequent design and execution of remedial solutions. We also
provide project and facilities management capabilities and other related services to non-environmental civil construction, watershed restoration and the outsourcing privatization markets.

We operate in a client focused organization structure in the Government Services, Commercial Engineering & Construction (Commercial E&C), Consulting & Technology, and
International markets. Our results of operations are analyzed on this basis for all periods presented. The Government Services segment provides diversified services to the federal government in the areas of Hazardous, Toxic and Radiological Waste
(HTRW) remediation, Outsourced Services for renovation, design/build services, and facilities management, and Civil Works. The Commercial E&C segment provides comprehensive engineering and construction services to commercial clients, primarily
in the petroleum, chemical, manufacturing, transportation, telecommunication, utility and solid waste industries through our Commercial Engineering & Construction, Solid Waste, Transportation & Telecommunication, and Real Estate Restoration
business lines. The Consulting & Technology segment provides specialized consulting services in environmental health and safety compliance, risk and cost allocation determination, chemical management planning, product registration, due diligence
support and strategic environmental planning. The International segment provides comprehensive environmental and infrastructure services to multi-national and foreign-based clients with principal operations in Canada, Europe, and
Australia.

Our clients are federal, state and local governments in the U. S. and commercial businesses worldwide. On an annual basis we obtain approximately 50% of our revenues from the U. S.
Government through more than 100 contracts that predominantly range in length from one to eight years. In addition, we serve more than 1,500 commercial clients on projects that range in length from one month to many years. Revenue growth from the
commercial sector is expected to be directly related to the desire on the part of our clients for an integrated, proactive approach to environmental issues that are driven by economic, as opposed to regulatory, concerns. We have recently been
impacted by the general economic slowdown, which has caused clients to delay project funding in the commercial portion of the business. We are monitoring this part of our business carefully and have deferred discretionary capital spending and
implemented cost-reduction actions. Furthermore, due to the general economic slowdown our commercial business may not experience seasonal volume increases at historical levels.

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

14

THE IT GROUP, INC.

Revenues and Gross Margins

Company.Revenues for the three months ended June 29, 2001 increased $17 million, or 4.8%, to $365 million, compared to revenues of $348 million
reported in the three months ended June 30, 2000. For the six months ended June 29, 2001, revenues were $698 million, a 5.0% increase over the prior year to date period. The increases in revenues are primarily due to increased volume in our
government business, and also due to the W&H Pacific acquisition in May 2000. Based on the seasonality of our field construction business, revenues are expected to increase in the second half of the year, resulting in revenue of approximately
$1.5 billion for 2001. However, volume trends in the commercial portion of business have been negatively impacted by slow and delayed project starts.

Our gross margin for the quarter ended June 29, 2001 was 12.7% of revenues, a decrease from 13.5% of revenues reported in the quarter ended June 30, 2000, Year to date 2001 gross margins
were 12.4% compared to 13.4% in 2000. The overall trend in gross margins have improved since the fourth quarter of 2000, reflecting improvements in project performance and less revenue from subcontractor activity, however compared to the prior year
periods, operating results continue to be impacted by project performance. During the quarter ended June 29, 2001, we reached a negotiated settlement regarding the previously announced jury award in a contract claim dispute, and received cash of $5
million. The settlement benefits were largely offset by below as-bid project performance, primarily in the Commercial E&C segment. Our ability to maintain or improve our gross margin levels is heavily dependent on various factors including
proper execution of projects, utilization of professional staff, successful bidding of new contracts at adequate margin levels and continued overhead cost controls.

Government Services.Revenues from the Government Services segment increased $25 million, or 15%, to $195 million in the three months ended June 29,
2001 compared to $170 million for the three months ended June 30, 2000. Second quarter revenue growth was responsible for all of the increase in revenues on a year to date basis. For the six months ended June 29, 2001, Government Services revenues
were $362 million, or $25 million more than the $337 million of revenues for the comparable prior year period. Funding of backlog at historically high levels has increased Government Services revenues on a year to date basis compared to the prior
year. We also expect increased funding levels in Outsourced Services in later quarters of 2001 based on existing indefinite delivery order contracts in our backlog, compared to fiscal 2000 levels. However, based on annual funding estimates, we do
not expect revenue growth percentages to continue at the present levels for the remainder of 2001. Overall, on an annual basis we anticipate limited revenue growth in HTRW remediation work as DOD and DOE spending is projected to remain at
approximately 2000 levels. Longer term, we expect revenue growth from U. S. government funding of civil works, watershed restoration, facilities management and the military housing/infrastructure privatization markets based on contract awards and
levels of bidding activity. The recently announced Fort Meade family housing privatization project, a 50 year contract for housing, property management and design/build construction in which we hold a 50% share in the joint venture, is an example of
our success in this market.

Our Government Services segment profit margin was $24 million, or 12.4% or segment revenues, for the three months ended June 29, 2001, compared to $20 million, or 11.6% of segment revenues,
for the three months ended June 30, 2000. For the six months ended June 29, 2001, Government Services segment profit margin was $43 million, or 11.9% of segment revenues, compared to $38 million, or 11.4% for the comparable prior year period.
Segment profit margin represents revenues, less cost of revenues and selling general and administrative expenses (excluding goodwill) directly attributable to operations. The increases in segment profit margin percentage were due to the negotiated
settlement reached on a contract claim, which added approximately $3 million to segment margin in the June 2001 quarter.

Commercial E&C. Revenues from the Commercial E&C segment decreased $6 million, or 4.5%, to $127 million for the three months ended June 29,
2001 compared to the three months ended June 30, 2000. The revenue decrease for the quarter was largely due to project schedule timing. Revenues for the six months ended June 29, 2001, were $256 million, an increase of $11 million, or 4.4%, above
revenues of $245 million for the six months ended June 30, 2000. Revenue increases for 2001 on a year to date basis were due to the W&H Pacific acquisition. We are carefully re-evaluating projected volume levels in the Commercial E&C portion
of the business based on the trends in slow and delayed project starts and the general economic slowdown.

Our Commercial E&C segment profit margin was $12 million, or 9.8% of segment revenues, for the three months ended June 29, 2001, compared to $16 million, or 12.3% of segment revenues,
for the three months ended June 30, 2000. For the

15

THE IT GROUP, INC.

Our Commercial E&C segment profit margin was $12 million, or 9.8% of segment revenues, for the three months ended June 29, 2001, compared to $16 million, or 12.3% of segment revenues, for the three months ended June
30, 2000. For the six months ended June 29, 2001, Commercial E&C segment profit margin was $27 million, or 10.4% of segment revenues, compared to $31 million, or 12.8% of segment revenues for the six months ended June 30, 2000. The declines in
segment profit margin percentages were primarily due to project performance, and a changed revenue mix which has more construction work and less engineering work, when compared to the prior year periods.

Consulting & Technology.Revenues from our Consulting & Technology segment decreased $1 million, or 8.3%, to $18 million for the three months
ended June 29, 2001 compared to $19 million in the three months ended June 30, 2000. Consulting & Technology segment revenues for the six months ended June 29, 2001, were $34 million, approximately $2 million, or 6.6% below segment revenues of
$36 million for the six months ended June 30, 2000. Most of the revenues in Consulting & Technology are derived from commercial clients for environmental health and safety and environmental information management services.

For the three months ended June 29, 2001, our Consulting & Technology segment profit margin was $2.7 million, or 15.1% of segment revenues, compared to $3.7 million, or 19.0% of segment
revenues in the three months ended June 30, 2000. Consulting & Technology segment profit margin for the six months ended June 29, 2001 was $4.8 million, or 14.2% of segment revenues, compared to $6.7 million, or 18.5% of segment revenues for the
six months ended June 30, 2000. The decreases in revenues and profit margin related to a lower revenue mix from our high-margin regulatory advocacy, chemical management planning and product registration consulting services.

International.International revenues were $25 million in the three months ended June 29, 2001 and $46 million year to date, approximately equal to
last year. For the three months ended June 29, 2001, our International segment profit margin was $2.3 million, or 8.9% of segment revenues, compared to $1.8 million, or 6.9% of segment revenues for the three months ended June 30, 2000. International
segment profit margin for the six months ended June 29, 2001 was $3.3 million, or 7.0% of segment revenues, compared to $2.5 million, or 5.3% of segment revenues for the comparable prior year period. Segment profit margin for the International
segment are lower on a comparative basis to our other, domestic segments due to the geographic limitations impeding full utilization of our shared services organization.

Backlog.Our total funded and unfunded backlog at June 29, 2001 was approximately $4.8 billion, including $0.9 billion relating to our share of joint
ventures backlog. Approximately $0.4 billion of the joint ventures backlog relates to our share of the first ten years of the Fort Meade project, a fifty year military housing privatization contract. We expect to earn revenues from our backlog
primarily over the next one to five years. Approximately 85% of the backlog consists of U. S. government contracts, and approximately 75% is expected to be charged to our clients on a cost-reimbursable basis. The backlog at June 29, 2001 includes
$2.1 billion of funded backlog, including the joint ventures portion. Additionally, many of our commercial contracts renew automatically and are typically not part of our backlog.

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

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $13.5 million, or 3.7% of revenues for the three months ended June 29, 2001 compared to $14.0 million, or 4.0% of revenues in the three
months ended June 30, 2000. For the six months ended June 29, 2001, selling, general and administrative expenses were $26.3 million, or 3.8% of revenues, compared to $27.9 million, or 4.2% of revenues for the comparable prior year period. The
decreases in selling general and administrative expenses compared to the prior year are attributable to cost containment initiatives.

16

THE IT GROUP, INC.

Amortization of Goodwill

Goodwill amortization expense was $5.1 million for the three months ended June 29, 2001 compared to $4.8 million for the June 2000 quarter. Year to date, goodwill amortization expense was
$10.1 million compared to $9.4 million in 2000. The increases to goodwill amortization compared to the prior year are primarily due to the W&H Pacific acquisition and contingent consideration paid relating to prior acquisitions. We expect that
goodwill amortization expense for 2001 will be approximately $20 million.

Beginning in 2002, upon the adoption of FASB Statement No. 142, "Goodwill and Other Intangible Assets" (SFAS No. 142), we will no longer record periodic goodwill amortization
expense. The transition rules require us to perform an initial goodwill impairment assessment upon adopting SFAS No. 142, and perform at least annual re-assessments thereafter, to determine if the fair value of our reporting units which contain
goodwill are in excess of the recorded book values. If, as a result of an assessment, it is determined that the implied fair values of goodwill are below the carrying values, we would be required to recognize noncash impairment losses in each
reporting unit to write down goodwill to the implied fair values. We are evaluating potential impact of SFAS No. 142, and have not determined what the effect of these assessments will be on our earnings and financial position.

Interest, Net

Net interest expense was $19.5 million, or 5.3% of revenues in the quarter ended June 29, 2001 compared to $18.0 million, or 5.2% of revenues for the quarter ended June 30, 2000. For the
six months ended June 29, 2001, net interest expense was $38.4 million, or 5.5% of revenues, compared to $34.0 million, or 5.1% of revenues for the prior year to date period. Noncash interest expense, included in net interest expense, was $3.0
million for the six months ended June 29, 2001, compared to $1.3 million for the prior year period, reflecting additional noncash costs for amortization of discounts on contract advance payments. On March 8, 2000, we obtained an additional $100
million term loan under our credit agreement. The increased interest expense compared to the prior year periods primarily reflects higher overall debt levels attributable to funding acquisition of business payments and working capital requirements,
which has offset the benefit of lower interest rates on the variable portion of our debt. Including the effect of an interest rate swap agreement, approximately $400 million of our outstanding debt is at fixed interest rates, and therefore does not
benefit from interest rate reductions. We anticipate that our interest expense will benefit in later quarters of 2001 from the recent interest rate reductions by the Federal Reserve Board, as tranches of our variable rate borrowings are renewed at
lower interest rates.

Income Taxes

The provision for income taxes for the quarter and year to date periods ended June was calculated utilizing an effective tax rate of approximately 38.5% of pretax income for both 2001 and
2000. See Item 1. Financial Statements - Notes to Condensed Consolidated Financial Statements, Note 4.

Dividends

Dividends paid for the year to date periods ended June 29, 2001 and June 30, 2000 were $3.2 million for each period, and included $1.8 million for the 7% cumulative convertible exchangeable
preferred stock, and $1.4 million for the 6% cumulative convertible participating preferred stock.

17

THE IT GROUP, INC.

FINANCIAL CONDITION

Working capital increased $30 million to $171 million at June 29, 2001 from $141 million at December 29, 2000. The current ratio at June 29, 2001 was 1.45:1 which compares to 1.35:1 at
December 29, 2000. Long-term debt of $674 million at June 29, 2001 increased from $645 million at December 29, 2000, and the ratio of total debt, including current portion, to equity was 2.61:1 at June 29, 2001 and was 2.52:1 at December 29, 2000.
The total debt to equity ratio change was also impacted by the required adoption of SFAS No. 133, "Accounting for Derivatives Instruments and Hedging    Activities" (SFAS No. 133), which reduced stockholders' equity by $3.1 million as of June 29,
2001 due to the non-cash effects of recording the fair value of derivative instruments as other accumulated comprehensive losses. Excluding the effects of SFAS No. 133, our total debt to equity ratio at June 29, 2001 was 2.58:1.

Cash used by operating activities, which includes cash outflows related to discontinued operations, for the six months ended June 29, 2001 was $1 million compared to $18 million used by
operating activities in the corresponding period of last year, reflecting approximately $17 million of project claim settlements and advance contract payments in 2001, which are part of our previously-announced debt reduction strategy. Cash used by
operating activities in 2001 included $6 million by discontinued operations (see Item 1. Financial Statements - Notes to Condensed Consolidated Financial Statements  Note 8, "Discontinued operations"). In June 2001 we completed the sale of a
small parcel of unused residual land from our discontinued operations for approximately $1 million. A larger parcel of land is under contract for $12 million and is expected to close later this year.

Cash used for investing activities was $21 million for the six months ended June 29, 2001, compared to $51 million for the six months ended June 30, 2000. Cash used for the acquisition of
businesses was $16 million and $34 million for the six months ended June 29, 2001 and June 30, 2000, respectively. In May, 2000 we paid $10 million in initial acquisition cost for W&H Pacific. The $18 million reduction in acquisition of business
costs also reflects a decline in trailing costs from acquisition-related liabilities, a trend which is expected to continue throughout the year. Capital expenditures of $6 million for the six months ended June 29, 2001 were approximately $5 million
lower than comparable 2000 period, another initiative in our debt reduction strategy.

Cash provided by financing activities was $21 million for the six months ended June 29, 2001, compared to $56 million for the prior year period, reflecting reduced borrowing requirements
through improved working capital management and lower business acquisition and capital expenditure requirements. Our liquidity requirements generally require additional borrowings from our year-end debt levels for the first two quarters of the year
based on the timing of acquisition of business costs, capital expenditures and the seasonal nature of the construction portions of our business.

We continue to have significant cash requirements including the service on our substantial indebtedness. Meeting the requirements of our debt agreements may from time to time affect our
ability to balance operational and other cash requirements. For the first half of 2001, our average available borrowing capacity under our credit agreement was approximately $25 million. Our credit facilities have limitations on other indebtedness,
lease obligations, capital expenditures, mergers and acquisitions and other fundamental changes, and also prohibit the payment of cash dividends on common stock. The credit facilities also have various financial covenants for maximum EBITDA
leverage, minimum interest coverage and minimum fixed charge coverage, as defined. We were compliant with the covenants and all other limitations of our credit agreement at June 29, 2001.

Our ability to maintain our liquidity, maintain compliance with our financial covenants, and achieve our stated debt reduction goal is dependent upon our ability to successfully execute
projects at adequate gross margin levels, to carefully manage our working capital, and to aggressively contain costs. Our financial covenants begin to be more restrictive with the quarter ending September 28, 2001. If we are adversely impacted by
unforeseen business conditions, we may be required to seek modifications to our credit agreement. In addition to the potential uncertainty of our ability to obtain such modifications, if necessary, we would incur additional costs in the form of fees
and interest expense for any such modifications.

18

THE IT GROUP, INC.

Achievement of our planned debt reduction strategy is dependent on our ability to perform at planned levels, and also requires improved working capital management and generation of cash
proceeds from the sale of assets. During the first half of the year, our operating performance was negatively impacted due to lower than planned volume in our commercial business resulting from slow and delayed project starts. Consequently, we are
carefully evaluating the impact of the commercial business trends on the second half of the year. We believe our cash flow, available cash and available borrowings under our credit facilities combined with the implementation of alternative
strategies to access additional sources of capital to improve liquidity will be adequate to execute our business plan for the next twelve months.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Statements of our intentions, beliefs, expectations or predictions for the future, denoted by the words "anticipate," "believe," "estimate," "expect," "project," "imply," "intend,"
"foresee" and similar expressions are forward-looking statements that reflect our current views about future events and are subject to risks, uncertainties and assumptions. These risks, uncertainties and assumptions include the following:

- changes in laws or regulations affecting our operations, as well as competitive factors and pricing pressures,
- bidding opportunities and successes,
- project results, including success in pursuing claims and change orders,
- management of our cash resources, costs and margins, particularly in light of our substantial and variable leverage,
- the constraints placed on our operations, acquisitions and working capital by the terms of our debt agreements,
- our ability to achieve stated debt reduction goals,
- funding of backlog,
- matters affecting contracting and engineering businesses generally, such as the seasonality of work, the impact of weather and clients' timing of projects,
- our ability to generate a sufficient level of future earnings to utilize our deferred tax assets,
- the success of our acquisition strategy, including the effects of the integration of our recent acquisitions and any future acquisitions, and achievement of expected cost savings and other synergies from these
acquisitions,
- industry-wide market factors and other general economic and business conditions.

Our actual results could differ materially from those projected in these forward-looking statements as a result of these factors, many of which are beyond our control.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

As of June 29, 2001, we have a $150 million interest rate swap agreement which expires in August 2003, fixing the rate on a like amount of variable rate borrowings where, as the fixed rate
payer, we pay (receive) the difference between 3-month LIBOR and a fixed rate of 6.455%. The fair value of the swap at June 29, 2001, which is designated as a cash flow hedge instrument, is a $5.5 million liability. Based on current fair value, the
$3.1 million of accumulated other comprehensive losses, net of related tax effects, are expected to be reclassified into earnings over the term of the swap agreement. There were no other material changes in our exposure to market risk from December
29, 2000.

19

PART II

THE IT GROUP, INC.

Item 1. Legal Proceedings.

The continuing operations litigation to which the Company is a party is more fully discussed in Note 8, "Commitments and Contingencies" in the Notes to Consolidated Financial Statements in
the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 2000. See also Item 1 - Notes to Condensed Consolidated Financial Statements, Note 8, "Discontinued Operations" for information regarding litigation related to the
discontinued operations of the Company. Except as noted, there have been no material changes in any of the Company's legal proceedings since the date of the Company's Annual Report on Form 10-K.

Ontario Property Litigation

In May 2000 LandBank, Inc. ("LandBank"), a subsidiary of the Company, filed suit (LandBank, Inc., etc. et al v. Tamkin Investments, Inc., etc.
et al, Superior Court for the County of San Bernadino, California, Case No. RCV 47484) seeking declaratory relief with respect to claims by Tamkin Investments, Inc. ("Tamkin") that it was entitled to a portion of the proceeds to be
received by LandBank from the purchase and redevelopment of property in Ontario, California, and seeking damages from Tamkin for its conduct, which LandBank alleges inhibited its broader participation in the transaction. In July 2001 Tamkin amended
its cross-complaint to allege various causes of action, including breach of contract and interference with contract and prospective advantage, against LandBank and IT Corporation ("IT"). The cross-complaint claims unspecified damages,
including punitive damages. LandBank and IT deny Tamkin's allegations, and are defending Tamkin's allegations and pursuing LandBank's own damage claims vigorously. Trial in the case is set for December 2001, and the ultimate outcome of the matter
cannot be determined at this time.

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

At the Company's Annual Meeting of Shareholders held on May 23, 2001, proxies representing 20,338,387 common shares, or 93% of the total issued and outstanding common shares of 21,975,174 were voted. The following
individuals nominated by the Board of Directors were re-elected to the Board of Directors as Common Stock Directors:

|                                    | Votes For  |  | Votes Withheld | 
|----------------------------------- | ---------- |  | -------------- | 
|                                    |            |  |                | 
|Nominees for term expiring in 2002: |            |  |                | 
|Anthony J. DeLuca                   | 18,603,147 |  | 1,735,240      | 
|Francis J. Harvey                   | 20,121,957 |  | 216,430        | 
|James C. McGill                     | 20,027,233 |  | 311,154        | 
|Richard W. Pogue                    | 20,117,359 |  | 221,028        | 
|Charles W. Schmidt                  | 20,119,810 |  | 218,577        | 

20

THE IT GROUP, INC.

|Item 6. | Exhibits and Reports on Form 8-K.
|------- | ---------------------------------
|        |                                  
|        | (a)                              
|        |                                  
|        |                                  
|        |                                  
|        | (b)                              
|        |                                  
|        |                                  

21

THE IT GROUP, INC.

SIGNATURES

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

|THE IT GROUP, INC.                                 |  |                
|-------------------------------------------------- |  | ---------------
|(Registrant)                                       |  |                
|                                                   |  |                
|                                                   |  |                
|                                                   |  |                
|/s/ ANTHONY J. DELUCA                              |  | August 13, 2001
|                                                   |  |                
|Anthony J. DeLuca                                  |  |                
|President and Chief Executive Officer              |  |                
|and Duly Authorized Officer                        |  |                
|                                                   |  |                
|                                                   |  |                
|/s/ HARRY J. SOOSE, JR.                            |  | August 13, 2001
|                                                   |  |                
|Harry J. Soose, Jr.                                |  |                
|Senior Vice President, Chief Financial Officer and |  |                
|Principal Financial Officer                        |  |                
|                                                   |  |                
|                                                   |  |                
|/s/ JAMES J. PIERSON                               |  | August 13, 2001
|                                                   |  |                
|James J. Pierson                                   |  |                
|Vice President, Finance and                        |  |                
|Principal Accounting Officer                       |  |                

































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