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 September 28, 2001

OR



|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from_______________________________to_______________________________

Commission file number 1-9037

The IT Group, Inc.(Exact name of registrant as specified in its charter)

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

2790 Mosside Boulevard, Monroeville, Pennsylvania 15146-2792

|(Address of principal executive offices) | (Zip Code)
|---------------------------------------- | ----------

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

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

At November 1, 2001 the registrant had issued and outstanding an aggregate of 21,971,829 shares of its common stock.



THE IT GROUP, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-QFOR QUARTER ENDED September 28, 2001



|                             |                                                |                                                        |      
|---------------------------- | ---------------------------------------------- | ------------------------------------------------------ | -----
|                             |                                                |                                                        |      
|PART I.FINANCIAL INFORMATION |                                               
|                             |                                                |                                                        | Page 
|                             |                                                |                                                        |      
|Item 1.                      | Financial Statements.                          |                                                       
|                             |                                                |                                                        |      
|                             |                                                | Condensed Consolidated Balance Sheets                  |      
|                             |                                                | as of September 28, 2001 (unaudited) and               |      
|                             |                                                | December 29, 2000                                      | 3    
|                             |                                                |                                                        |      
|                             |                                                | Condensed Consolidated Statements of Operations        |      
|                             |                                                | for the Fiscal Quarter and Three Fiscal Quarters ended |      
|                             |                                                | September 28, 2001 and September 29, 2000 (unaudited)  | 4    
|                             |                                                |                                                        |      
|                             |                                                | Condensed Consolidated Statements of Cash Flows        |      
|                             |                                                | for the Three Fiscal Quarters ended September 28, 2001 |      
|                             |                                                | and September 29, 2000 (unaudited)                     | 5    
|                             |                                                |                                                        |      
|                             |                                                | Notes to Condensed Consolidated Financial              |      
|                             |                                                | Statements (unaudited).                                | 6-14 
|                             |                                                |                                                        |      
|Item 2.                      | Management's Discussion and Analysis of        |                                                       
|                             |                                                | Results of Operations and Financial Condition.         | 15-20
|                             |                                                |                                                        |      
|Item 3.                      | Quantitative and Qualitative Disclosures about |                                                       
|                             |                                                | Market Risk                                            | 20   
|                             |                                                |                                                        |      
|                             |                                                |                                                        |      
|PART II.OTHER INFORMATION    |                                               
|                             |                                                |                                                        |      
|Item 1.                      | Legal Proceedings                              | 21                                                    
|                             |                                                |                                                        |      
|Item 6.                      | Exhibits and Reports on Form 8-K               | 21                                                    
|                             |                                                |                                                        |      
|                             |                                                | Signatures                                             | 22   



PART I

Item 1. Financial Statements

THE IT GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS



|                                                                   |                |               |           |  |        |              |           |  | 
|------------------------------------------------------------------ | -------------- | ------------- | --------- |  | ------ | ------------ | --------- |  | 
|                                                                   |                | September 28, |           |  |        | December 29, |          
|                                                                   |                | 2001          |           |  |        | 2000         |          
|                                                                   |                |               |           |  |        |             
|                                                                   |                | (Unaudited)   |           |  |        |              |          
|ASSETS                                                             | (In thousands)
|Current assets:                                                    |                |               |           |  |        |              |           | 
|Cash and cash equivalents                                          |                | $             | 12,588    |  |        | $            | 15,624    | 
|Receivables, net                                                   |                | 463,203       |           |  |        | 440,566      |          
|Prepaid expenses and other current assets                          | 50,411         |               |           |  | 44,177 |             
|Deferred income taxes                                              |                |               | 38,071    |  |        |              | 38,101    | 
|                                                                   |                |               |           |  |        |             
|Total current assets                                               |                | 564,273       |           |  |        | 538,468      |          
|Property, plant and equipment, at cost:                            |                |               |           |  |        |              |          
|Land, buildings and improvements                                   | 11,289         |               |           |  | 10,939 |             
|Machinery and equipment                                            |                |               | 114,085   |  |        |              | 107,097   | 
|                                                                   |                |               |           |  |        |             
|                                                                   |                | 125,374       |           |  |        | 118,036      |          
|Less accumulated depreciation and amortization                     |                | 61,074        |           |  |        | 54,902       |          
|                                                                   |                |               |           |  |       
|Net property, plant and equipment                                  | 64,300         |               |           |  | 63,134 |             
|                                                                   |                |               |           |  |        |              |           | 
|Cost in excess of net assets of acquired businesses                |                | 534,592       |           |  |        | 538,757      |          
|Other assets                                                       |                | 82,143        |           |  |        | 82,039       |          
|Deferred income taxes                                              |                |               | 99,522    |  |        |              | 100,593   | 
|                                                                   |                |               |           |  |        |             
|Total assets                                                       |                | $             | 1,344,830 |  |        | $            | 1,322,991 | 
|                                                                   |                |               |           |  |        |             
|                                                                   |                |               |           |  |        |              |           | 
|LIABILITIES AND STOCKHOLDERS' EQUITY                               |                |               |           |  |        |              |          
|Current liabilities:                                               |                |               |           |  |        |              |           | 
|Accounts payable                                                   |                | $             | 240,373   |  |        | $            | 254,689   | 
|Accrued liabilities                                                |                | 95,890        |           |  |        | 82,850       |          
|Billings in excess of revenues                                     |                | 39,435        |           |  |        | 45,744       |          
|Short-term debt, including current portion of long-term debt       |                | 12,243        |           |  |        | 14,600       |          
|                                                                   |                |               |           |  |        |             
|Total current liabilities                                          |                | 387,941       |           |  |        | 397,883      |          
|                                                                   |                |               |           |  |        |              |           | 
|Long-term debt                                                     |                |               | 686,558   |  |        |              | 644,623   | 
|Other long-term accrued liabilities                                |                |               | 12,049    |  |        |              | 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, 941,325 and 1,037,671 shares, respectively | (4,672         | )             |           |  | (5,151 | )           
|Additional paid-in capital                                         |                |               | 351,040   |  |        |              | 351,063   | 
|Unearned compensation, restricted stock                            | (1,057         | )             |           |  | (826   | )           
|Deficit                                                            |                | (86,136       | )         |  |        | (89,010      | )        
|Accumulated other comprehensive income (loss)                      | (7,787         | )             |           |  | (1,045 | )           
|                                                                   |                |               |           |  |        |             
|Total stockholders' equity                                         |                | 258,282       |           |  |        | 261,925      |          
|                                                                   |                |               |           |  |       
|Total liabilities and stockholders' equity                         | $              | 1,344,830     |           |  | $      | 1,322,991    |          
|                                                                   |                |               |           |  |       

See accompanying notes



THE IT GROUP, INC.

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

|                                             |  |                      |         |                             |   |               |   |               |           |   |   |           |  
|-------------------------------------------- |  | -------------------- | ------- | --------------------------- | - | ------------- | - | ------------- | --------- | - | - | --------- | -
|                                             |  | Fiscal quarter ended |         | Three fiscal quarters ended |  
|                                             |  |                      |         |                             |  
|                                             |  | September 28,        |         | September 29,               |   | September 28, |   | September 29, |          
|                                             |  |                      | 2001    |                             |   | 2000          |   |               | 2001      |   |   | 2000      |  
|                                             |  |                      |         |                             |   |               |   |               |          
|                                             |  |                      |         |                             |   | (Unaudited)   |   |               |           |  
|                                             |  |                      |         |                             |   |               |   |               |           |  
|Revenues                                     |  | $                    | 367,164 |                             | $ | 383,271       |   | $             | 1,065,322 |   | $ | 1,048,320 |  
|Cost and expenses:                           |  |                      |         |                             |   |               |   |               |           |   |   |           |  
|Cost of revenues                             |  |                      | 330,064 |                             |   | 334,028       |   |               | 941,641   |   |   | 909,685   |  
|Selling, general and administrative expenses |  |                      | 13,098  |                             |   | 14,072        |   |               | 39,441    |   |   | 41,948    |  
|Amortization of goodwill                     |  |                      | 5,108   |                             |   | 5,043         |   |               | 15,247    |   |   | 14,492    |  
|                                             |  |                      |         |                             |   |               |   |               |          
|Operating income                             |  |                      | 18,894  |                             |   | 30,128        |   |               | 68,993    |   |   | 82,195    |  
|                                             |  |                      |         |                             |   |               |   |               |           |   |   |           |  
|Interest expense, net                        |  |                      | 18,145  |                             |   | 18,894        |   |               | 56,563    |   |   | 52,902    |  
|                                             |  |                      |         |                             |   |               |   |               |          
|Income before income taxes                   |  |                      | 749     |                             |   | 11,234        |   |               | 12,430    |   |   | 29,293    |  
|Provision for income taxes                   |  |                      | 288     |                             |   | 4,325         |   |               | 4,786     |   |   | 11,278    |  
|                                             |  |                      |         |                             |   |               |   |               |          
|Net income                                   |  |                      | 461     |                             |   | 6,909         |   |               | 7,644     |   |   | 18,015    |  
|                                             |  |                      |         |                             |   |               |   |               |           |   |   |           |  
|Preferred stock dividends                    |  |                      | (1,590  | )                           |   | (1,590        | ) |               | (4,770    | ) |   | (4,770    | )
|                                             |  |                      |         |                             |   |               |   |               |          
|Net income (loss) applicable to common stock |  | $                    | (1,129  | )                           | $ | 5,319         |   | $             | 2,874     |   | $ | 13,245    |  
|                                             |  |                      |         |                             |   |               |   |               |          
|                                             |  |                      |         |                             |   |               |   |               |           |   |   |           |  
|Net income (loss) per common share - basic   |  | $                    | (0.05   | )                           | $ | 0.24          |   | $             | 0.13      |   | $ | 0.58      |  
|                                             |  |                      |         |                             |   |               |   |               |          
|                                             |  |                      |         |                             |   |               |   |               |           |   |   |           |  
|Net income (loss) per common share - diluted |  | $                    | (0.05   | )                           | $ | 0.21          |   | $             | 0.13      |   | $ | 0.53      |  
|                                             |  |                      |         |                             |   |               |   |              
|                                             |  |                      |         |                             |   |               |   |               |           |   |   |           |  
|Weighted average common shares outstanding:  |  |                      |         |                             |   |               |   |               |           |   |   |           |  
|Basic                                        |  |                      | 21,772  |                             |   | 22,308        |   |               | 21,776    |   |   | 22,643    |  
|                                             |  |                      |         |                             |   |               |   |               |          
|Diluted                                      |  |                      | 21,772  |                             |   | 28,473        |   |               | 22,012    |   |   | 28,809    |  
|                                             |  |                      |         |                             |   |               |   |               |          

See accompanying notes



THE IT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands)



|                                                  |                             |         |               |   |  |         |  
|------------------------------------------------- | --------------------------- | ------- | ------------- | - |  | ------- | -
|                                                  | Three fiscal quarters ended |        
|                                                  |                             |        
|                                                  | September 28,               |         | September 29, |  
|                                                  | 2001                        |         | 2000          |  
|                                                  |                             |         |               |  
|                                                  | (Unaudited)                
|                                                  |                             |         |               |   |  |         |  
|Cash flows from operating activities:             |                             |         |               |   |  |         |  
|Net income                                        | $                           | 7,644   |               | $ |  | 18,015  |  
|Adjustments to reconcile net income to net cash   |                             |         |               |   |  |         |  
|used for operating activities:                    |                             |         |               |   |  |         |  
|Depreciation and amortization                     |                             | 28,642  |               |   |  | 27,095  |  
|Deferred income taxes                             |                             | 4,354   |               |   |  | 8,589   |  
|Other                                             |                             | (2,305  | )             |   |  | (1,182  | )
|Changes in assets and liabilities, net of effects |                             |         |               |   |  |         |  
|from acquisitions:                                |                             |         |               |   |  |         |  
|Changes in assets and liabilities                 |                             | (39,230 | )             |   |  | (48,529 | )
|Discontinued operations                           |                             | (6,896  | )             |   |  | (8,104  | )
|                                                  |                             |         |               |  
|Net cash used for operating activities            |                             | (7,791  | )             |   |  | (4,116  | )
|Cash flows from investing activities:             |                             |         |               |   |  |         |  
|Capital expenditures                              |                             | (9,688  | )             |   |  | (15,147 | )
|Acquisition of businesses                         |                             | (19,884 | )             |   |  | (47,961 | )
|Proceeds from sale of assets                      |                             | 881     |               |   |  | 2,165   |  
|Other, net                                        |                             |        |               |   |  | (6,947  | )
|                                                  |                             |         |               |  
|Net cash used for investing activities            |                             | (28,691 | )             |   |  | (67,890 | )
|Cash flows from financing activities:             |                             |         |               |   |  |         |  
|Financing costs                                   |                             |        |               |   |  | (3,649  | )
|Net borrowing of long-term debt                   |                             | 37,522  |               |   |  | 71,599  |  
|Purchase of treasury shares                       |                             |        |               |   |  | (4,932  | )
|Dividends paid on preferred stock                 |                             | (4,076  | )             |   |  | (4,770  | )
|                                                  |                             |         |               |  
|Net cash provided by financing activities         |                             | 33,446  |               |   |  | 58,248  |  
|                                                  |                             |         |               |  
|Net decrease in cash and cash equivalents         |                             | (3,036  | )             |   |  | (13,758 | )
|Cash and cash equivalents at beginning of period  |                             | 15,624  |               |   |  | 29,529  |  
|                                                  |                             |         |               |  
|Cash and cash equivalents at end of period        | $                           | 12,588  |               | $ |  | 15,771  |  
|                                                  |                             |         |               |  

See accompanying notes



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 September 28, 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 these 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 September 28, 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 effect of these tests will be on the earnings and financial position of the Company.

Accounting for Derivative Instruments and Hedging Activities

The Company adopted Statement of Financial Accounting Standards 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 $3.9 million, net of related tax effects, were also recorded in other comprehensive income (see Note 10,
"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 September 28, 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 September 28, 2001, which is designated as a cash flow hedge instrument, is an $8.8
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 September 28, 2001, the $5.2 million 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. 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 had an option which expired in August 2001 that provided 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. This option was classified as a fair value hedge instrument and expired unexercised. 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 September 28, 2001 was not material. The Company recognizes all derivatives
on the balance sheet at fair value. 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 September 28, 2001 are billed receivables of $336 million, costs and estimated profits in excess of billings of $58 million, contract claims
and unapproved change orders of $39 million, investments in federal privatization projects of $13 million, and retention of $17 million. Accounts receivable from the U. S. Government at September 28, 2001 were $200 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 September 28, 2001 is approximately $39 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 Note 7, "Contingencies"). The actual amounts realized
could be materially different than the amounts recorded.



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 September 28, 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 included an accrual of $1 million for the estimated W&H Pacific severance and lease termination costs, which will principally be paid in 2001.

3.   Long-term debt:

The Company's credit facilities currently consist of an eight-year amortizing term loan (Term Loan B), currently with $214.5 million outstanding, a seven-year amortizing
term loan (Term Loan C), currently with $97 million outstanding and a six-year revolving credit facility (revolving loans) of $185 million that contains a sublimit of $25 million for letters of credit issuance. Paydowns of the Company's revolving
facility allow for subsequent re-borrowing under the facility. The credit facilities are secured by a security interest in substantially all of the assets of the Company and its subsidiaries. In addition, the facilities include representations,
warranties and covenants customary for facilities of this type and include various financial covenants, including maintaining a ratio of total consolidated debt to EBITDA, interest coverage, and limitations (subject to certain exceptions) on
indebtedness, lease obligations, mergers and acquisitions and other fundamental changes, prohibit acquisitions and the payment of cash dividends on common stock and limit capital expenditures. Effective September 27, 2001, the Company and its
lenders agreed to an amendment to the credit facilities for revisions to the financial covenants for the periods ended September 28, 2001 and December 28, 2001.



4.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 September 28, 2001 were $0.6 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 nine months ended September 28, 2001 were as follows:



|                                            |                                                    |          |          |  |                       |                 |  |  |         | 
|------------------------------------------- | -------------------------------------------------- | -------- | -------- |  | --------------------- | --------------- |  |  | ------- | 
|Acquisition-related reserves:               | Nine Months Ended September 28, 2001(in thousands)
|                                            | Reserve balance                                    |          |          |  |                       | Reserve balance
|                                            | at December 29, 2000                               |          | Payments |  | at September 28, 2001
|                                            |                                                    |          |          |  |                       |                 |  |  |         | 
|                                            |                                                    |          |          |  |                       |                 |  |  |         | 
|Severance                                   |                                                    | $ 2,403  |          |  | $                     | (472)           |  |  | $ 1,931 | 
|Office closure, lease termination and other |                                                    | 9,283    |          |  |                       | (4,410)         |  |  | 4,873   | 
|                                            |                                                    |          |          |  |                       |                 |  |  |        
|Total                                       |                                                    | $ 11,686 |          |  | $                     | (4,882)         |  |  | $ 6,804 | 
|                                            |                                                    |          |          |  |                       |                 |  |  |        

5.Income taxes:

For the year to date period ended September 28, 2001, the Company recorded an income tax provision of $4.8 million, reflecting an income tax rate of approximately 38.5% on
pretax income of $12.4 million which is based upon the estimated tax rate for the entire year. Based on a net deferred tax asset of $138 million (net of a valuation allowance of $51 million) at September 28, 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 $358 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.



THE IT GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)

6.Earnings per share:

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

|                                               |                                                |        |                     |   |                     |        |                     |        |        |   |        |        | 
|---------------------------------------------- | ---------------------------------------------- | ------ | ------------------- | - | ------------------- | ------ | ------------------- | ------ | ------ | - | ------ | ------ | 
|                                               | Three months ended                             |        | Nine months ended   |  
|                                               | September 28,

2001                            |        | September 29,

2000 |   | September 28,

2001 |        | September 29,

2000 |       
|                                               | (In thousands, except per share data)         
|Numerator:                                     |                                               
|Net income                                     | $                                              | 461    |                     | $ | 6,909               |        | $                   | 7,644  |        | $ | 18,015 |       
|Preferred stock dividends                      |                                                | (1,590 | )                   |   | (1,590              | )      |                     | (4,770 | )      |   | (4,770 | )     
|                                               |                                                |        |                     |   |                     |        |                     |       
|Numerator for basic earnings per share - net   |                                                |        |                     |   |                     |        |                     |        |        |   |        |       
|                                               | income (loss) available to common stockholders | $      | (1,129              | ) | $                   | 5,319  |                     | $      | 2,874  |   | $      | 13,245 | 
|                                               |                                                |        |                     |   |                     |        |                     |       
|Effect of conversion of dilutive securities:   |                                                |        |                     |   |                     |        |                     |        |        |   |        |       
|                                               | Preferred stock dividends                      |        |                    |   |                     | 692    |                     |        |       |   |        | 2,076  | 
|                                               |                                                |        |                     |   |                     |        |                     |       
|                                               |                                                |        |                     |   |                     |        |                     |        |        |   |        |        | 
|Numerator for diluted earnings per share - net |                                                |        |                     |   |                     |        |                     |        |        |   |        |       
|                                               | income (loss) applicable to common stock       | $      | (1,129              | ) | $                   | 6,011  |                     | $      | 2,874  |   | $      | 15,321 | 
|                                               |                                                |        |                     |   |                     |        |                     |       
|Denominator:                                   |                                                |        |                     |   |                     |        |                     |        |        |   |        |       
|Denominator for basic earnings per share-      |                                                |        |                     |   |                     |        |                     |        |        |   |        |       
|                                               | weighted average shares                        |        | 21,772              |   |                     | 22,308 |                     |        | 21,776 |   |        | 22,643 | 
|                                               |                                                |        |                     |   |                     |        |                     |       
|Effect of conversion of dilutive securities:   |                                                |        |                     |   |                     |        |                     |        |        |   |        |       
|                                               | Common equivalent shares and nonvested stock   |        |                    |   |                     | 92     |                     |        | 236    |   |        | 93     | 
|                                               | Convertible preferred stock                    |        |                    |   |                     | 6,073  |                     |        |       |   |        | 6,073  | 
|                                               |                                                |        |                     |   |                     |        |                     |       
|Denominator for diluted earnings per           |                                                |        |                     |   |                     |        |                     |        |        |   |        |       
|                                               | share-adjusted weighted-average shares         |        |                     |   |                     |        |                     |        |        |   |        |        | 
|                                               | and assumed conversions                        |        | 21,772              |   |                     | 28,473 |                     |        | 22,012 |   |        | 28,809 | 
|                                               |                                                |        |                     |   |                     |        |                     |       
|Net income (loss) per share basic:             | $                                              | (0.05  | )                   | $ | 0.24                |        | $                   | 0.13   |        | $ | 0.58   |       
|                                               |                                                |        |                     |   |                     |        |                     |       
|Net income (loss) per share diluted:           | $                                              | (0.05  | )                   | $ | 0.21                |        | $                   | 0.13   |        | $ | 0.53   |       
|                                               |                                                |        |                     |   |                     |        |                     |       



THE IT GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 Note 9, "Discontinued operations" of this filing for information regarding the legal proceedings of the discontinued operations of the Company.

8. Operating segments:

Organization

Effective for the period ended September 28, 2001, the Company changed from four reportable segments: Government Services, Commercial
Engineering & Construction (Commercial E&C), Consulting & Technology (C&T), and International to three reportable segments. The change involved combining the Commercial E&C segment with the C&T segment into one Commercial
Services segment. This is designed to streamline and improve our delivery of services to our commercial clients. The following results have been recast to conform with the Company's revised approach to managing and analyzing segment performance. 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 Services segment provides comprehensive consulting, 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 Services, Solid Waste, Transportation and Telecommunication, and Real Estate Restoration. 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



|                                        |                      |         |                      |        |                |  |       |        |  |        |          
|--------------------------------------- | -------------------- | ------- | -------------------- | ------ | -------------- |  | ----- | ------ |  | ------ | ---------
|                                        | Government

Services |         | Commercial

Services |        | International  |  | Total
|                                        |                      |         |                      |        | (In thousands) |  |       |        |  |       
|                                        |                      |         |                      |        |                |  |       |        |  |        |          
|Quarter ended September 28, 2001        |                      |         |                      |        |                |  |       |        |  |        |          
|Revenues                                | $                    | 199,058 |                      | $      | 141,923        |  | $     | 26,183 |  | $      | 367,164  
|                                        |                      |         |                      |        |                |  |       |        |  |        |          
|Segment profit                          | 16,971               |         |                      | 14,577 |                |  | 818   |        |  | 32,366
|                                        |                      |         |                      |        |                |  |       |        |  |        |          
|Quarter ended September 29, 2000        |                      |         |                      |        |                |  |       |        |  |        |          
|Revenues                                | $                    | 193,426 |                      | $      | 163,590        |  | $     | 26,255 |  | $      | 383,271  
|                                        |                      |         |                      |        |                |  |       |        |  |        |          
|Segment profit                          |                      | 22,697  |                      |        | 19,740         |  |       | 2,202  |  |        | 44,639   
|                                        |                      |         |                      |        |                |  |       |        |  |        |          
|Three quarters ended September 28, 2001 |                      |         |                      |        |                |  |       |        |  |       
|Revenues                                | $                    | 560,770 |                      | $      | 432,046        |  | $     | 72,506 |  | $      | 1,065,322
|                                        |                      |         |                      |        |                |  |       |        |  |        |          
|Segment profit                          |                      | 59,920  |                      |        | 46,094         |  |       | 4,078  |  |        | 110,092  
|                                        |                      |         |                      |        |                |  |       |        |  |        |          
|Three quarters ended September 29, 2000 |                      |         |                      |        |                |  |       |        |  |       
|Revenues                                | $                    | 530,167 |                      | $      | 445,230        |  | $     | 72,923 |  | $      | 1,048,320
|                                        |                      |         |                      |        |                |  |       |        |  |        |          
|Segment profit                          |                      | 61,018  |                      |        | 57,890         |  |       | 4,697  |  |        | 123,605  



THE IT GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)





|                                                                                       | Three months ended  |         | Nine months ended   |  
|-------------------------------------------------------------------------------------- | ------------------- | ------- | ------------------- | -
|                                                                                       | September 28,

2001 |         | September 29,

2000 |  
|                                                                                       |                     |         |                     |  
|Total profit for reportable segments                                                   | $                   | 32,366  |                     | $
|Unallocated amounts:                                                                   |                     |         |                     |  
|Corporate selling, general and administrative,

    and goodwill amortization expenses |                     | (13,472 | )                   |  
|Interest expense, net                                                                  |                     | (18,145 | )                   |  
|                                                                                       |                     |         |                     |  
|                                                                                       |                     |         |                     |  
|Income before income taxes                                                             | $                   | 749     |                     | $
|                                                                                       |                     |         |                     |  

9.         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 construction 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 September 28, 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 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 additional parcels 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 as two transactions. Sale of one parcel is expected to occur in the fourth quarter
of 2001 and generate net proceeds of approximately $7.5 million. The other parcel is expected to be sold in 2002. 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.

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.



THE IT GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)

10.      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:



|                                              |                     |        |   |                     |   |        |                     |  |   |                     |   |  |   |        |  
|--------------------------------------------- | ------------------- | ------ | - | ------------------- | - | ------ | ------------------- |  | - | ------------------- | - |  | - | ------ | -
|                                              | Three months ended  |        |   | Nine months ended   |  
|                                              | September 28,

2001 |        |   | September 29,

2000 |   |        | September 28,

2001 |  |   | September 29,

2000 |  
|                                              |                     |        |   |                     |   |        |                     |  |   |                     |   |  |   |        |  
|Net income                                    | $                   | 461    |   |                     | $ | 6,909  |                     |  | $ | 7,644               |   |  | $ | 18,015 |  
|Cumulative translation adjustment of a change |                     |        |   |                     |   |        |                     |  |   |                     |   |  |   |        |  
|in accounting principle (SFAS No. 133         |                     |       |   |                     |   |       |                     |  |   | (1,317              | ) |  |   |       |  
|Unrealized derivative losses on cash flow     |                     |        |   |                     |   |        |                     |  |   |                     |   |  |   |        |  
|hedges (SFAS No. 133)                         |                     | (2,058 | ) |                     |   |       |                     |  |   | (3,875              | ) |  |   |       |  
|Foreign currency translation losses           |                     | (982   | ) |                     |   | (1,015 | )                   |  |   | (1,550              | ) |  |   | (1,775 | )
|                                              |                     |        |   |                     |   |        |                     |  |   |                     |  
|Comprehensive (loss) income                   | $                   | (2,579 | ) |                     | $ | 5,894  |                     |  | $ | 902                 |   |  | $ | 16,240 |  
|                                              |                     |        |   |                     |   |        |                     |  |   |                     |  

11.       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.

THE IT GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)

Summarized Condensed Financial InformationNine Months Ended September 28, 2001

|                                                           | Parent |         |   |  | Guarantor Subsidiaries |           |   |  | Non-Guarantor

Subsidiaries |                |   |  | Eliminations |          |   |  | Consolidated |          
|---------------------------------------------------------- | ------ | ------- | - |  | ---------------------- | --------- | - |  | --------------------------- | -------------- | - |  | ------------ | -------- | - |  | ------------ | ---------
|                                                           |        |         |   |  |                        |           |   |  |                             | (In thousands) |   |  |              |          |   |  |              |          
|Current assets                                             | $      |        |   |  | $                      | 528,798   |   |  | $                           | 36,121         |   |  | $            | (646     | ) |  | $            | 564,273  
|Non current assets                                         |        | 17,491  |   |  |                        | 1,225,019 |   |  |                             | 50,762         |   |  |              | (512,715 | ) |  |              | 780,557  
|Current liabilities                                        |        | 15,919  |   |  |                        | 347,252   |   |  |                             | 27,801         |   |  |              | (3,031   | ) |  |              | 387,941  
|Revenues                                                   |        |        |   |  |                        | 1,010,070 |   |  |                             | 55,488         |   |  |              | (236     | ) |  |              | 1,065,322
|Gross margin                                               |        |        |   |  |                        | 118,869   |   |  |                             | 5,014          |   |  |              | (202     | ) |  |              | 123,681  
|Net income (loss)                                          |        | (14,695 | ) |  |                        | 21,016    |   |  |                             | 2,326          |   |  |              | (1,003   | ) |  |              | 7,644    
|Net cash provided by (used in) operating

      activities |        | (10,517 | ) |  |                        | (7,146    | ) |  |                             | (802           | ) |  |              | 10,674   |   |  |              | (7,791   
|Net cash provided by (used in) investing

     activities  |        | 849     |   |  |                        | (24,440   | ) |  |                             | (4,193         | ) |  |              | (907     | ) |  |              | (28,691  
|Net cash provided by (used in) financing

     activities  |        | (562    | ) |  |                        | 34,831    |   |  |                             | (670           | ) |  |              | (153     | ) |  |              | 33,446   

Summarized Condensed Financial InformationNine Months Ended September 29, 2000



|                                                           | Parent |         |   |  | Guarantor Subsidiaries |           |   |  | Non-Guarantor

Subsidiaries |                |   |  | Eliminations |          |   |  | Consolidated |          
|---------------------------------------------------------- | ------ | ------- | - |  | ---------------------- | --------- | - |  | --------------------------- | -------------- | - |  | ------------ | -------- | - |  | ------------ | ---------
|                                                           |        |         |   |  |                        |           |   |  |                             | (In thousands) |   |  |              |          |   |  |              |          
|Current assets                                             | $      |        |   |  | $                      | 528,891   |   |  | $                           | 36,696         |   |  | $            | (1,285   | ) |  | $            | 564,302  
|Non current assets                                         |        | 18,619  |   |  |                        | 1,226,006 |   |  |                             | 54,584         |   |  |              | (507,324 | ) |  |              | 791,885  
|Current liabilities                                        |        | 14,757  |   |  |                        | 316,634   |   |  |                             | 27,927         |   |  |              | (545     | ) |  |              | 358,773  
|Revenues                                                   |        |        |   |  |                        | 987,492   |   |  |                             | 61,080         |   |  |              | (252     | ) |  |              | 1,048,320
|Gross margin                                               |        |        |   |  |                        | 131,648   |   |  |                             | 7,389          |   |  |              | (402     | ) |  |              | 138,635  
|Net income (loss)                                          |        | (14,484 | ) |  |                        | 30,025    |   |  |                             | 3,542          |   |  |              | (1,068   | ) |  |              | 18,015   
|Net cash provided by (used in) operating

      activities |        | (7,502  | ) |  |                        | (1,550    | ) |  |                             | 1,636          |   |  |              | 3,300    |   |  |              | (4,116   
|Net cash provided by (used in) investing

     activities  |        | 830     |   |  |                        | (59,041   | ) |  |                             | (14,755        | ) |  |              | 5,076    |   |  |              | (67,890  
|Net cash provided by (used in) financing

     activities  |        | (4,932  | ) |  |                        | 62,663    |   |  |                             | 5,424          |   |  |              | (4,907   | ) |  |              | 58,248   



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

THE IT GROUP, INC.

FOR QUARTER ENDED SEPTEMBER 28, 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 including anthrax 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.

In order to streamline and improve our delivery of services to commercial clients, we recently reorganized our operating structure to
combine our Commercial Engineering & Construction and our Consulting & Technology businesses into a Commercial Services Organization. We operate in a client focused organization structure in the Government Services, Commercial Services, 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 including military housing privatization, facilities management, and Civil Works. The Commercial Services segment provides comprehensive consulting, engineering and
construction services to commercial clients, primarily in the petroleum, chemical, manufacturing, transportation, telecommunication, utility and solid waste industries through our Commercial Services, Solid Waste, Transportation &
Telecommunication, and Real Estate Restoration business lines. 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 continue 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 continue to monitor 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 has not experienced 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.



THE IT GROUP, INC.

Revenues and Gross Margins

Company. Revenues for the three months ended September 28, 2001 decreased $16 million, or 4.2%, to $367 million, compared to
revenues of $383 million reported in the three months ended September 29, 2000. For the nine months ended September 28, 2001, revenues were $1,065 million, a 1.6% increase over the prior year to date period. The decline in third quarter revenues
over the prior year was due to the commercial portion of the business. Second quarter volume trends of slow and delayed project starts continued to negatively impact the commercial sector. We expect this weakness in commercial volume to continue
into early 2002. On a year to date basis, revenue increases were the result of stronger federal government volume and the full year effect of the W&H Pacific acquisition.

Our gross margin for the quarter ended September 28, 2001 was 10.1% of revenues, a decrease from 12.8% of revenues reported in the
quarter ended September 29, 2000. Year to date 2001 gross margins were 11.6% compared to 13.2% in 2000. Compared to the prior year periods, operating results continue to be impacted by project performance in all businesses.Early in the fourth quarter of 2001, we implemented a comprehensive cost reduction program which is expected to reduce costs and selling, general and administrative expenses by $15 million to $20 million
annually. 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 $6 million, or 2.9%, to $199 million in the three
months ended September 28, 2001 compared to $193 million for the three months ended September 29, 2000. Revenues for the nine months ended September 28, 2001 were $561 million, an increase of $31 million, or 5.8%, over prior year to date revenues of
$530 million. Funding of backlog at historically high levels has increased Government Services revenues on a year to date basis compared to the prior year. We are continuing to evaluate what effects the September 11, 2001 tragedy and Homeland
Defense initiatives will have on our business, including the potential for delays, changes in funding patterns, and additional HTRW anthrax detection and decontamination work. Overall, on an annual basis we anticipate limited revenue growth in HTRW
remediation work as DOD and DOE spending is projected to remain at historical 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 $17 million, or 8.5% of segment revenues, for the three months ended September 28,
2001, compared to $23 million, or 11.7% of segment revenues, for the three months ended September 29, 2000. For the nine months ended September 28, 2001, Government Services segment profit margin was $60 million, or 10.7% of segment revenues,
compared to $61 million, or 11.5% 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
decreases in segment profit margin percentage were due to a greater percentage of current year revenues from lower-margin Outsourced Services projects, Civil Works project performance, and lower margin levels on HTRW work. Additionally, a negotiated
settlement reached on a contract claim accounted for approximately $3 million of segment margin in the June 2001 quarter.

Commercial Services. Revenues from the Commercial Services segment decreased $22 million, or 13%, to $142 million for the
three months ended September 28, 2001 compared to the three months ended September 29, 2000. Revenues for the nine months ended September 28, 2001, were $432 million, a decrease of $13 million, or 3%, below revenues of $445 million for the nine
months ended September 29, 2000. Revenue decreases for 2001 were due to continuing delays in project timing. Based on the trends in slow and delayed project starts and the general economic slowdown, we expect Commercial Services revenues to be below
prior year levels for the remainder of the year.

Our Commercial Services segment profit margin was $15 million, or 10.3% of segment revenues, for the three months ended September 28,
2001, compared to $20 million, or 12.1% of segment revenues, for the three months ended September 29, 2000. For the nine months ended September 28, 2001, Commercial Services segment profit margin was $46 million, or 10.7% of segment revenues,
compared to $58 million, or 13.0% of segment revenues for the nine months ended September 29, 2000. The declines in segment profit margin percentages compared to prior year periods were primarily due to project performance.



THE IT GROUP, INC.

International.International revenues were $26 million in the three months ended September 28, 2001 and $73 million year to date,
approximately equal to last year. For the three months ended September 28, 2001, our International segment profit margin was $0.8 million, or 3.1% of segment revenues, compared to $2.2 million, or 8.4% of segment revenues for the three months ended
September 29, 2000. International segment profit margin for the nine months ended September 28, 2001 was $4.1 million, or 5.6% of segment revenues, compared to $4.7 million, or 6.4% of segment revenues for the comparable prior year period. The
declines in segment profit margin percentage were primarily related to project performance at our Roche and Australia operations. Segment profit margins for the International segment are lower on a comparative basis to our domestic segments due to
the geographic limitations impeding full utilization of our shared services organization.

Backlog. Our total funded and unfunded backlog at September 28, 2001 was approximately $4.8 billion, including $1.0 billion
relating to our share of joint ventures backlog. Approximately $0.5 billion of the joint ventures backlog relates to our share of the fifty-year Fort Meade project, a 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 September 28,
2001 includes $2.0 billion of funded backlog, including joint ventures. 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.
Additionally, we cannot predict to what extent the events of September 11, 2001 will have on the funding patterns of United States government contracts. 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 $13.1 million, or 3.6% of revenues for the three months ended September 28, 2001
compared to $14.1 million, or 3.7% of revenues in the three months ended September 29, 2000. For the nine months ended September 28, 2001, selling, general and administrative expenses were $39.4 million, or 3.7% of revenues, compared to $41.9
million, or 4.0% 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.

Amortization of Goodwill

Goodwill amortization expense was $5.1 million for the three months ended September 28, 2001 compared to $5.0 million for the September
2000 quarter. Year to date, goodwill amortization expense was $15.2 million compared to $14.5 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 $18.1 million in the quarter ended September 28, 2001 and $18.9 million for the quarter ended September 29,
2000, or 4.9% of revenues for both periods. For the nine months ended September 28, 2001, net interest



THE IT GROUP, INC.

expense was $56.6 million, or 5.3% of revenues, compared to $52.9 million, or 5.0% of revenues for the prior year to date period. Noncash interest expense,
included in net interest expense, was $4.5 million for the nine months ended September 28, 2001, compared to $2.2 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 rate 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 continue to benefit in future quarters from the 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 September 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 5, "Income taxes").

Dividends

Dividends declared for the year to date periods ended September 28, 2001 and September 29, 2000 were $4.8 million for each period, and
included $2.7 million for the 7% cumulative convertible exchangeable preferred stock, and $2.1 million for the 6% cumulative convertible participating preferred stock. Dividends paid year to date ended September 28, 2001 and September 29, 2000 were
$4.1 million and $4.8 million, respectively. The Carlyle Group, holder of 45,000 shares of 6% Cumulative Convertible Participating Preferred Stock, has agreed to accept, and the Board of Directors has approved, payment of the August 20, 2001
dividend in stock.

FINANCIAL CONDITION

Working capital increased $35 million to $176 million at September 28, 2001 from $141 million at December 29, 2000. The current ratio at
September 28, 2001 was 1.45:1 which compares to 1.35:1 at December 29, 2000. Long-term debt of $687 million at September 28, 2001 increased from $645 million at December 29, 2000, and the ratio of total debt, including current portion, to equity was
2.71:1 at September 28, 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 $5.2 million as of September 28, 2001 due to the non-cash effects of recording the fair value of derivative instruments as other accumulated comprehensive losses. Excluding the non-cash effects
of SFAS No. 133, our total debt to equity ratio at September 28, 2001 was 2.65:1.

Cash used by operating activities, which includes cash outflows related to discontinued operations, for the nine months ended September
28, 2001 was $8 million compared to $4 million used by operating activities in the corresponding period of last year. Cash used by operating activities in 2001 included $7 million for discontinued operations (see Item 1. Financial Statements - Notes
to Condensed Consolidated Financial Statements - Note 9, "Discontinued operations"). Two parcels of land from our discontinued operations are under contract to be sold for approximately $12 million. One parcel generating net cash proceeds
of approximately $7.5 million is expected to close later this year, and the other parcel is expected to be sold in 2002.

Cash used for investing activities was $29 million for the nine months ended September 28, 2001, compared to $68 million for the nine
months ended September 29, 2000. Cash used for the acquisition of businesses was $20 million and $48 million for the nine months ended September 28, 2001 and September 29, 2000, respectively. In May 2000 we paid $10 million in initial acquisition
cost for W&H Pacific. The $28 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. Capital expenditures of $10 million for the
nine months ended September 28, 2001 were approximately $5 million lower than the comparable 2000 period.



THE IT GROUP, INC.

Cash provided by financing activities was $33 million for the nine months ended September 28, 2001, compared to $58 million for the
prior year period, reflecting reduced borrowing requirements primarily related to lower business acquisition and capital expenditure requirements.

Based on our uncertainty with maintaining compliance with the increasingly
restrictive financial covenants under our credit facilities, in September 2001 we requested, and received approval from our lenders for, an amendment to our credit agreement effective September 27, 2001. The amendment revised financial covenants for
maximum EBITDA leverage, minimum interest coverage, minimum fixed charge coverage, and net worth, for the quarters ended September 28 and December 28, 2001. As amended, we were compliant with our credit agreement at September 28, 2001. Fees related
to this amendment were $1.5 million, and were recorded as additional deferred financing fees. Our amended credit facilities also continue to have limitations on other indebtedness, lease obligations, capital expenditures, mergers and acquisitions
and other fundamental changes, and also prohibit acquisitions and the payment of cash dividends on common stock.

The September
2001 amendment was the first step of an intended two step credit facilities amendment process. During the first quarter of 2002, we expect to negotiate a second amendment to our credit facilities which will include modifications consistent with a
revised five-year business plan which is currently under development. However, if we are adversely affected by unforeseen or continuing declines in business conditions, we may be required to seek further modifications to our credit agreement. We
also expect that we will incur additional costs in the form of fees and interest expense for any additional credit agreement modifications.

We now expect our year-end debt level to be generally consistent with the
level at September 28, 2001. Factors impacting the execution of our debt reduction strategy include higher than expected working capital usage primarily related to seasonal volume fluctuations and contract claims and unapproved change orders, the
inability to achieve off balance sheet financing of landfill gas to energy equipment due to contractual constraints, the delay in the sale of real estate restoration projects, and lower EBITDA (See "Management's Discussion and Analysis    of Results
of Operations and Financial Condition - Results of Operations").

Significant factors which may continue to impact our liquidity and debt
covenant compliance include project performance, volume fluctuations, bonding capacity, and economic uncertainties compounded by the September 11, 2001 terrorist attacks on the United States. We also continue to have significant cash requirements
including the service on our substantial indebtedness. For the third quarter of 2001, our average available borrowing capacity under our credit agreement was approximately $10 million. Meeting the requirements of our debt agreements will continue to
affect our ability to balance operational and other cash requirements. If due to liquidity constraints we are unable to timely pay subcontractors, suppliers, and lessors and are thereby unable to rely on their services or products, our results of
operations, liquidity and financial condition could be negatively impacted. Our surety bond availability based on market conditions and our financial position may also limit our ability to successfully win new projects and execute our revised
business plan.Concurrent with the development of our revised business plan, the Company has retained a major investment banking firm to explore deleveraging strategies including the sale non-strategic
businesses and accessing additional sources of capital. We have also implemented a comprehensive cost reduction program expected to reduce costs by $15 million to $20 million annually.We
expect that projected levels of backlog realization and our initiated cost reduction program will be adequate to enable us to remain in compliance with the more restrictive financial covenants which begin in the quarter ending December 28, 2001. We
are carefully evaluating the impact of business trends on the fourth quarter of 2001 and future periods. We believe our cash flow, available cash and available borrowings under our credit facilities combined with our backlog and the implementation
of our cost reduction program will be adequate to execute our business forecast for the next twelve months. However, under more severe business conditions including significant reductions in estimated revenues and earnings from our backlog, our
liquidity may not be adequate to execute our business plan without additional sources of capital.



THE IT GROUP, INC.

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:

| |  | the effects of worsening economic conditions on our commercial businesses,                                                                                                                                                                              
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                         
| |  | the effects of the September 11, 2001 terrorist attacks on our business and on the economy generally,                                                                                                                                                   
| |  |                                                                                                                                                                                                                                                         
| |  |                                                                                                                                                                                                                                                         
| |  | our ability to do business with qualified subcontractors, vendors and financial institutions as well as to retain qualified personnel in light of our current liquidity and financial
performance,                                                      
| |  |                                                                                                                                                                                                                                                         
| |  |                                                                                                                                                                                                                                                         
| |  | 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 legacy liabilities from these acquisitions as well as the integration of our recent 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 September 28, 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 September 28, 2001, which is designated as a cash flow hedge
instrument, is an $8.8 million liability. Based on current fair value, the $5.3 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.



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 and in Part II, Item 1, Legal Proceedings in the Company's Quarterly Report on Form 10-Q
for the quarter ended June 29, 2001. See also Item 1 - Notes to Condensed Consolidated Financial Statements, Note 9, "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 Bernardino, 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 this case is set for late April 2002; discovery is
continuing and the ultimate outcome of the matter cannot be determined at this time.

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

| | (a)     | Exhibits.          
| | ------- | -------------------
| |         |                    
| | 10 (ii) | 29                 
| |         |                    
| | (b)     | Reports on Form 8-K
| |         |                    
| |         | None               





> 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                              |  | November 6, 2001
|-------------------------------------------------- |  | ----------------
|Anthony J. DeLuca                                  |  |                 
|President and Chief Executive Officer              |  |                 
|and Duly Authorized Officer                        |  |                 
|                                                   |  |                 
|                                                   |  |                 
|                                                   |  |                 
|/s/ HARRY J. SOOSE, JR.                            |  | November 6, 2001
|Harry J. Soose, Jr.                                |  |                 
|Senior Vice President, Chief Financial Officer and |  |                 
|Principal Financial Officer                        |  |                 
|                                                   |  |                 
|                                                   |  |                 
|                                                   |  |                 
|/s/ JAMES J. PIERSON                               |  | November 6, 2001
|James J. Pierson                                   |  |                 
|Vice President, Finance and                        |  |                 
|Principal Accounting Officer                       |  |