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


                                    FORM 10-Q



                 X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
                                     -------
                       THE SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 2002
                                    ---------

                   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 1-14762

                            THE SERVICEMASTER COMPANY
             (Exact name of registrant as specified in its charter)

       Delaware                                            36-3858106
(State or other jurisdiction of               (IRS Employer Identification No.)
  incorporation or organization)

2300 Warrenville Road, Downers Grove, Illinois                 60515-1700
(Address of principal executive offices)                       (Zip Code)

                                  630-271-1300
              (Registrant's telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes___X___   No______ .


Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock: 302,368,000 shares of common stock on August 7, 2002.








<PAGE>





                                  TABLE OF CONTENTS

                                                                            Page
                                                                             NO.

THE SERVICEMASTER COMPANY (Registrant)

PART I.  FINANCIAL INFORMATION

Item 1 : Financial Statements

Consolidated Statements of Income for the three and six
 months ended June 30, 2002 and June 30, 2001                                  2

Consolidated Statements of Financial Position
   as of June 30, 2002 and December 31, 2001                                   4

Consolidated Statements of Cash Flows for the six months
   ended June 30, 2002 and June 30, 2001                                       5

Notes to Consolidated Financial Statements                                     6

Item 2: Management Discussion and Analysis of Financial
   Condition  and Results of Operations                                       14

Item 3:  Quantitative and Qualitative Disclosures About
     Market Risk                                                              22


PART II.  OTHER INFORMATION

Item 4:  Submission of Matters to a Vote of Security Holders                  23

Item 6:  Exhibits and Reports on Form 8-K                                     23

Exhibit 18.1 : Letter re: Change in Accounting Principle                      24

Exhibit 99.1: Certification of Chief Executive Officer Pursuant
to Section 1350 of Chapter 63 of Title 18 of the
United States Code                                                            25

Exhibit 99.2: Certification of Chief Financial Officer Pursuant
to Section 1350 of Chapter 63 of Title 18 of the
United States Code                                                            26


Signature                                                                    27








                                       1
<PAGE>











                                PART I. FINANCIAL INFORMATION

                                  THE SERVICEMASTER COMPANY
                              CONSOLIDATED STATEMENTS OF INCOME
                            (IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>


                                                                                Three Months Ended           Six Months Ended
                                                                                      June 30,                    June 30,
                                                                               2002           2001           2002           2001
                                                                           ------------   ------------   ------------   ------------
<S>                                                                        <C>            <C>            <C>            <C>
OPERATING REVENUE ......................................................   $ 1,048,008    $ 1,030,176    $ 1,795,290    $ 1,765,897

OPERATING COSTS AND EXPENSES:
Cost of services rendered and products sold.............................       700,007        697,072      1,242,801      1,238,000
Selling and administrative expenses.....................................       226,978        207,973        368,239        325,670
Goodwill, trade name and other intangible amortization (1)..............         2,534         18,335          5,070         35,901
                                                                           ------------   ------------   ------------    -----------
Total operating costs and expenses......................................       929,519        923,380      1,616,110      1,599,571
                                                                           ------------   ------------   ------------    -----------

OPERATING INCOME .......................................................       118,489        106,796        179,180        166,326

NON-OPERATING  EXPENSE (INCOME):
Interest expense .......................................................        21,725         31,825         44,266         66,399
Interest and investment income..........................................        (2,886)        (3,745)        (6,533)        (7,263)
Minority interest and other expense, net................................         2,014          2,838          3,584          1,064
                                                                           ------------   ------------   ------------   ------------

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES...................        97,636         75,878        137,863        106,126
Provision for income taxes..............................................        35,412         31,796         50,655         44,253
                                                                           ------------   ------------   ------------   ------------

INCOME FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY
     ITEMS AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE ..................        62,224         44,082         87,208         61,873

Income from discontinued operations, net of income taxes (2) ...........             -          6,631              -         12,064
Extraordinary gain (loss), net of income taxes (4) .....................        (9,229)             -         (9,229)         6,003
Cumulative effect of accounting change (3)                                           -              -        (44,577)             -
                                                                           ------------   ------------   ------------   ------------
NET INCOME .............................................................   $    52,995    $    50,713    $    33,402    $    79,940
                                                                           ============   ============   ============   ============

PER SHARE:
BASIC EARNINGS PER SHARE:
Income from continuing operations before extraordinary items
   and cumulative effect of accounting change...........................          $.21           $.15           $.29           $.21

Discontinued operations, net (2) .......................................             -            .02              -            .04
Extraordinary gain (loss) (4)...........................................          (.03)             -           (.03)           .02
Cumulative effect of accounting change (3)..............................             -              -           (.15)             -
                                                                           ------------   ------------   ------------   ------------
                                                                                  $.18           $.17           $.11           $.27
                                                                           ============   ============   ============   ============
SHARES                                                                         301,092        298,547        300,653        298,170


DILUTED EARNINGS PER SHARE:
Income from continuing operations before extraordinary items
   and cumulative effect of accounting change...........................          $.20           $.15           $.28           $.21

Discontinued operations, net (2) .......................................             -            .02              -            .04
Extraordinary gain (loss) (4)...........................................          (.03)             -           (.03)           .02
Cumulative effect of accounting change (3)..............................             -              -           (.14)             -
                                                                           ------------   ------------   ------------   ------------
                                                                                  $.17           $.17           $.11           $.27
                                                                           ============   ============   ============   ============
                                                                           ------------   ------------   ------------   ------------
SHARES                                                                         316,474        310,764        315,900        310,300

Dividends per share.....................................................          $.10           $.10           $.20           $.20
                                                                           ============   ============   ============   ============
</TABLE>





                                       2
<PAGE>



(1)  The Company adopted SFAS 142, "Goodwill and Other Intangible Assets", which
     eliminates  the  amortization  of  goodwill  and  intangible   assets  with
     indefinite  lives  beginning in 2002.  Had the  provisions of SFAS 142 been
     applied to 2001,  amortization  expense  would  have been  reduced by $15.9
     million  ($10.7  million,  after-tax)  and $31.0  million  ($21.0  million,
     after-tax)  for the  three  and six  month  periods  ended  June  30,  2001
     respectively.

(2)  In the fourth quarter of 2001, the Company's Board of Directors  approved a
     series of  actions  related to the  strategic  review of its  portfolio  of
     businesses that commenced  earlier in 2001. These actions included the sale
     in November 2001 of the Company's  Management  Services business as well as
     the decision to exit certain non-strategic and under-performing  businesses
     including  TruGreen  LandCare  Construction,  Certified  Systems,  Inc. and
     certain other  operations.  These  operations are included in "Discontinued
     operations" in 2001.

(3)  In the second  quarter of 2002, the Company  changed its accounting  method
     for customer  acquisition  costs in its American Home Shield  business.  In
     accordance with  Accounting  Principles  Board Opinion No. 20,  "Accounting
     Changes",  the  cumulative  effect of this change in accounting  policy has
     been  recorded  as  of  the  beginning  of  fiscal  2002.   The  impact  of
     retroactively  applying  the change in method of  accounting  to 2001 would
     have reduced pretax  earnings by $1.0 million ($.7 million,  after-tax) and
     $7.8 million ($5.1 million,  after-tax) for the three and six month periods
     ended June 30, 2001.

(4)  The Company purchased a portion of its public debt securities in the second
     quarter of 2002 and in the first quarter of 2001.  The Company has recorded
     an extraordinary gain (loss) from the early  extinguishment of debt related
     to these repurchases.



                       SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



                                       3
<PAGE>





                                       THE SERVICEMASTER COMPANY
                             CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
                                            (IN THOUSANDS)

<TABLE>

                                                                                       As of
ASSETS                                                                       June 30,         December 31,
                                                                               2002               2001
                                                                           -----------        -----------
CURRENT ASSETS:
<S>                                                                        <C>                <C>
Cash and cash equivalents ..............................................   $   153,852        $   421,550
Marketable securities ..................................................        60,697             61,561
Receivables, less allowance of $32,204 and $27,951, respectively .......       424,632            366,284
Inventories ............................................................        75,345             71,336
Prepaid expenses, deferred costs and other assets ......................       164,254            169,327
Deferred taxes .........................................................        87,436             60,600
                                                                           -----------        -----------
       Total Current Assets ............................................       966,216          1,150,658
                                                                           -----------        -----------

PROPERTY AND EQUIPMENT:
   At cost .............................................................       479,354            473,651
   Less: accumulated depreciation ......................................       293,603            284,679
                                                                           -----------        -----------
     Net property and equipment ........................................       185,751            188,972
                                                                           -----------        -----------

OTHER  ASSETS:
Goodwill ...............................................................     1,852,018          1,844,468
Intangible assets, primarily trade names ...............................       320,355            323,255
Assets of discontinued operations ......................................        15,294             33,398
Notes receivable .......................................................        63,033             62,116
Long-term securities and other assets ..................................        81,557             71,872
                                                                           -----------        -----------
       Total Assets ....................................................   $ 3,484,224        $ 3,674,739
                                                                           ===========        ===========

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable .......................................................   $   142,026        $   123,800
Accrued liabilities:
   Payroll and related expenses ........................................        80,535             83,973
   Insurance and related expenses ......................................        45,851             40,019
   Income taxes payable ................................................        37,745             24,243
   Other ...............................................................       112,687            133,291
Deferred revenues ......................................................       451,457            373,916
Current portion of long-term debt ......................................        44,496             35,159
                                                                           -----------        -----------
       Total Current Liabilities .......................................       914,797            814,401
                                                                           -----------        -----------

LONG-TERM DEBT .........................................................       817,141          1,105,518

LONG-TERM LIABILITIES:
     Deferred tax liability ............................................       263,000            263,000
     Liabilities of discontinued operations ............................        49,968             75,159
     Other long-term obligations .......................................       128,524             93,023
                                                                           -----------        -----------
        Total Long-Term Liabilities ....................................       441,492            431,182
                                                                           -----------        -----------

MINORITY INTEREST ......................................................       102,200            102,677

Commitments and Contingencies

SHAREHOLDERS' EQUITY:
Common stock $0.01 par value, authorized 1 billion shares; issued
     and outstanding 302,210 and 300,531 shares, respectively ..........         3,022              3,005
Additional paid-in capital .............................................     1,049,451          1,037,969
Retained earnings ......................................................       311,036            337,232
Accumulated other comprehensive loss ...................................        (7,792)            (1,888)
Restricted stock .......................................................        (1,195)            (1,285)
Treasury stock .........................................................      (145,928)          (154,072)
                                                                           -----------        -----------
       Total Shareholders' Equity ......................................     1,208,594          1,220,961
                                                                           -----------        -----------
       Total Liabilities and Shareholders' Equity ......................   $ 3,484,224        $ 3,674,739
                                                                           ===========        ===========
</TABLE>

                       SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



                                       4
<PAGE>




<TABLE>

                                       THE SERVICEMASTER COMPANY
                                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                                             (IN THOUSANDS)
                                                                                           Six Months Ended
                                                                                                June 30,
                                                                                        2002               2001
                                                                                     ----------          ---------

<S>                                                                                  <C>                 <C>
CASH AND CASH EQUIVALENTS AT JANUARY 1 .........................................     $ 421,550           $ 57,948

CASH FLOWS FROM OPERATIONS:
NET INCOME .....................................................................        33,402             79,940
     Adjustments to reconcile net income to net cash flows from operations:
        Income from discontinued operations ....................................             -            (12,064)
        Extraordinary (gain) loss ..............................................         9,229             (6,003)
        Cumulative effect of accounting change .................................        44,577               --
        Depreciation expense ...................................................        25,938             28,018
        Amortization expense ...................................................         5,070             35,901
     Tax refund from prior years payments ......................................             -             21,000
     Deferred income tax expense ...............................................        41,557             49,927
         Change in working capital, net of acquisitions:
            Receivables ........................................................       (58,836)           (67,988)
            Sale of receivables ................................................             -            100,000
            Inventories and other current assets ...............................       (68,133)           (90,891)
            Accounts payable ...................................................        20,037                830
            Deferred revenues ..................................................        82,468             80,454
            Accrued liabilities ................................................        15,739             11,399
         Other, net ............................................................         1,818              2,325
                                                                                     ----------          ---------
NET CASH PROVIDED FROM OPERATIONS ..............................................       152,866            232,848
                                                                                     ----------          ---------

 MEMO:  NET CASH PROVIDED FROM OPERATIONS
       (EXCLUDING PRIOR YEAR SALE OF RECEIVABLES AND TAX REFUNDS) ..............       152,866            111,848

CASH FLOWS FROM INVESTING ACTIVITIES:
      Property additions .......................................................       (29,458)           (22,865)
      Sale of equipment and other assets .......................................         1,532              7,994
      Business acquisitions, net of cash acquired ..............................        (9,299)           (21,065)
      Proceeds from business sales and minority interests ......................             -             12,542
      Notes receivable, financial investments and securities ...................        (3,453)           (21,522)
                                                                                     ----------          ---------
NET CASH USED FOR INVESTING ACTIVITIES .........................................       (40,678)           (44,916)
                                                                                     ----------          ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
      Net payments of debt .....................................................      (295,570)          (141,310)
      Purchase of ServiceMaster stock ..........................................             -             (1,308)
      Shareholders' dividends ..................................................       (59,598)           (59,792)
      Other, net ...............................................................        12,821              5,216
                                                                                     ----------          ---------
NET CASH USED FOR FINANCING ACTIVITIES .........................................      (342,347)          (197,194)
                                                                                     ----------          ---------
                                                                                     ----------          ---------
CASH USED FOR DISCONTINUED OPERATIONS ..........................................       (37,539)           (12,433)
                                                                                     ----------          ---------

CASH DECREASE DURING THE PERIOD ................................................      (267,698)           (21,695)
                                                                                     ----------          ---------

CASH AND CASH EQUIVALENTS AT JUNE 30 ...........................................     $ 153,852           $ 36,253
                                                                                     ==========          =========
</TABLE>


                       SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



                                       5
<PAGE>





                            THE SERVICEMASTER COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE  1:  The  consolidated   financial   statements  include  the  accounts  of
ServiceMaster and its subsidiaries,  collectively  referred to as "the Company".
Intercompany transactions and balances have been eliminated in consolidation.

NOTE 2: The consolidated financial statements included herein have been prepared
by the  Company  pursuant to the rules and  regulations  of the  Securities  and
Exchange  Commission.  Certain  information  and footnote  disclosures  normally
included in financial  statements prepared in accordance with generally accepted
accounting  principles have been condensed or omitted pursuant to such rules and
regulations.  However, the Company believes that the disclosures are adequate to
make the information  presented not misleading.  The Company suggests that these
consolidated  financial  statements be read in conjunction with the consolidated
financial  statements  and the notes thereto  included in the  Company's  latest
Annual  Report to  Shareholders  and the  Annual  Report to the  Securities  and
Exchange  Commission  on Form 10-K for the year ended  December 31, 2001. In the
opinion  of the  Company,  all  adjustments  necessary  to  present  fairly  the
financial position of The ServiceMaster Company as of June 30, 2002 and December
31,  2001,  and the results of  operations  for the three and six month  periods
ended June 30,  2002 and 2001 and cash  flows for the six months  ended June 30,
2002 and 2001 have been  included.  The  results of  operations  for any interim
period are not necessarily indicative of the results which might be obtained for
a full year.

As further  discussed in Note 5,  effective  January 2002,  the Company  adopted
Statement of Financial  Accounting  Standards  ("SFAS") No. 142,  "Goodwill  and
Other Intangible Assets". In addition, the Company changed its accounting method
for  customer  acquisition  costs  in its  American  Home  Shield  business.  In
accordance  with  Accounting   Principles  Board  Opinion  No.  20,  "Accounting
Changes",  the cumulative effect of this change in accounting policy (totaling a
charge of $.14 per  diluted  share) has been  recorded  as of the  beginning  of
fiscal 2002. The Company also announced  that,  beginning in 2003, it will begin
accounting for employee stock options as compensation expense in accordance with
SFAS  No.  123,  "Accounting  for  Stock-Based  Compensation."  If  the  Company
continues  its  historical  pattern  of option  granting,  the  impact  would be
approximately  $.005 per share in 2003,  growing to approximately $.03 per share
over five years.

NOTE 3: The Company has  identified the most  important  accounting  policies in
order to portray its financial condition and results of operations. These relate
primarily to revenue recognition and the deferral of customer acquisition costs.
The following  revenue  recognition  policies  have not changed since  year-end.
Revenues  from  lawn  care,  non-baiting  termite,  pest  control,   heating/air
conditioning and plumbing  services are recognized as the services are provided.
Revenues from  landscaping  services are  recognized  based upon agreed  monthly
contract   payments  or  when  services  are   performed   for   non-contractual
arrangements.  Revenues from the Company's  commercial  installation  contracts,
primarily  relating to HVAC,  are  recognized  on the  percentage  of completion
method in the ratio that total  incurred  costs bear to total  estimated  costs.
Fees from home warranty and termite baiting contracts are recognized as revenues
over the life of the  contract in  proportion  to the direct  costs  (service or
claim), which are expensed as incurred.  Franchised revenues (which in aggregate
represents  approximately  three  percent  of  consolidated  totals)  consist of
initial  franchise  fees and  continuing  monthly fees based upon the franchisee
revenue.   Revenue  is  recognized   when  reported  from  the   franchisee  and
collectibility is assured. Customer acquisition costs, which are incremental and
direct costs of obtaining  the  customer,  relating to several of the  Company's
contracts  are  deferred  and  amortized  over  the  life  of the  contract,  in
proportion to revenue  recognized.  These costs include  sales  commissions  and
direct  selling costs which can be shown to have resulted in a successful  sale.
The Company  expenses  the cost of  advertising  the first time the  advertising
takes  place,   except  for  direct-response   advertising  at  Terminix.   This
direct-response  advertising  consists primarily of direct-mail  promotions,  of
which the cost is capitalized and amortized over the one year customer  contract
life. On an interim basis,  TruGreen LawnCare incurs significant sales and other
costs at the  beginning of the fiscal year that  directly  relate to  supporting
services to customers  throughout the production season (April through October).
These


                                       6
<PAGE>

costs are deferred and recognized in proportion to the contract revenue over the
year. These costs are not deferred beyond the calendar year-end.

The preparation of the financial  statements requires management to make certain
estimates  and  assumptions   required  under  generally   accepted   accounting
principles which may differ  materially from the actual results.  Disclosures in
the 2001 Annual Report  presented the significant  areas that require the use of
management's  estimates and discussed how  management  formed its judgment.  The
areas   discussed   included  the  allowance  for   receivables,   accruals  for
self-insured retention limits related to medical, workers compensation, auto and
general liability  insurance,  the possible outcome of litigation and the useful
lives for depreciation and amortization  expense.  There have been no changes in
these areas or methodologies in 2002.

NOTE 4: The  Company  carries  insurance  policies on  insurable  risks which it
believes to be appropriate.  The Company  generally has  self-insured  retention
limits and has obtained fully insured layers of coverage above such self-insured
retention  limits.  Accruals  for  self-insurance  losses  are made based on the
Company's claims experience and actuarial  assumptions.  The Company has certain
liabilities with respect to existing or potential  claims,  lawsuits,  and other
proceedings.  The Company accrues for these liabilities when it is probable that
future costs will be incurred and such costs can be reasonably estimated.

The  Company  believes  that  other  legal  proceedings  and  currently  pending
litigation  arising in the ordinary  course of business will not have a material
effect on the consolidated financial statements.

NOTE 5: The Company periodically reviews its accounting practices to ensure that
its adopted policies appropriately reflect current conditions in its businesses,
the  industries it operates in, and the  regulatory  and business  environments.
During the second  quarter,  the Company  reviewed and  compared its  accounting
principles for its American Home Shield business with its direct  competitors as
well as with companies  operating in various aspects of the insurance  industry.
Although  there is some diversity of practice in these  industries,  the Company
determined to change its policy to the more prevalent and conservative method of
accounting  for deferred  acquisition  costs from SFAS No. 60,  "Accounting  and
Reporting by  Insurance  Enterprises",  where  deferred  acquisition  costs were
amortized  over the expected  customer life to a more  preferable  method,  FASB
Technical Bulletin No. 90-1, "Accounting for Separately Priced Extended Warranty
and  Product  Maintenance  Contracts",  where  deferred  acquisition  costs  are
amortized  over  the  initial  contract  life.  Such  accounting   principle  is
consistent with the Company's understanding of the methods used by others in the
warranty  industry.  This new method of  accounting  is  expected to result in a
reduction  of $.03 per  share in  reported  earnings  in 2002,  but will have no
impact  on cash  flow  in the  current  or  future  years.  In  accordance  with
Accounting Principles Board Opinion No. 20 "Accounting Changes",  the cumulative
effect  of this  change  in  accounting  policy  (totaling  a charge of $.14 per
diluted share) has been recorded as of the beginning of fiscal 2002.

In June 2001,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards No.142,  "Goodwill and Other Intangible Assets"
(SFAS 142).  SFAS 142 requires that after December 31, 2001,  existing  goodwill
will no longer be amortized and intangible  assets with indefinite  useful lives
will not be amortized  until their useful lives are  determined  to be no longer
indefinite.  Goodwill  and  intangible  assets  that are not  amortized  will be
subject  to  at  least  an  annual  assessment  for  impairment  by  applying  a
fair-value-based test. As of July 30, 2002, the Company's impairment testing was
completed  and the  testing  concluded  that  there were no  impairment  issues.
Estimated  fair value was  determined  for each  reporting unit by utilizing the
expected  present value of the future cash flows of the units. In all instances,
the estimated fair value of the reporting units exceeded their book values.

The following table provides summarized financial  information for the three and
six  month  periods  ended  June 30,  2002 and 2001,  with the 2001  information
presented  on an  adjusted  basis to reflect  the  elimination  of  amortization
expense  required  under SFAS 142 and the impact of  retroactively  applying the
change in method of accounting for customer  acquisition  costs at American Home
Shield.


                                       7
<PAGE>
<TABLE>

                                                                       Three Months Ended        Six Months Ended
                                                                      June 30,                     June 30,
(in thousands, except per share data)                                   2002          2001           2002          2001
                                                                    ------------- -------------  ------------- -------------
Operating Income and Margins:

<S>                                                                           <C>         <C>           <C>         <C>
Reported operating income                                                     $118,489    $ 106,796     $179,180    $ 166,326
Add back: Goodwill and trade name amortization                                       -       15,883            -       30,995
Subtract:  Impact of retroactively applying the change in method of
    accounting for customer acquisition costs at AHS                                 -       (1,032)           -       (7,770)
                                                                              ---------   ----------    ---------   ----------
Operating income as adjusted under SFAS 142 and for
    retroactive application of accounting change                              $118,489    $ 121,647     $179,180    $ 189,551
                                                                              =========   ==========    =========   ==========
         Margin percentage (1)                                                   11.3%        11.8%        10.0%        10.7%
    (1) The 2001 margin percentages are based on adjusted operating income amounts which are non-GAAP financial measures

</TABLE>
<TABLE>

     Net Income:
    ---------------------

<S>                                                                           <C>         <C>           <C>         <C>
 Reported net income from continuing operations before
     extraordinary gain (loss) and cumulative
     effect of accounting change                                              $ 62,224    $  44,082     $ 87,208    $  61,873
 Add back: Goodwill and trade name amortization, net of tax                          -       10,700            -       21,000
 Subtract:  Impact of retroactively applying the change in method of
    accounting for customer acquisition costs at AHS, net of tax                     -         (670)           -       (5,050)
                                                                              ---------   ----------    ---------   ----------
 Net income from continuing operations before extraordinary gain (loss) and
     cumulative effect of accounting change as adjusted under SFAS 142 and
     for retroactive application of accounting change                         $ 62,224    $  54,112     $ 87,208    $  77,823
                                                                              =========   ==========    =========   ==========

Diluted Earnings Per Share:

 Reported earnings per share from continuing operations before
     extraordinary gain (loss) and cumulative
     effect of accounting change                                              $   0.20    $    0.15     $   0.28    $    0.21
 Add back: Goodwill and trade name amortization, net of tax                          -         0.03            -         0.06
Subtract:  Impact of retroactively applying the change in method of
    accounting for customer acquisition costs at AHS, net of tax                     -            -            -        (0.02)
                                                                              ---------   ----------    ---------   ----------

 Earnings per share from continuing operations before extraordinary gain (loss)
     and cumulative effect of accounting change as adjusted under SFAS 142 and
     for retroactive application of accounting change                         $   0.20    $    0.18     $   0.28    $    0.25
                                                                              =========   ==========    =========   ==========
</TABLE>


The following table summarizes goodwill and intangible assets.

                                           As of            As of
(in thousands)                         June 30, 2002   December 31, 2001
                                       ------------      ------------

Covenants not to compete                $  139,407        $ 138,445
Accumulated amortization (1)               (64,057)          (59,952)
                                       ------------      ------------
  Net covenants not to compete              75,350            78,493

Other intangibles                            7,847             6,639
Accumulated amortization (1)                (1,392)             (427)
                                       ------------      ------------
  Net other intangibles                      6,455             6,212

Trade names (2)                            238,550           238,550

Goodwill (2), (3)                        1,852,018         1,844,468
                                       ------------      ------------

Total                                  $ 2,172,373       $ 2,167,723
                                       ============      ============

(1) Amortization expense of approximately $8-10 million is expected
    for the next five years.
(2) Not subject to amortization.
(3) For the six months ended June 30, 2002 approximately $7.6 million
    of additional goodwill was recorded.


                                       8
<PAGE>


NOTE 6: On October 3, 2001 the Company's Board of Directors approved a series of
strategic  actions which were the culmination of an extensive  portfolio  review
process  that was  initiated  in the  first  quarter  of  2001.  The goal of the
portfolio  review was to  increase  shareholder  value by creating a focused and
aligned  company that  provides the greatest  return and growth  potential.  The
Company  determined  it could  best  achieve  these  goals with a  portfolio  of
businesses which support the business  strategy to become America's Home Service
Company and have  attractive  cash flow and return  characteristics.  As part of
this  determination,  in the  fourth  quarter  of  2001,  the  Company  sold its
Management  Services  business to ARAMARK  Corporation  for  approximately  $800
million.  Also in the fourth quarter of 2001,  the Company's  Board of Directors
approved the exit of non-strategic  and  under-performing  businesses  including
TruGreen LandCare Construction,  Certified Systems Inc. (CSI), and certain other
small operations. The Company sold its TruGreen LandCare Construction operations
to Environmental  Industries,  Inc. (EII) in certain markets and entered into an
agreement   with  EII  to  manage  the  wind-down  of   commercial   landscaping
construction  contracts in the remaining markets. In addition,  the Company sold
all of its  customer  contracts  relating  to the  exit  of CSI  (the  Company's
professional  employer  organization),  to AMS Staff  Leasing,  N.A.,  Inc.  The
Company  also  completed,  in the fourth  quarter  of 2001,  the sale of certain
subsidiaries of its European pest control and property services operations.  The
results of these discontinued  business units have been separated and classified
as Discontinued Operations in the accompanying financial statements.

The  Company  continues  to carry  certain  assets on its  financial  statements
relating  to these  operations.  Management  is actively  selling the  remaining
equipment and collecting the outstanding receivables.  The Company believes that
the remaining  assets are presented at their net realizable  value. In addition,
reserves and accrual  balances  remain on the financial  statements  relating to
these  operations.   Cash  payments  incurred  for  the  wind-down  of  LandCare
construction contracts, lease termination costs, workers compensation and health
claims  as well as  professional  service  fees  have been made in the first six
months of the year. The remaining balances are outlined in the table below.

In the  fourth  quarter  of  2001,  the  Company  recorded  a charge  for  asset
impairments  and  other  items  which  included   accruals  for  residual  value
guarantees on leased properties,  severance for former executives and terminated
employees,  and other  costs.  During the second  quarter of 2002,  the  Company
completed the sale of its ownership interest in five assisted living facilities.
These properties were financed through a synthetic lease  arrangement,  whereby,
the Company  guaranteed the residual  value of the  properties.  At year-end,  a
$13.5  million  reserve  was  established  representing  the amount by which the
residual value guarantees  exceeded the value of bids to purchase the facilities
at that time.  The final sales price was  significantly  greater  than these bid
levels  and the  Company  realized a gain of $3.6  million  from the sale on the
assisted living properties.

The table below  summarizes  the  activity  during the six months ended June 30,
2002 for the  remaining  liabilities  from the  discontinued  operation  and the
reserves for items recorded in the fourth quarter of 2001. The Company  believes
that the remaining reserves continue to be adequate and reasonable.

<TABLE>

     (IN THOUSANDS)                                      Balance at        Cash                      Balance at
                                                       DEC. 31, 2001     PAYMENTS     INCOME       JUNE 30, 2002
                                                       --------------   ---------     ------      -------------
<S>                                                       <C>           <C>           <C>            <C>
Remaining liabilities from discontinued operations
     LandCare Construction                                $33,700       $11,600         --           $22,100
     Certified Systems, Inc.                               23,800         5,500         --            18,300
     Management Services                                   11,400         1,800         --             9,600
     Other                                                  6,300         6,300         --              --
Reserves related to strategic actions in the fourth
  quarter of 2001                                         $36,000       $10,600       $3,600         $21,800
</TABLE>

The  Company  recorded  a $3.2  million  charge in the  second  quarter  of 2002
relating to the severance and  termination  agreement of a key  executive.  This
severance will be paid out over three years.

                                       9
<PAGE>


NOTE 7: Basic  earnings per share are computed by dividing  income  available to
common stockholders by the weighted-average number of shares outstanding for the
period.  The weighted  average common shares for the diluted  earnings per share
calculation includes the incremental effect related to outstanding options whose
market price is in excess of the exercise  price.  Shares  potentially  issuable
under  convertible  securities have been considered  outstanding for purposes of
the diluted earnings per share  calculations.  In computing diluted earnings per
share, the after-tax interest expense related to convertible debentures is added
back to net income in the numerator, while the diluted shares in the denominator
include the shares issuable upon conversion of the debentures.

The following  chart  reconciles  both the numerator and the  denominator of the
basic earnings per share computation to the numerator and the denominator of the
diluted earnings per share computation.

<TABLE>

(IN THOUSANDS, EXCEPT PER SHARE DATA)                  Three Months                          Three Months
                                                   Ended June 30, 2002                   Ended June 30, 2001
                                            --------------------------------       ------------------------------


                                              INCOME       SHARES      EPS           INCOME      SHARES    EPS
                                             --------     --------    -----         --------    --------   ----
<S>                                           <C>          <C>        <C>            <C>         <C>       <C>
 Basic earnings per share                     $52,995      301,092    $0.18          $50,713     298,547   $0.17
                                                                      =====                                =====

 Effect of dilutive securities, net of tax:
    Options                                         -        7,182                         -       4,060
    Convertible securities                      1,195        8,200                     1,191       8,157
                                             ----------   ---------                 ----------  ---------

 Diluted earnings per share                   $54,190      316,474    $0.17          $51,904     310,764   $0.17
                                             ==========   =========   =====         ==========  =========  =====

</TABLE>

<TABLE>

                                                         Six Months                            Six Months
                                                   Ended June 30, 2002                   Ended June 30, 2001
                                            --------------------------------       ------------------------------

                                              INCOME       SHARES      EPS           INCOME      SHARES     EPS
                                             --------     --------    -----         --------    --------    ----
<S>                                           <C>          <C>        <C>            <C>         <C>       <C>
 Basic earnings per share                     $33,402      300,653    $0.11          $79,940     298,170   $0.27
                                                                      =====                                =====
 Effect of dilutive securities, net of tax:
    Options                                         -        7,047                         -       3,973
    Convertible securities                      2,390        8,200                     2,383       8,157
                                             ----------   ---------                 ----------  ---------

 Diluted earnings per share                   $35,792      315,900    $0.11          $82,323     310,300   $0.27
                                             ==========   =========   =====         ==========  =========  =====
</TABLE>


NOTE 8: In the Consolidated  Statements of Cash Flows, the caption Cash and Cash
Equivalents includes investments in short-term,  highly-liquid securities having
a maturity of three  months or less.  Supplemental  information  relating to the
Consolidated Statements of Cash Flows for the six months ended June 30, 2002 and
2001 is presented in the following table:

                                                     (IN THOUSANDS)
                                                    2002         2001
                                                 ---------    ---------
CASH PAID OR (RECEIVED) FOR:
Interest expense.............................  $   44,956   $   64,845
Interest and dividend income.................  $   (6,108)  $   (4,366)
Income taxes.................................  $   31,294   $  (12,277)

The decrease in interest  paid in 2002 is  primarily  due to reduced debt levels
reflecting debt  retirements  utilizing the proceeds from the sale of Management
Services.  The increase in interest  income received is also due to the proceeds
received from the Management Services sale as the Company maintained significant
cash levels  throughout the year. The tax payment in 2002 resulted from the gain
on the sale of the Management Services business which compared to the prior year
tax refund of $21 million related to prior year over-payments.

NOTE 9: Total  comprehensive  income was $46.3 million and $49.3 million for the
three months ended June 30, 2002 and 2001,  respectively,  and $27.5 million and
$68.6  million for the six months  ended June 30,  2002 and 2001,  respectively.
Comprehensive  income  for the six  months  ended  June 30,  2002  includes  the
cumulative  adjustment of $45 million related to the change in accounting method
for customer  acquisition  costs at American  Home Shield.  Total  comprehensive
income includes primarily net income,  changes in unrealized gains and losses on
marketable securities and translation balances.

NOTE 10: On March 23, 2001, the Company entered into an agreement which provides
for the ongoing  revolving sale of a designated  pool of accounts  receivable of
TruGreen and Terminix.  At


                                       10
<PAGE>


June 30, 2002, there were no outstanding receivables sold to third parties under
this  agreement.  However,  the Company may sell its  receivables  in the future
which would provide an alternative funding source.

NOTE 11: In the second  quarter of 2002, the Company  recorded an  extraordinary
loss on early debt  extinguishment of $9.2 million after-tax or $.03 per diluted
share   resulting  from  the  repurchase  of   approximately   $218  million  in
ServiceMaster  corporate  bonds pursuant to a tender offer. In the first quarter
of 2001, the Company  repurchased  approximately  $35 million of its public debt
securities and recorded an extraordinary  gain of $6.0 million after-tax or $.02
per diluted share.

In  April  2002,  the  Financial  Accounting  Standards  Board  ("FASB")  issued
Statement  of  Financial   Accounting  Standard  No.  145,  "Recission  of  FASB
Statements No. 4, 44 and 64,  Amendment of FASB Statement  No.13,  and Technical
Corrections"  (SFAS 145). The primary impact to the Company of this Statement is
that it rescinds  Statement No. 4 which  required all material  gains and losses
from  extinguishment  of debt to be classified as extraordinary  items. SFAS 145
requires that the more  restrictive  criteria of APB Opinion No. 30 will be used
to determine whether such gains or losses are extraordinary. The Company intends
to adopt this  Statement in its fiscal year 2003, as required by the  Statement.
Adoption  of  this  Statement  will  result  in  the   reclassification  of  the
extraordinary gain (loss) included in the accompanying  Consolidated  Statements
of Income.

In June 2002,  the FASB issued  Statement of Financial  Accounting  Standard No.
146,  "Accounting for Costs Associated with Exit or Disposal  Activities".  This
Statement requires  recording costs associated with exit or disposal  activities
at their  fair  values  when a  liability  has  been  incurred.  Under  previous
guidance,  certain exit costs were accrued upon  management's  commitment  to an
exit plan, which is generally before an actual liability has been incurred.  The
provisions of this statement are effective for exit or disposal  activities that
are initiated after December 31, 2002.

NOTE 12: The Company  continues to maintain  minority  investors in the combined
ARS/AMS entity as well as in Terminix.  Members of management acquired,  at fair
market value, equity interests in ARS. The Company and the equity investors have
respective  options to acquire or sell the minority interests in the future at a
price  based on fair  market  value.  The future  acquisition  of this  minority
interest will be recorded as additional purchase cost at the time of payment. At
Terminix, the minority ownership reflects an interest issued to the prior owners
of the Allied Bruce Terminix Companies in connection with that acquisition. This
equity security is exchangeable into eight million  ServiceMaster common shares.
The ServiceMaster  shares are included in the shares used for the calculation of
diluted earnings per share.

In January  2001,  Jonathan P. Ward,  President and Chief  Executive  Officer of
ServiceMaster,  purchased from  ServiceMaster a 5.50% convertible  debenture due
January 9, 2011, with a face value of $1.1 million.  ServiceMaster  financed the
purchase of the  debenture  with a 5.50% full recourse loan due January 9, 2011.
In May 2001, Mr. Ward purchased a second 5.50% convertible debenture due May 10,
2011,  with a face  value of $1.1  million.  ServiceMaster  financed  50% of the
purchase price of this second  debenture with a 5.50% full recourse loan due May
10, 2011. Each debenture becomes convertible into 20,000 shares of ServiceMaster
common stock on December 31 on each of the years 2001 through 2005.

NOTE 13: The  business  of the  Company is  primarily  conducted  through  three
operating segments: TruGreen, Terminix, and Home Maintenance and Improvement. In
accordance with Statement of Financial  Accounting Standards No. 131 (SFAS 131),
the  Company's  reportable  segments  are  strategic  business  units that offer
different  services.  The TruGreen segment  provides  residential and commercial
lawn care and landscaping  services  through the TruGreen  ChemLawn and TruGreen
LandCare companies. As a result of the decision in the fourth quarter of 2001 to
exit  the  LandCare  Construction  business,  the  results  of the  construction
operations  are now included in  discontinued  operations  for all periods.  The
Terminix  segment  provides termite and pest control services to residential and
commercial U.S. customers. The Home Maintenance and Improvement segment includes
American Residential Services, (ARS) and American Mechanical Services (AMS) that
provide heating,  ventilation,  air conditioning (HVAC) and plumbing services as
well as American Home Shield which  provides home  warranties to consumers  that
cover HVAC,  plumbing


                                       11
<PAGE>


and other  appliances.  The segment also includes the two franchise  operations,
ServiceMaster  Clean and Merry Maids,  which provide  disaster  restoration  and
cleaning services.

The Other Operations  segment includes entities that are managed separately from
the three major units and aggregated together in accordance with SFAS 131 due to
their size or developmental  nature.  This segment includes  ServiceMaster  Home
Service Center, an initiative that has developed  valuable  competencies and has
built an infrastructure that allows customers the ability to purchase all of the
Company's   services   through  a  single  point  of  contact;   the   Company's
international  operations which include the retained Terminix  operations in the
United  Kingdom and Ireland;  and the Company's  headquarters  operations  which
provides various  technology,  marketing,  finance and other support services to
the business units.

Segment information as of and for the three months and six months ended June 30,
2002 and 2001 is presented  below.  The table below also  presents an "Adjusted"
column of 2001  information  which includes two adjustments made to the reported
amounts:  (1) SFAS 142, "Goodwill and Other Intangible  Assets",  eliminates the
amortization of goodwill and intangible  assets with indefinite  lives beginning
in 2002. The 2001 operating  income  information  has been adjusted to eliminate
amortization  expense related to goodwill and intangible  assets with indefinite
lives, and (2) the change in method of accounting for deferred acquisition costs
at American  Home Shield has been  reflected  as a cumulative  adjustment  as of
January 1, 2002. The 2001 operating income,  capital employed,  and identifiable
asset  information has been adjusted to reflect the  retroactive  application of
the change in method of accounting.

<TABLE>

(In thousands)                                                            Three Months     Three Months      Three Months
                                                                         Ended June 30,    Ended June 30,    Ended June 30,
                                                                             2002              2001              2001
                                                                           Reported          Reported          Adjusted
--------------------------------------------------------------------------------------------------------------------------
Operating Revenue:
<S>                                                                       <C>                <C>              <C>
   TruGreen                                                               $   434,279        $   430,065
   Terminix                                                                   255,399            229,192
   Home Maintenance and Improvement                                           339,588            353,220
   Other Operations                                                            18,742             17,699
---------------------------------------------------------------------------------------------------------
Total Operating Revenue                                                   $ 1,048,008        $ 1,030,176
---------------------------------------------------------------------------------------------------------

Operating Income:
   TruGreen                                                               $    53,140        $    51,419      $    58,014
   Terminix                                                                    45,369             35,024           40,460
   Home Maintenance and Improvement                                            33,469             32,920           35,390
   Other Operations                                                           (13,489)           (12,567)         (12,217)
--------------------------------------------------------------------------------------------------------------------------
Total Operating Income                                                    $   118,489        $   106,796      $   121,647
--------------------------------------------------------------------------------------------------------------------------

Capital Employed:
   CAPITAL EMPLOYED REPRESENTS THE NET ASSETS OF THE SEGMENT; I.E., TOTAL ASSETS LESS LIABILITIES (LIABILITIES DO NOT INCLUDE
    DEBT BALANCES).
   TruGreen                                                               $ 1,073,181        $ 1,091,947      $ 1,091,947
   Terminix                                                                   600,936            593,783          593,783
   Home Maintenance and Improvement                                           628,347            677,263          633,919
   Other Operations (and discontinued businesses)                            (130,033)           623,161          623,161
--------------------------------------------------------------------------------------------------------------------------
Total Capital Employed                                                    $ 2,172,431        $ 2,986,154      $ 2,942,810
--------------------------------------------------------------------------------------------------------------------------

Identifiable Assets:
   TruGreen                                                               $ 1,160,194        $ 1,217,438      $ 1,217,438
   Terminix                                                                   859,040            797,145          797,145
   Home Maintenance and Improvement                                         1,006,454          1,042,942          999,597
   Other Operations (and discontinued businesses)                             458,536          1,046,808        1,046,808
--------------------------------------------------------------------------------------------------------------------------
Total Identifiable Assets                                                 $ 3,484,224        $ 4,104,333      $ 4,060,988
--------------------------------------------------------------------------------------------------------------------------

</TABLE>


                                       12
<PAGE>


<TABLE>
                                                                           Six Months       Six Months        Six Months
                                                                         Ended June 30,    Ended June 30,    Ended June 30,
                                                                             2002              2001              2001
                                                                           Reported          Reported          Adjusted
--------------------------------------------------------------------------------------------------------------------------
Operating Revenue:
<S>                                                                       <C>                <C>              <C>
   TruGreen                                                               $   663,422        $   659,820
   Terminix                                                                   475,449            424,964
   Home Maintenance and Improvement                                           620,515            644,233
   Other Operations                                                            35,904             36,880
---------------------------------------------------------------------------------------------------------
Total Operating Revenue                                                   $ 1,795,290        $ 1,765,897
---------------------------------------------------------------------------------------------------------

Operating Income:
   TruGreen                                                               $    77,761        $    73,856      $    87,046
   Terminix                                                                    81,622             60,526           70,344
   Home Maintenance and Improvement                                            44,881             52,937           52,448
   Other Operations                                                           (25,084)           (20,993)         (20,287)
--------------------------------------------------------------------------------------------------------------------------
Total Operating Income                                                    $   179,180        $   166,326      $   189,551
--------------------------------------------------------------------------------------------------------------------------


</TABLE>

The following table summarizes by segment goodwill and trade names that are not
subject to amortization:

                                         June 30,         December 31,
                                           2002              2001
                                      -------------      -------------
TruGreen                                 $ 896,310          $ 895,744
Terminix                                   667,320            661,864
Home Maintenance and Improvement           506,938            505,410
Other Operations                            20,000             20,000
                                      -------------      -------------
Total                                  $ 2,090,568        $ 2,083,018
                                      =============      =============



                                       13
<PAGE>





          MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                             RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

SECOND QUARTER 2002 COMPARED TO SECOND QUARTER 2001

CONSOLIDATED REVIEW

Revenue for the second  quarter  totaled  $1.05  billion,  two percent above the
prior year.  Reported  operating  income was $118 million in 2002  compared with
$107 million in 2001 and  reported  diluted  earnings per share from  continuing
operations  was $.20 in 2002  compared  with  $.15 in 2001.  During  the  second
quarter of 2002, the Company incurred a $.03 per share  extraordinary  loss from
the early extinguishment of debt. Including this item, reported diluted earnings
per share was $.17 in 2002. The financial  statement  comparison between the two
years is impacted by the adoption of SFAS 142 and a change in accounting  method
which were  effective at the  beginning of 2002 and the sale and exit of certain
businesses in late 2001.

Statement  of  Financial  Accounting  Standards  No.  142,  "Goodwill  and Other
Intangible  Assets" (SFAS 142),  requires that  beginning in 2002,  goodwill and
trade  names  will no  longer  be  amortized.  SFAS  142  does  not  permit  the
restatement  of  2001  financial  information  to  reflect  the  impact  of this
Statement.  In the second  quarter of 2002,  the Company  changed its accounting
method for customer  acquisition costs in its American Home Shield business.  In
accordance  with  Accounting   Principles  Board  Opinion  No.  20,  "Accounting
Changes",  prior period financial  statements are not restated for the impact of
the new  accounting  method,  rather  the  cumulative  effect of this  change in
accounting policy has been recorded as of the beginning of 2002. This new policy
is expected to result in a reduction  of $.03 per share in reported  earnings in
2002, but will have no impact on cash flow in the current or future years.

In order to assist in the  comparison  of  earnings  per share,  the table below
presents diluted earnings per share on a comparable  basis,  assuming:  (i) only
continuing operations existed, (ii) SFAS 142 was effective,  (iii) the change in
method of accounting for customer  acquisition costs was applied  retroactively,
and (iv)  after-tax  proceeds  from the 2001 sales of  Management  Services  and
certain  European  pest  control  operations  were  used to  repay  debt.  These
adjustments in the aggregate  provide a less  favorable  comparison to the prior
year than the  reported  results,  however,  they  allow  for the  review of the
underlying  base business  performance  on a comparable  basis.  On a comparable
basis,  second quarter diluted earnings per share of $.20 in 2002 was consistent
with last year.
<TABLE>

                                                            Three months ended         Six months ended
                                                                 June 30,                  June 30,
                                                             2002         2001       2002          2001
                                                           ---------     -------    --------    -----------
<S>                                                           <C>         <C>        <C>           <C>
Continuing operations before extraordinary items              $0.20       $0.15      $0.28         $0.21

Earnings per share equivalent of reduced amortization
    expense under new accounting rules                          -          0.03         -           0.06
Interest expense reduction                                      -          0.02         -           0.04
Retroactive application of accounting change                    -            -          -          (0.02)
                                                           ---------     -------    --------    -----------
As adjusted earnings per share                                $0.20       $0.20      $0.28         $0.29
                                                           =========     =======    ========    ===========
</TABLE>


For comparative purposes,  the Company has provided supplemental  information in
Note 5 which  presents  certain  2001  information  as  adjusted  to reflect the
elimination  of  goodwill  and  trade  name   amortization  and  the  impact  of
retroactively  applying the change in method of  accounting  for  American  Home
Shield  customer  acquisition  costs.  Second quarter  operating  income on this
comparable basis decreased three percent to $118 million from $122 million, with
operating margins  decreasing to 11.3 percent from 11.8 percent.  The decline in
operating income reflects  continued strong growth at Terminix and American Home
Shield  offset by lower  volume in the HVAC and plumbing  businesses  of ARS and
AMS,  increased workers  compensation  claims at TruGreen  LandCare,  as well as
increased  expenditures  related to  Company-wide  operational  initiatives  and
overhead support.


                                       14
<PAGE>


Cost of services  rendered and products sold increased  slightly for the quarter
and  decreased  as a  percentage  of revenue  to 66.8  percent in 2002 from 67.7
percent in 2001. Selling and administrative  expenses increased nine percent and
increased as a  percentage  of revenue to 21.7 percent from 20.2 percent in 2001
(20.3  percent in 2001,  retroactively  applying  the prior  year  impact of the
American  Home  Shield   accounting   change).   The  increase  in  selling  and
administrative  expenses  reflects  initiatives to measure customer and employee
satisfaction,  improved  marketing  techniques and  investments in the Six Sigma
programs.

In  the  second  quarter  of  2002,  the  Company  completed  two  non-recurring
transactions. The ownership interest in five assisted living facilities was sold
in the quarter,  and a gain of $3.6  million was  realized.  In addition,  a key
executive  signed a  termination  and  severance  agreement in the quarter.  The
Company recorded a $3.2 million charge relating to this agreement. Cash payments
will be made over a three year period.

Interest  expense  decreased from the prior year,  primarily due to reduced debt
levels  as a portion  of the  proceeds  received  from  sales of the  Management
Services  and certain  European  pest control  businesses  were used to pay down
debt.  Interest and investment income decreased  primarily  reflecting a reduced
level of  investment  gains  realized on the  American  Home  Shield  investment
portfolio.  Minority interest and other expense decreased primarily due to prior
year losses  incurred  relating to the sale of  accounts  receivables  under the
Company's securitization program.

The tax  provision  reflects a lower  effective  tax rate,  which  includes  the
benefit of the  utilization  of prior year net operating  losses of a subsidiary
operation, the ServiceMaster Home Service Center.

OUTLOOK

The current combination of the Company's strengths,  challenges and trends leads
the Company to the low end of its previously stated guidance of $.60 to $.63 per
share,  before  adjusting  for the $.03 per share  reduction  from the change in
method of accounting.  The Company  continues to see measurable  improvements in
TruGreen  lawn care,  Terminix  and  American  Home  Shield,  despite  difficult
economic conditions.  To stay within guidance, these businesses need to continue
to perform. In addition, the Company must see improvements in TruGreen LandCare,
and the  turnaround at ARS must take hold and show clear  progress in the second
half of the year.

The Company  continues to estimate a cost in 2002 of $20 million  related to the
implementation  of Six Sigma and  initiatives  to measure  customer and employee
satisfaction,  with an offsetting  return on these  initiatives of approximately
$15 million in 2002.

OTHER DEVELOPMENTS

New distribution channels for the Company's services continue to be explored. In
July 2002,  the Company  announced  that it had  entered  into an  agreement  to
provide Yahoo! consumers the ability to schedule and purchase ServiceMaster home
services  through the newly created Home Service  Center on Yahoo!  Real Estate.
Also in August,  the Home Service Center (a subsidiary of the Company) partnered
with Sears,  Roebuck and Company to allow  customers  to tap into the network of
Sears parts and repair services.

In July 2002,  the Company and the Home Depot  announced that they had concluded
their joint home  services  pilot  program.  The two  companies  will,  however,
continue to explore ways to expand existing  relationships  for installation and
other services on a local basis.

SEGMENT REVIEW

NOTE:  THE COMPANY  ADOPTED SFAS 142,  "GOODWILL AND OTHER  INTANGIBLE  ASSETS",
WHICH  ELIMINATES  THE  AMORTIZATION  OF  GOODWILL  AND  INTANGIBLE  ASSETS WITH
INDEFINITE  LIVES  BEGINNING  IN 2002.  THE CHANGE IN METHOD OF  ACCOUNTING  FOR
CUSTOMER  ACQUISITION  COSTS AT  AMERICAN  HOME SHIELD HAS BEEN  REFLECTED  AS A
CUMULATIVE  ADJUSTMENT AS OF JANUARY 1, 2002.  FOR  COMPARATIVE  PURPOSES,  2001


                                       15
<PAGE>


SEGMENT RESULTS HAVE BEEN RESTATED TO EXCLUDE THE AMORTIZATION  EXPENSE AFFECTED
BY THE NEW ACCOUNTING  STANDARD AND RETROACTIVELY  APPLY THE CHANGE IN METHOD OF
ACCOUNTING.

The TruGreen segment includes lawn care operations  performed under the TruGreen
ChemLawn  brand  name and  landscape  maintenance  services  provided  under the
TruGreen  LandCare  brand name.  This  segment's  results for both 2002 and 2001
exclude the discontinued TruGreen LandCare Construction  business.  The TruGreen
segment  reported  revenue of $434  million,  one percent  above the prior year.
Operating income decreased to $53 million from $58 million last year,  primarily
reflecting an increased  level of seasonal costs in the lawn care operations and
increased  workers  compensation  claims  (approximately $5 million) at TruGreen
LandCare.  Revenue in the lawn care  business  improved  modestly over the prior
year,  reflecting  growth in customer  counts from increased  sales and improved
retention  rates.  The sales growth has been supported by the deployment of more
sophisticated marketing tools and by reaching customers more effectively through
broader  distribution  channels.  The higher level of full program customers has
also increased the sale of ancillary services in the quarter.  Operating margins
in the lawn care  operations  declined,  because a greater  portion of the first
quarter  sales and support costs were  expensed in the second  quarter  compared
with last year.  The Company defers certain sales and support costs in the first
part of the year  that  directly  relate to  supporting  services  to  customers
throughout the production season (April through  October).  These costs are then
amortized in proportion to the revenues in later  quarters.  Last year,  more of
the  expense  was  deferred  in the second  quarter  based on a higher  level of
expected future revenue than actually  materialized.  The landscape  maintenance
operations experienced a decline in revenue for the quarter. Although volume was
down, the base of business  consists of more profitable  contracts with stronger
customers and improved pricing.  Operating margins in the landscaping operations
declined  primarily  reflecting lower material costs offset by increased workers
compensation claims. This business is focusing on specific operating initiatives
including hiring a senior sales and operating  leader,  expanding and developing
its sales force, continuing to focus on labor efficiency programs, and improving
the results of the bottom quartile of its branches.  Capital employed  decreased
two percent,  primarily  reflecting  improved  working capital  management and a
reduction in capital equipment.

The Terminix  segment,  which  includes  the  domestic  termite and pest control
services,  reported an 11 percent  increase in revenue to $255 million from $229
million in 2001 and  operating  income  growth of 12 percent to $45 million from
$40 million last year.  Revenue growth was supported by the 2001  acquisition of
Sears  Termite  & Pest  Control  as  well as new  sales  and  improved  customer
retention  in both the  termite and pest  control  business.  Operating  margins
improved over the prior year  reflecting the beneficial  impact of  acquisitions
and improved labor efficiency,  offset in part by costs for quality  improvement
initiatives and direct marketing  expenditures.  The segment has produced steady
improvement in customer retention rates which reflects the increased emphasis on
training  and  customer  service  processes in the  branches.  Capital  employed
increased one percent reflecting  acquisitions  offset in part by a higher level
of deferred revenue.

The Home Maintenance and Improvement segment includes heating,  ventilation, air
conditioning   (HVAC),   and  plumbing  services  provided  under  the  American
Residential  Services (ARS),  Rescue Rooter,  and American  Mechanical  Services
(AMS) (for commercial accounts) brand names; home systems and appliance warranty
contracts  offered  through  American  Home Shield;  and the  Company's  primary
franchised operations, ServiceMaster Clean and Merry Maids. The segment reported
revenue of $340 million, a decrease of four percent from $353 million last year.
Operating  income  decreased five percent to $33 million compared to $35 million
last year.  Performance in the segment was supported by double-digit revenue and
profit  growth at  American  Home  Shield  offset by a decline  in volume of air
conditioning and plumbing services in the ARS and AMS businesses.  American Home
Shield  reported  strong  growth in the real estate and third party  channels as
well as improved customer renewal rates.  Operating margins improved  reflecting
both lower service costs per claim and a decrease in the incidence of claims. In
the  combined  ARS  and  AMS  operations,  a  decline  in  call  volume  for air
conditioning and plumbing repairs and reduced construction activity continued to
affect the  industry  and  resulted  in a  double-digit  decline in revenue  and
profit. A comprehensive rebuilding of marketing and sales strategies is underway
to counteract the impact of the decrease in demand,  and in the second  quarter,
the Company hired a chief marketing officer for the ARS operations. The combined
franchise  operations achieved



                                       16
<PAGE>


revenue  and profit  growth,  primarily  driven by a strong  growth in  disaster
restoration and increased  franchise sales at ServiceMaster  Clean and growth in
the direct-owned  branch operations of Merry Maids.  Capital employed  decreased
one  percent  reflecting  the change in  accounting  for  American  Home  Shield
deferred customer acquisition costs and improved working capital management.

Other   Operations   consists  of  the   Company's   international   operations;
ServiceMaster  Home Service Center; and the Company's  headquarters  operations.
Revenue for the quarter increased slightly to $19 million.  This segment shows a
net  operating  expense,  which  increased  from the prior year  reflecting  the
increased  investments in the headquarters  organization for Six Sigma and other
enterprise  initiatives to support purchasing  efficiencies,  marketing programs
and  technology  projects.   Capital  employed  in  this  segment  includes  the
discontinued  operations and therefore is  significantly  reduced from the prior
year, reflecting the prior year divestitures of businesses.

RESULTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 2002 AS COMPARED TO JUNE 30, 2001

CONSOLIDATED REVIEW

Revenue  for the six months  increased  two  percent to $1.8  billion.  Reported
operating  income was $179 million in 2002  compared  with $166 million in 2001,
and reported diluted  earnings per share from continuing  operations was $.28 in
2002  compared  with $.21 in 2001.  The six month results in 2002 include a $.14
charge related to the cumulative effect of the change in accounting method and a
$.03 extraordinary loss from early debt  extinguishment.  Including these items,
reported diluted earnings per share was $.11 for the six months in 2002.

The Company has changed  significantly since last year and in the second quarter
consolidated review section there is a table that presents the 2001 earnings per
share  adjusted to be comparable to the 2002 figures.  In order to assist in the
comparison of earnings per share,  the table presents 2001 diluted  earnings per
share on a comparable basis,  assuming:  (i) only continuing operations existed,
(ii) SFAS 142 was  effective,  (iii) the  change  in  method of  accounting  for
customer  acquisition  costs  was  applied  retroactively,  and  (iv)  after-tax
proceeds  from the 2001 sales of Management  Services and certain  European pest
control  operations were used to repay debt. These  adjustments in the aggregate
provide  for a less  favorable  comparison  to the prior year than the  reported
results,  however,  they allow for the review of the  underlying  base  business
performance on a comparable basis. Diluted earnings per share for the six months
on a comparable basis was $.28 in 2002 compared to $.29 in 2001.

As presented in the supplemental information in Note 5, operating income on this
basis  decreased five percent to $179 million in 2002 from $190 million in 2001,
with  margins  decreasing  to 10.0  percent  from 10.7  percent.  The decline in
operating  income reflects strong increases at Terminix and American Home Shield
offset by reduced  volume in the HVAC and plumbing  businesses of ARS and AMS, a
reduced  deferral of  seasonal  costs  compared  to the prior year at  TruGreen,
increased workers compensation claims at TruGreen LandCare, as well as increased
investments for Company-wide initiatives.

Cost of services  rendered  and  products  sold  increased  slightly for the six
months and  decreased  as a  percentage  of revenue to 69.2 percent in 2002 from
70.1 percent in 2001. Selling and  administrative  expenses increased 13 percent
and  increased as a  percentage  of revenue to 20.5 percent from 18.4 percent in
2001 (18.9 percent in 2001,  retroactively applying the prior year impact of the
American  Home Shield  accounting  change),  reflecting  initiatives  to measure
customer  and  employee   satisfaction,   improved   marketing   techniques  and
investments in Six Sigma.

Interest  expense  decreased from the prior year,  primarily due to reduced debt
levels as a portion of the proceeds  received  from the sales of the  Management
Services  and certain  European  pest control  businesses  were used to pay down
debt. The Company  realized a reduced level of investment  gains on the American
Home  Shield  investment  portfolio  this  year  which  is in the  interest  and
investment  income line on the Income  Statement.  Minority  interest  and other
expense  increased  from the prior  year  primarily  due to the  elimination  of
minority  interest  income  related to the  ServiceMaster  Home

                                       17
<PAGE>

Service  Center  initiative  that was recorded in 2001.  In the first quarter of
2001 and until May 2001,  the  operating  losses of  ServiceMaster  Home Service
Center had been offset  through  minority  interest  income (below the operating
income line)  because of  investments  in the venture made by Kleiner,  Perkins,
Caufield & Byers. In December 2001, the Company  acquired the minority  interest
in the ServiceMaster Home Service Center held by Kleiner Perkins.  The operating
losses incurred in the first six months of 2002 from  ServiceMaster Home Service
Center have been absorbed in the accompanying  financial  statements  without an
offset at the minority interest income line.

The tax provision reflects a lower effective tax rate based on benefits received
through the  consolidation  for tax purposes of the  ServiceMaster  Home Service
Center.  The Company was able to utilize prior year net operating losses of this
subsidiary operation.

KEY PERFORMANCE INDICATORS

The table  below  presents  selected  metrics  related  to  customer  counts and
customer retention for the three stet businesses of the Company.  These measures
are  presented  on a  rolling,  twelve  month  basis in order to avoid  seasonal
anomalies.

                                               KEY PERFORMANCE INDICATORS
                                                     As of June 30,

                                                 2002           2001
                                              ----------     ------------
TRUGREEN -
   Growth in Full Program Contracts                1%              -3%
   Customer Retention Rate                      64.5%            62.4%

TERMINIX -
   Growth in Pest Control Customers               12%              14%
   Pest Control Customer Retention Rate         77.5%            76.2%

   Growth in Termite Customers                     8%              20%
   Termite Customer Retention Rate              90.1%            88.8%

AMERICAN HOME SHIELD -
   Growth in Warranty Contracts                   15%              11%
   Customer Retention Rate                      53.2%            51.1%

SEGMENT REVIEW

NOTE:  THE COMPANY  ADOPTED SFAS 142,  "GOODWILL AND OTHER  INTANGIBLE  ASSETS",
WHICH  ELIMINATES  THE  AMORTIZATION  OF  GOODWILL  AND  INTANGIBLE  ASSETS WITH
INDEFINITE  LIVES  BEGINNING  IN 2002.  THE CHANGE IN METHOD OF  ACCOUNTING  FOR
CUSTOMER  ACQUISITION  COSTS AT  AMERICAN  HOME SHIELD HAS BEEN  REFLECTED  AS A
CUMULATIVE  ADJUSTMENT AS OF JANUARY 1, 2002.  FOR  COMPARATIVE  PURPOSES,  2001
SEGMENT RESULTS HAVE BEEN RESTATED TO EXCLUDE THE AMORTIZATION  EXPENSE AFFECTED
BY THE NEW ACCOUNTING  STANDARD AND RETROACTIVELY  APPLY THE CHANGE IN METHOD OF
ACCOUNTING.

The TruGreen segment reported revenue of $663 million,  slightly above the prior
year.  Operating  income  decreased  to $78 million  from $87 million last year,
primarily  reflecting  an  increased  level of  seasonal  costs in the lawn care
operations,  increased workers compensation claims in the landscaping operations
(approximately  $5  million)  and  a  lower  volume  of  snow  removal  business
(approximately  $2.5  million)  early in the  year.  Revenue  in the  lawn  care
business  improved  modestly  over  the  prior  year.  Customer  contracts  have
increased one percent over the prior twelve months compared with a three percent
decline in the prior  year  period,  reflecting  the  benefit  of new  marketing
strategies as well as the impact of improved customer retention.  In addition to
telemarketing,  which is the primary  channel used by TruGreen  ChemLawn to sell
its  services,  the  business  has  expanded  investments  in  direct  mail  and
television  advertising  leading to higher sales of new  customers.  Quality and
other satisfaction  initiatives have resulted in improving retention of existing
customers. The customer retention rate improved 210 basis points to 64.5 percent
compared to the same period last year.  The retention rate continued to increase
in the second


                                       18
<PAGE>

quarter.  Operating  margins in the lawn care  operations  declined,  reflecting
improved  labor  productivity  offset by an increased  level of seasonal  costs.
Year-to-date  this year, the Company has expensed  approximately $5 million more
in seasonal costs than in the prior year due to a higher  expectation of revenue
in the prior year that did not materialize.  Revenue in the landscaping business
declined  reflecting  a decrease  in snow  removal  services  due to mild winter
weather and a slight  decrease  in its core  maintenance  business.  Despite the
decline in the  maintenance  business,  the base of contracts is more profitable
reflecting  stronger  customers and improved  pricing.  Operating margins in the
landscaping services business declined primarily reflecting the decreased volume
of higher  margin snow  removal  business  and  increased  workers  compensation
claims. Management is highly focused on mid-season sales of enhanced services to
support second half of the year growth expectations.

The Terminix  segment  reported a 12 percent increase in revenue to $475 million
from $425  million  in 2001 and  operating  income  growth of 16  percent to $82
million from $70 million last year. Revenue growth was driven by the acquisition
in 2001 of Sears Termite & Pest Control as well as solid  internal  growth.  The
Sears acquisition  continues to meet  management's  expectations with respect to
customer retention,  remediation costs and overall profitability. One area where
the  Company  has  begun to see  challenges  is in the sale of new pest  control
customers to replace terminations in the Sears markets. As a result, the Company
expects to see a reduction in revenue growth in the fourth quarter. Terminix has
continued  to show  favorable  comparisons  in both  termite  and  pest  control
customer  retention,  reflecting  increased  focus  on  quality,  training,  and
customer service processes in the branches.  Operating margins improved over the
prior year reflecting the impact of the  acquisitions,  continuing  migration to
higher margin  products,  improved labor  efficiencies and lower material costs.
Terminix is in the process of rolling out a new operating  system to support its
field operations.  This system is expected to be in all branches within the next
year.

The Home Maintenance and Improvement segment reported revenue of $621 million, a
decrease of four percent from $644 million last year. Operating income decreased
14 percent to $45  million  compared  to $52 million  last year.  American  Home
Shield  reported  double-digit  growth in  revenue  and  profit.  Both sales and
retention rates continued to show improvements over prior year levels. Operating
margins improved benefiting from lower service costs per claim and a decrease in
the incidence of claims.  The combined ARS and AMS operations  reported  revenue
and profit  significantly  below the prior year. A softer  economic  environment
combined with mild weather led to lower demand for heating, air conditioning and
plumbing  repairs and replacement  service.  These  operations also  experienced
lower construction activity in both the residential and commercial sectors. With
new leadership in place,  this business  continues to focus on cost  containment
initiatives and is implementing  significant  changes to its sales and marketing
programs.  The franchise  operations  achieved  solid revenue and profit growth,
supported by strong demand for disaster  restoration  services at  ServiceMaster
Clean,  growth  in the  direct-owned  branch  operations  at  Merry  Maids,  and
acquisitions.

Other  Operations  revenue declined to $36 million from $37 million in the prior
year. This segment shows a net operating expense, which increased from the prior
year reflecting the increased  investments in the headquarters  organization for
Six Sigma and other initiatives including purchasing, marketing, and technology.

FINANCIAL CONDITION

Net cash  provided from  operations of $153 million was $41 million  higher than
the first six  months  of 2001  before  the  impact  of the  Company's  accounts
receivable  securitization  program and tax refunds in 2001.  Net cash  provided
from  operations  is 75  percent  higher  than  earnings  for the six months and
represents a 37 percent  increase  over the $112 million that was reported  last
year. This increase was driven,  in part, by a significant  reduction in the use
of working capital, primarily at TruGreen ChemLawn and American Home Shield as a
result of better  receivables,  payables and  inventory  management.  Management
believes that funds generated from operations and other existing  resources will
continue to be adequate to satisfy ongoing working capital needs of the Company.



                                       19
<PAGE>


Cash and marketable  securities  totaled  approximately $215 million at June 30,
2002, including approximately $123 million of required regulatory investments at
American Home Shield.  During the second quarter, the Company completed the last
major phase of the debt reduction program announced in October 2001, through the
repurchase of $218 million in face value of its corporate bonds. As a result the
Company reduced its total outstanding debt level in the quarter to approximately
$862 million.  This represents a reduction in debt  outstanding of approximately
$1.1  billion over the last two years and the  Company's  lowest level since the
first quarter of 1997. The debt  repurchase  allowed the Company the opportunity
to strengthen  its credit  profile by focusing the majority of the repurchase on
bonds with  shorter  maturities.  Approximately  60% of the  Company's  debt now
matures  beyond seven years and 40% beyond fifteen  years.  The Company's  first
public bond maturity is not due until 2005.

The Company  maintains a three-year  revolving credit facility for $490 million,
which will expire in December  2004.  As of June 30, 2002 the Company had issued
approximately  $130  million  of letters of credit  under the  facility  and had
unused  commitments  of  approximately  $360 million.  The Company also has $550
million of senior  unsecured debt and equity  securities  available for issuance
under an effective shelf registration statement. In addition, the Company has an
agreement to  ultimately  sell, on a revolving  basis,  certain  receivables  to
unrelated third party  purchasers.  At June 30, 2002,  there were no receivables
outstanding  that had been sold to third  parties.  The  agreement  is a 364-day
facility that is renewable at the option of the purchasers. The Company may sell
up to $65 million of its eligible  receivables to these purchasers in the future
and therefore has immediate access to cash proceeds from these sales. The amount
of  eligible  receivables  varies  during the year based on  seasonality  of the
business  and will at times  limit the  amount  available  to the  Company.  The
Company  also  maintains  operating  lease  facilities  with banks  totaling $95
million that provide for the  acquisition  and  development  of properties to be
leased by the Company.  There is a residual value guarantee of these  properties
up to 82 percent of the fair market value of the  properties.  At June 30, 2002,
there was approximately  $72 million funded under these  facilities.  Of the $95
million in  facilities,  $80  million  expires in October  2004 and $15  million
expires in January 2008. The majority of the Company's vehicle fleet and some of
its equipment needs are leased through  cancelable  operating leases.  There are
residual value  guarantees  (ranging from 70% to 87% depending on the agreement)
on these  vehicles  and  equipment,  which  historically  have not  resulted  in
significant  net  payments  to  the  lessors.   At  June  30,  2002,  there  was
approximately $265 million of residual value relating to these leases.


The following table presents the Company's obligations and commitments:

<TABLE>

                                                                          2003 and      2005 and       2007 and
(IN MILLIONS)                                     TOTAL        2002         2004          2006        LATER YEARS
-------------------------------------------------------------------------------------------------------------------
<S>                                             <C>            <C>          <C>           <C>              <C>
Debt balances                                     $862         $21           $64          $169             $608
Non-cancelable operating leases                    256          31            94            63               68
-------------------------------------------------------------------------------------------------------------------
Total amount                                    $1,118         $52          $158          $232             $676

</TABLE>


There  have been no  material  changes in the terms of the  Company's  financing
agreements  since December 31, 2001. As described in the Company's latest Annual
Report to  Shareholders,  the  Company  is party to a number of debt  agreements
which require it to maintain certain  financial and other  covenants,  including
limitations on indebtedness  and interest  coverage  ratio.  In addition,  under
certain  circumstances,  the agreements  may limit the Company's  ability to pay
dividends and  repurchase  shares of common  stock.  These  limitations  are not
expected to be a factor in the Company's  future  dividend and share  repurchase
plans.  Failure by the Company to maintain these  covenants  could result in the
acceleration  of the maturity of the debt.  At June 30, 2002,  the Company is in
compliance with the covenants  related to these debt agreements and based on its
operating  outlook  for the  remainder  of 2002,  expects to be able to maintain
compliance in the future.

The assets and  liabilities  relating to the  discontinued  companies  have been
classified  in separate  captions on the  Consolidated  Statements  of Financial
Position.  In the first quarter,  the Company made  approximately $70 million in
tax payments relating to the sale of Management Services.  There were other cash
payments  relating to the wind-down of the  discontinued  operations  which

                                       20
<PAGE>


were offset by cash collected on assets remaining from these operations.  Assets
of the  discontinued  operations have declined  reflecting  cash  collections on
receivables  and the sale of fixed assets.  The  liabilities  from  discontinued
operations have decreased  reflecting cash outflows  related to the wind-down of
contracts,  lease termination costs,  workers'  compensation  payments and legal
costs.

Accounts receivable and inventories  increased from year-end levels,  reflecting
general business growth and increased seasonal activity.  Deferred revenues grew
significantly  reflecting  increases  in  customer  prepayments  for  lawn  care
services  and strong  growth in  warranty  contracts  written at  American  Home
Shield.  Prepaids and other assets have decreased  from year-end  reflecting the
impact of the change in accounting  for customer  acquisition  costs at American
Home Shield, offset by the deferred seasonal costs in the lawn care business. As
required  by APB No. 20  "Change  in  Accounting",  the  reduction  in  deferred
customer  acquisition  costs resulting from the change in accounting  method has
been  reflected  as a  cumulative  adjustment  as of  January  1, 2002 and prior
periods have not been  restated.  The lawn care operation  defers  marketing and
other costs that are incurred  earlier in the year, but are directly  associated
with revenues  realized in subsequent  quarters of the current year. These costs
are then amortized over the balance of the current lawn care production  season,
as the related  revenues are recognized.  No amounts are carried over the fiscal
year-end.  In addition to the American Home Shield customer  acquisition  costs,
the Company  capitalizes sales commission and other direct contract  acquisition
costs relating to termite baiting and pest contracts.

Capital  expenditures  which include  recurring  capital  needs and  information
technology projects are higher than prior year levels reflecting the payments of
the residual value  guarantees  relating to leases for the five assisted  living
facilities sold in the quarter.  See Note 6 for additional details.  The Company
has no material capital commitments at this time.

Total  shareholders'  equity was $1.2  billion at June 30, 2002 and December 31,
2001,  reflecting  earnings which were offset by cash dividends.  Cash dividends
paid directly to shareholders  totaled $60 million or $.20 per share for the six
months ended June 30, 2002. In July 2002,  the Company paid a third quarter cash
dividend of $.105 per share and declared a fourth quarter cash dividend of $.105
per share payable on October 31, 2002. This quarterly  dividend payment provides
for an annual payment for 2002 of $.41 per share, a 2.5% increase over 2001. The
Company   approves  its  actual  dividend  payment  on  a  quarterly  basis  and
continually  reviews its dividend  policy,  share  repurchase  program and other
capital  structure  objectives.  The Company has not  undertaken  material share
repurchases  in 2001 and 2002 to date.  Decisions  relating to any future  share
repurchases will take various factors into  consideration  such as the Company's
commitment  to  maintain  investment  grade  credit  ratings,  general  business
conditions, and other strategic investment opportunities.

As disclosed in Note 3, the Company has identified the most important accounting
policies in order to portray its financial  condition and results of operations.
These  policies  relate  primarily  to revenue  recognition  and the deferral of
customer  acquisition  costs.  Except for the change in accounting  principle at
American Home Shield and the  capitalization of  direct-response  advertising at
Terminix,  the policies are the same as discussed in the 2001 Annual Report. The
critical  estimates and  assumptions  required by management in order to prepare
the financial  statements  were also  discussed in the 2001 Annual Report and in
Note 3 in this report.  There have been no changes in the areas or methodologies
in 2002.

FORWARD LOOKING STATEMENT

The Company  notes that  statements  that look  forward in time,  which  include
everything other than historical  information,  involve risks and  uncertainties
that  affect the  Company's  results of  operations.  Factors  which could cause
actual  results  to differ  materially  from  those  expressed  or  implied in a
forward-looking   statement  include  the  following  (among  others):   weather
conditions  adverse to  certain  of the  Company's  residential  and  commercial
services businesses;  the entry of additional  competitors in any of the markets
served by the Company;  labor shortages;  unexpected changes in operating costs;
the condition of the U.S.  economy;  the cost and length of time associated with
integrating  or winding down  businesses  and other factors  listed from time to
time in the Company's filings with the Securities and Exchange Commission.


                                       21
<PAGE>




                    QUANTITATIVE AND QUALITATIVE DISCLOSURES
                                ABOUT MARKET RISK

The  Company  does  not hold or  issue  financial  instruments  for  trading  or
speculative   purposes.   The  Company  has  entered  into  specific   financial
arrangements  in the normal course of business to manage  certain  market risks,
with a policy of matching  positions  and  limiting  the terms of  contracts  to
relatively short durations.  The effect of financial instrument  transactions is
not material to the Company's financial statements.

The Company  generally  maintains  the majority of its debt at fixed rates (over
95% of total debt at both December 31, 2001, and June 30, 2002) and,  therefore,
its exposure to interest rate  fluctuations  is not significant to the Company's
results of operations.  The payments on the $72 million of  outstandings  on the
Company's  real estate  operating  lease  facilities  as well as its  cancelable
vehicle  fleet and  equipment  operating  leases are tied to  floating  interest
rates.  However, the Company does not expect that interest rate fluctuations are
likely to be significant to the Company's results of operations.

The economy and its impact on discretionary consumer spending, labor wages, fuel
costs and medical  inflation  rates  could be  significant  to future  operating
earnings.



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PART II. OTHER INFORMATION

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

(a)      The 2002 Annual Meeting of Shareholders was held on April 26, 2002.

(b)      The following persons were elected as Class of 2005 directors:


NAME                       VOTES FOR     VOTES WITHHELD    BROKER NON-VOTES
----                       ---------     --------------    ----------------

Paul W. Berezny, Jr.      247,162,142       7,248,494             N/A
Carlos H. Cantu           248,659,562       5,751,074             N/A
Vincent C. Nelson         246,594,910       7,815,726             N/A
Charles W. Stair          248,226,619       6,184,017             N/A
Jonathan P. Ward          250,546,178       3,864,458             N/A

No votes  were  cast for any  other  nominee  for  directors.  The Class of 2003
continuing in office are: Herbert P. Hess,  Michele M. Hunt, Dallen W. Peterson,
and  David K.  Wessner.  The  Class of 2004  continuing  in  office  are:  Brian
Griffiths, Sidney E. Harris, James D. McLennan, C. William Pollard and Donald G.
Soderquist.

No other matters were submitted to shareholders.

ITEM 6(A): EXHIBITS

Exhibit 18.1      Letter Re: Change in Accounting Principles
Exhibit 99.1      Certification of Chief Executive Officer Pursuant to Section
                   1350 of Chapter 63 of Title 18 of the United States Code
Exhibit 99.2      Certification of Chief Financial Officer Pursuant to Section
                   1350 of Chapter 63 of Title 18 of the United States Code


ITEM 6(B):    REPORTS ON FORM 8-K


A report on Form 8-K was filed on May 22, 2002 reporting  under "Item 4. Changes
in Registrant's  Certifying  Accountant." In this filing,  the Company  reported
that on May 20,  2002 it had  dismissed  ArthurAndersen  LLP as its  independent
accountants  and,  effective May 22, 2002, the Company engaged Deloitte & Touche
LLP as its new independent accountants.

A report on Form 8-K/A was filed on May 24, 2002 for the purpose of  including a
revised Exhibit 16.1 to the Form 8-K filed on May 22, 2002.

A report on Form 8-K was filed on June 20, 2002  reporting  under "Item 5. Other
Events".  The  purpose  of the report was to  provide  updated  Key  Performance
Indicators that were included in the Company's first quarter  earnings  release.
The Company discussed these metrics in an investors conference on June 20, 2002.


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                                       SIGNATURE


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.

Date:  August 13, 2002


                          THE SERVICEMASTER COMPANY
                          (Registrant)

                          By:                    /S/STEVEN C. PRESTON
                          ------------------------------------------------------

                                          Steven C. Preston
                          Executive Vice President and Chief Financial Officer






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