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 March 31, 2005

                     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)

3250 Lacey Road, Ste. 600, Downers Grove, Illinois            60515-1700
(Address of principal executive offices)                      (Zip Code)

                                  630-663-2000
              (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  by check mark  whether  the  Registrant  is an  accelerated  filer (as
defined in Exchange Act Rule 12b-2). Yes X No . ------- ---------

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock: 291,079,000 shares of common stock on May 2, 2005.





                                       1
<PAGE>









                                  TABLE OF CONTENTS

                                                                            Page
                                                                             NO.

THE SERVICEMASTER COMPANY (Registrant) -

PART I.  FINANCIAL INFORMATION

Item 1: Financial Statements (Unaudited)

Condensed Consolidated Statements of Operations for the three
   months ended March 31, 2005 and March 31, 2004                              3

Condensed Consolidated Statements of Financial Position
   as of March 31, 2005 and December 31, 2004                                  4

Condensed Consolidated Statements of Cash Flows for the three months
   ended March 31, 2005 and March 31, 2004                                     5

Notes to Condensed Consolidated Financial Statements                           6

Item 2: Management Discussion and Analysis of Financial
    Condition and Results of Operations                                       12

Item 3:  Quantitative and Qualitative Disclosures About
    Market Risk                                                               19

Item 4: Controls and Procedures                                               20


PART II.  OTHER INFORMATION

Item 2:  Unregistered Sales of Equity Securities and Use of Proceeds          21

Item 6:  Exhibits                                                             21

Signature                                                                     22




                                       2
<PAGE>



                          PART I. FINANCIAL INFORMATION

                            THE SERVICEMASTER COMPANY
           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

                                                            Three Months Ended
                                                                 March 31
                                                             2005        2004
                                                        -----------  -----------
OPERATING REVENUE ....................................   $ 782,309    $ 756,891

OPERATING COSTS AND EXPENSES:
Cost of services rendered and products sold ..........     556,323      545,056
Selling and administrative expenses ..................     198,984      179,310
Amortization expense .................................       1,152        1,422
                                                         ---------    ---------
Total operating costs and expenses ...................     756,459      725,788
                                                         ---------    ---------

OPERATING INCOME .....................................      25,850       31,103

NON-OPERATING EXPENSE (INCOME):
Interest expense .....................................      15,579       14,931
Interest and investment income .......................      (9,374)      (4,570)
Minority interest and other expense, net .............       2,046        2,046
                                                         ---------    ---------

INCOME FROM CONTINUING OPERATIONS BEFORE
       INCOME TAXES ..................................      17,599       18,696
Provision for income taxes............................       6,881        7,235
                                                         ---------    ---------

INCOME FROM CONTINUING OPERATIONS ....................      10,718       11,461

Loss from discontinued operations, net of income taxes        (146)        (262)
                                                         ---------    ---------
NET INCOME ...........................................   $  10,572    $  11,199
                                                         =========    =========

PER SHARE:
BASIC EARNINGS PER SHARE:
Income from continuing operations ....................   $    0.04    $    0.04

Loss from discontinued operations ....................          -            -
                                                         ---------    ---------
Basic earnings per share .............................   $    0.04    $    0.04
                                                         =========    =========
SHARES ...............................................     291,117      291,799


DILUTED EARNINGS PER SHARE:
Income from continuing operations ....................   $    0.04    $    0.04

Loss from discontinued operations ....................          -            -
                                                         ---------    ---------
Diluted earnings per share ...........................   $    0.04    $    0.04
                                                         =========    =========
SHARES ...............................................     297,080      296,035






            SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



                                       3
<PAGE>




                            THE SERVICEMASTER COMPANY
       CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>

                                                                      As of Mar. 31,  As of Dec. 31,
ASSETS                                                                      2005          2004
                                                                       -------------  ------------
CURRENT ASSETS:

<S>                                                                     <C>           <C>
Cash and cash equivalents ..........................................    $  114,536    $   256,626
Marketable securities ..............................................       106,443        103,681
Receivables, less allowance of $24,872 and $25,183, respectively ...       375,109        369,026
Inventories ........................................................        78,744         66,657
Prepaid expenses and other assets ..................................        70,643         27,456
Deferred customer acquisition costs ................................        76,917         41,574
Deferred taxes and income taxes receivable .........................       106,320        108,780
Assets of discontinued operations ..................................         1,689          4,952
                                                                       -----------    -----------
       Total Current Assets ........................................       930,401        978,752
                                                                       -----------    -----------
PROPERTY AND EQUIPMENT:
   At cost .........................................................       415,637        405,655
   Less: accumulated depreciation ..................................      (229,002)      (218,838)
                                                                       -----------    -----------
     Net property and equipment ....................................       186,635        186,817
                                                                       -----------    -----------

OTHER  ASSETS:
Goodwill ...........................................................     1,575,681      1,568,044
Intangible assets, primarily trade names ...........................       220,365        220,780
Notes receivable ...................................................        33,601         35,411
Long-term marketable securities ....................................       138,117        135,824
Other assets .......................................................        12,659         14,574
                                                                       -----------    -----------
       Total Assets ................................................    $3,097,459    $ 3,140,202
                                                                       ===========    ===========
</TABLE>
<TABLE>

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:

<S>                                                                      <C>          <C>
Accounts payable ...................................................     $  89,714    $    76,053
Accrued liabilities:
   Payroll and related expenses ....................................        88,570        113,366
   Self-insured claims and related expenses ........................        80,378         86,554
   Income taxes payable ............................................        22,329        152,841
   Other ...........................................................       109,745        111,092
Deferred revenues ..................................................       495,830        443,238
Liabilities of discontinued operations .............................        19,526         21,536
Current portion of long-term debt ..................................        22,265         23,247
                                                                       -----------    -----------
       Total Current Liabilities ...................................       928,357      1,027,927
                                                                       -----------    -----------

LONG-TERM DEBT .....................................................       853,503        781,841

LONG-TERM LIABILITIES:
     Deferred taxes ................................................        90,217         88,100
     Liabilities of discontinued operations ........................         8,568          9,057
     Other long-term obligations ...................................       148,285        141,742
                                                                       -----------    -----------
        Total Long-Term Liabilities ................................       247,070        238,899
                                                                       -----------    -----------
MINORITY INTEREST ..................................................       100,000        100,000

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
Common stock $0.01 par value, authorized 1,000,000 shares; issued
     319,247 and 318,559 shares, respectively ......................         3,192          3,186
Additional paid-in capital .........................................     1,093,458      1,083,057
Retained earnings ..................................................       190,708        212,116
Accumulated other comprehensive income .............................         8,902         10,804
Restricted stock ...................................................       (17,898)       (12,857)
Treasury stock .....................................................      (309,833)      (304,771)
                                                                       -----------    -----------
       Total Shareholders' Equity ..................................       968,529        991,535
                                                                       -----------    -----------
       Total Liabilities and Shareholders' Equity ..................    $3,097,459    $ 3,140,202
                                                                       ===========    ===========
</TABLE>



            SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                                       4
<PAGE>




                            THE SERVICEMASTER COMPANY
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                                 (IN THOUSANDS)
<TABLE>

                                                                              Three Months Ended
                                                                                   March 31,
                                                                              2005          2004
                                                                           -----------  -----------

<S>                                  <C>                                    <C>          <C>
CASH AND CASH EQUIVALENTS AT JANUARY 1 ..................................   $ 256,626    $ 228,161


CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME ..............................................................      10,572       11,199
     Adjustments to reconcile net income to net cash flows from operating
       activities:
        Loss from discontinued operations ...............................         146          262
        Depreciation expense ............................................      12,545       12,175
        Amortization expense ............................................       1,152        1,422

        Change in working capital, net of acquisitions:
            Receivables .................................................      (6,302)      (5,822)
            Inventories and other current assets ........................     (84,346)     (62,308)
            Accounts payable ............................................      14,548        7,490
            Deferred revenues ...........................................      52,323       41,443
            Accrued liabilities .........................................     (25,241)       3,027
            Decrease in tax accounts:
                Deferred income taxes ...................................       4,391        5,815
                Resolution of income tax audits .........................    (130,568)           -
        Other, net ......................................................       3,238        1,514
                                                                            ---------    ---------
NET CASH (USED FOR) PROVIDED FROM OPERATING ACTIVITIES ..................    (147,542)      16,217
                                                                            ---------    ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Property additions ................................................     (12,283)     (12,520)
      Sale of equipment and other assets ................................         393          488
      Business acquisitions, net of cash acquired .......................      (5,662)      (4,197)
      Notes receivable, financial investments and securities ............     (10,790)       3,696
                                                                            ---------    ---------
NET CASH USED FOR INVESTING ACTIVITIES ..................................     (28,342)     (12,533)
                                                                            ---------    ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
      Net borrowings (payments) of debt .................................      72,282       (9,962)
      Purchase of ServiceMaster stock ...................................     (15,401)     (39,831)
      Shareholders' dividends ...........................................     (31,980)     (30,792)
      Other, net ........................................................       8,652       (2,646)
                                                                            ---------    ---------
NET CASH PROVIDED FROM (USED FOR) FINANCING ACTIVITIES ..................      33,553      (83,231)
                                                                            ---------    ---------

NET CASH PROVIDED FROM (USED FOR) DISCONTINUED OPERATIONS ...............         241       (2,042)
                                                                            ---------    ---------

CASH DECREASE DURING THE PERIOD .........................................    (142,090)     (81,589)
                                                                            ---------    ---------

CASH AND CASH EQUIVALENTS AT MARCH 31 ...................................     114,536    $ 146,572
                                                                            =========    =========
</TABLE>








            SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




                                       5
<PAGE>



                            THE SERVICEMASTER COMPANY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 1: The condensed  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 condensed  consolidated  financial  statements have been prepared by
the Company in accordance with accounting  principles  generally accepted in the
United States (GAAP) and pursuant to the rules and regulations of the Securities
and Exchange  Commission.  The Company  recommends that the quarterly  condensed
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  incorporated  in the Form 10-K  filed  with the
Securities  and Exchange  Commission  for the year ended December 31, 2004 (2004
Annual Report).  The condensed  consolidated  financial  statements  reflect all
adjustments  which are, in the  opinion of  management,  necessary  for the fair
presentation of the financial position, results of operations and cash flows for
the interim  periods.  The results of operations  for any interim period are not
necessarily indicative of the results which might be achieved for a full year.

NOTE 3: The Company has identified the most important  accounting  policies with
respect to its  financial  position  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,   pest  control,   liquid  and  fumigation   termite
applications,  as well as  heating/air  conditioning  and plumbing  services are
recognized as the services are provided.  Revenues from landscaping services are
recognized as they are earned based upon agreed monthly contract arrangements or
when services are performed for non-contractual arrangements.  Revenues from the
Company's  commercial  installation  contracts,  primarily  relating to heating,
ventilation and air  conditioning  (HVAC),  and electrical are recognized on the
percentage of completion  method in the ratio that total  incurred costs bear to
total  estimated  costs.  The  Company  eradicates  termites  through the use of
baiting systems,  as well as through  non-baiting  methods (e.g.,  fumigation or
liquid  treatments).  Termite  services  using  baiting  systems as well as home
warranty  services  frequently are sold through annual contracts for a one-time,
upfront  payment.  Direct costs of these  contracts  (service  costs for termite
contracts and claim costs for warranty contracts) are expensed as incurred.  The
Company recognizes revenue over the life of these contracts in proportion to the
expected  direct costs.  Franchised  revenue (which in the aggregate  represents
less than four percent of consolidated  revenue) consists principally of monthly
fees based upon the franchisee's customer level revenue.  Monthly fee revenue is
recognized when the related customer level revenue is reported by the franchisee
and  collectibility  is assured.  Franchise  revenue also includes  initial fees
resulting from the sale of a franchise.  These fees are fixed and are recognized
as  revenue  when  collectibility  is  assured  and  all  material  services  or
conditions  relating to the sale have been substantially  performed.  Due to the
seasonality  of the  TruGreen  and Terminix  operations,  franchise  fee profits
comprised  23 percent and 18 percent of  consolidated  operating  income  before
headquarter overheads for the three-month periods ended March 31, 2005 and 2004,
respectively,  a much higher percentage than is expected for subsequent quarters
and the year as a whole.  The portion of total  franchise fee income  related to
initial  fees  received  from the sale of a  franchise  were  immaterial  to the
Company's consolidated financial statements for all periods.

The Company had $496 million and $443  million of deferred  revenue at March 31,
2005 and December 31, 2004,  respectively,  which  consist  primarily of upfront
payments  received  for annual  contracts  relating  to home  warranty,  termite
baiting,  pest  control and lawn care  services.  The  revenue  related to these
services is recognized  over the  contractual  period as the direct costs occur,
such as when the services are performed or claims are incurred.

Customer  acquisition costs, which are incremental and direct costs of obtaining
a customer,  are deferred and amortized over the life of the related 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.


                                       6
<PAGE>


TruGreen ChemLawn has significant seasonality in its business. In the winter and
early spring,  this business  sells a series of lawn  applications  to customers
which are rendered  primarily in March through  October.  This  business  incurs
incremental  selling  expenses at the beginning of the year that directly relate
to successful  sales for which the revenues are  recognized  in later  quarters.
TruGreen ChemLawn also defers, on an interim basis, pre-season advertising costs
and annual repairs and  maintenance  procedures  that are performed in the first
quarter.  These costs are deferred and  recognized in proportion to the contract
revenue over the  production  season,  and are not deferred  beyond the calendar
year-end.  Other  business  segments  of the Company  also defer,  on an interim
basis,  advertising  costs incurred early in the year.  These costs are deferred
and  recognized  approximately  in proportion to revenue over the balance of the
year, and are not deferred beyond the calendar year-end.

The cost of direct-response advertising at Terminix is capitalized and amortized
over its expected period of future benefits.  This  direct-response  advertising
consists primarily of direct-mail promotions,  for which the cost is capitalized
and amortized over the one-year customer contract life.

The preparation of the financial  statements requires management to make certain
estimates and assumptions  required under GAAP which may differ  materially from
the  actual  results.  Disclosures  in the  2004  Annual  Report  presented  the
significant  areas that require the use of management's  estimates and discussed
how management formed its judgments.  The areas discussed included the allowance
for  uncollectible  receivables;  accruals  for  self-insured  retention  limits
related to medical, workers' compensation,  auto and general liability insurance
claims;  accruals for home warranty claims,  the possible outcome of outstanding
litigation,  income tax liabilities and deferred tax accounts;  useful lives for
depreciation  and  amortization  expense,  and the  valuation  of  tangible  and
intangible  assets.  In 2005,  there have been no  changes in these  significant
areas  that  require  estimates  or in  the  underlying  methodologies  used  in
determining the amounts of these associated estimates.

NOTE 4: The Company  carries  insurance  policies on  insurable  risks at levels
which it believes to be appropriate,  including workers' compensation,  auto and
general  liability  risks.  The Company has  self-insured  retention  limits and
insured layers of excess  insurance  coverage  above those limits.  Accruals for
self-insurance  losses and warranty  claims in the American Home Shield business
are made based on the Company's  claims  experience  and actuarial  projections.
Current  activity  could differ  causing a change in estimates.  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.
Any resulting  adjustments,  which could be material, are recorded in the period
identified.

NOTE 5: In accordance with Statement of Financial  Accounting  Standards  (SFAS)
142,  goodwill  and  intangible  assets  that are not  amortized  are subject to
assessment for impairment by applying a fair-value based test on an annual basis
or more  frequently  if  circumstances  indicate a  potential  impairment.  Such
circumstances   could  include  actual   earnings  being   significantly   below
management's estimates. The Company's annual assessment date is October 1.

The goodwill  and  intangible  assets that were added in the first  quarter this
year relate to tuck-in acquisitions completed by Terminix and TruGreen ChemLawn.

The table below  summarizes  the  goodwill  and  intangible  asset  activity and
balances:
<TABLE>


(In thousands)                    As of                                            As of
                                Dec. 31,                                         Mar. 31,
                                  2004           Additions        Amort.           2005
                               -------------    -------------    -----------    -------------
<S>                             <C>                  <C>              <C>        <C>
Goodwill(1)                     $1,568,044           $7,637           $  -       $1,575,681
Trade names(1)                     204,793                -              -          204,793

Other intangible assets             45,788              737              -           46,525
Accumulated amortization(2)       (29,801)                -        (1,152)         (30,953)
                               -------------    -------------    -----------    -------------
Net other intangibles               15,987              737        (1,152)           15,572
                               -------------    -------------    -----------    -------------
Total                           $1,788,824           $8,374       $(1,152)       $1,796,046
                               =============    =============    ===========    =============
</TABLE>

(1) Not subject to amortization.
(2) Annual amortization  expense of approximately $7 million in 2005 is expected
to decline over the next five years.


                                       7
<PAGE>



The table  below  presents,  by  segment,  the  goodwill  that is not subject to
amortization:

   (In thousands)                  Mar. 31,           Dec. 31,
                                     2005               2004
                                  -------------     --------------
   TruGreen                          $686,829           $681,954
   Terminix                           646,355            643,567
   American Home Shield                72,085             72,085
   ARS/AMS                             56,171             56,171
   Other Operations                   114,241            114,267
                                  -------------     --------------
   Total                           $1,575,681         $1,568,044
                                  =============     ==============


NOTE 6: Basic  earnings  per share is 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.   Shares
potentially  issuable  under  convertible  securities  have not been  considered
outstanding for the three months ended March 31, 2005 and 2004, respectively, as
their  inclusion  results in a less dilutive  computation.  Had the inclusion of
convertible securities not resulted in a less dilutive computation for the three
months ended March 31, 2005 and 2004,  incremental  shares  attributable  to the
assumed  conversion of the debentures would have increased shares outstanding by
8.0 million shares for both periods and the after-tax  interest  expense related
to the  convertible  debentures  that would have been added to net income in the
numerator would have been $1.2 million for both periods.

The following  table  reconciles  both the numerator and the  denominator of the
basic earnings per share from continuing operations computation to the numerator
and the denominator of the diluted earnings per share from continuing operations
computation.
<TABLE>


(In thousands, except per share data)                   Three Months                           Three Months
                                                    Ended March 31, 2005                   Ended March 31, 2004
                                                --------------------------------       ---------------------------------

CONTINUING OPERATIONS:                           Income       Shares      EPS           Income      Shares       EPS
----------------------                          ----------   ---------  --------       ----------  ---------  ----------
<S>                                               <C>         <C>        <C>             <C>        <C>         <C>
 Basic earnings per share                         $10,718     291,117    $0.04           $11,461    291,799     $0.04
                                                                        ========                              ==========
 Effect of dilutive securities, net of tax:
  Options                                                       5,963                                 4,236
                                                ----------   ---------                 ----------  ---------

 Diluted earnings per share                       $10,718     297,080    $0.04          $11,461     296,035    $0.04
                                                ==========   =========  ========       ==========  =========  ==========

</TABLE>

NOTE 7:  Beginning in 2003,  the Company has been  accounting for employee stock
options in accordance with SFAS 123, "Accounting for Stock-Based  Compensation."
SFAS 123  requires  that stock option and share grant awards be recorded at fair
value and that this value be recognized as compensation expense over the vesting
period  of the  award.  SFAS 148  "Accounting  for  Stock-Based  Compensation  -
Transition and  Disclosure,  an amendment of FASB  Statement No. 123",  provided
alternative   methods  of  transitioning  to  the  fair-value  based  method  of
accounting for employee stock options as  compensation  expense.  The Company is
using the  "prospective  method" of SFAS 148 and is expensing the  fair-value of
new employee option grants awarded in 2003 and later.

Employee  option grants awarded prior to 2003 continue to be accounted for under
the intrinsic method of Accounting Principles Board Opinion No. 25, as permitted
under  GAAP.  Compensation  expense  relating to the  unvested  portion of these
awards would have resulted in proforma  reported net income and net earnings per
share as follows:



                                       8
<PAGE>




                                                     Three Months Ended
                                                          March 31,
(In thousands, except per share data)              2005               2004
                                              --------------------------------


Net income as reported                            $10,572            $11,199

Add back:  Stock-based compensation
  expense included in reported net income,
  net of related tax effects                          466                249

Deduct:  Stock-based compensation
 expense determined under fair-value method,
  net of related tax effects                       (1,606)            (1,424)
                                              ---------------    ---------------
Proforma net income                                $9,432            $10,024
                                              ===============    ===============


Basic Earnings Per Share:
  As reported                                       $0.04              $0.04

  Proforma                                          $0.03              $0.03

Diluted Earnings Per Share:
  As reported                                       $0.04              $0.04

  Proforma                                          $0.03              $0.03

In December 2004, the FASB issued SFAS 123 (revised 2004), "Share-Based Payment"
(SFAS 123(R)).  This Statement  replaces SFAS 123,  "Accounting  for Stock-Based
Compensation",  and supersedes APB Opinion No. 25,  "Accounting for Stock Issued
to Employees".  The Statement requires that compensation expense be recorded for
newly issued awards as well as the unvested portion of previously  issued awards
that  remain  outstanding  as of the  effective  date  of  this  Statement.  The
provisions of this Statement become effective beginning with the Company's first
quarter 2006 Consolidated Financial Statements.  The Company currently estimates
that the adoption of this  Statement  would reduce annual  earnings per share by
approximately  $.01 to $.02.  This Statement  permits the restatement of periods
prior to its  adoption.  Upon adopting this  Statement,  the Company  expects to
restate prior periods as if the Statement were in effect for all periods.

NOTE 8: In the Condensed 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  Condensed  Consolidated  Statements of Cash Flows for the three
months ended March 31, 2005 and 2004 is presented in the following table:


                                                 (IN THOUSANDS)
                                              2005             2004
                                         -----------     ------------
CASH PAID FOR OR (RECEIVED FROM):
Interest expense.......................  $    22,409     $    23,165
Interest and investment income.........  $    (7,402)    $    (4,836)
Income taxes...........................  $   132,947     $     2,552

The increase in cash  received from interest and  investment  income  reflects a
higher level of gains  realized on the  investment  portfolio  at American  Home
Shield.  Cash paid for income taxes increased in 2005 as a result of the payment
in the first  quarter this year of $131 million of taxes and interest to the IRS
and  various  states  pursuant  to the  comprehensive  agreement  with  the  IRS
regarding its examination of the Company's federal income taxes through the year
2002.

NOTE 9: Total comprehensive  income was $9 million and $11 million for the three
months ended March 31, 2005 and 2004,  respectively.  Total comprehensive income
includes  primarily  net  income,  changes  in  unrealized  gains and  losses on
marketable securities and foreign currency translation balances.

NOTE 10: The Company has an agreement to provide for the ongoing  revolving sale
of a designated pool of accounts receivable of TruGreen ChemLawn and Terminix to
a  wholly  owned,  bankruptcy-remote  subsidiary,   ServiceMaster  Funding  LLC.
ServiceMaster  Funding LLC has  entered  into an  agreement  to  transfer,  on a
revolving  basis,  an  undivided  percentage  ownership  interest  in a pool  of
accounts receivable to unrelated third party purchasers.  ServiceMaster  Funding
LLC retains an undivided  percentage interest in the pool of accounts receivable
and bad debt losses for the entire  pool are  allocated  first to this  retained


                                       9
<PAGE>


interest.  During the three months ended March 31, 2005 and 2004,  there were no
receivables sold to third parties under this agreement. However, the Company may
sell its  receivables in the future,  which would provide an additional  funding
source.  The agreement is a 364-day  facility that is renewable at the option of
the  purchasers.  The Company may sell up to $70 million of its  receivables  to
these  purchasers  in the  future and  therefore  has  immediate  access to cash
proceeds from these sales. The amount of the eligible  receivables varies during
the year based on seasonality of the business and will at times limit the amount
available to the Company.

NOTE 11:  Total  debt was $876  million  at March 31,  2005,  approximately  $71
million above the level at December 31, 2004,  reflecting  borrowings  under the
Company's revolving credit facility primarily to fund tax payments made pursuant
to the resolution reached in January of the prior year audits.  Approximately 50
percent of the Company's  debt matures  beyond five years and 40 percent  beyond
fifteen years. In April 2005, approximately $137 million of the Company's public
debt  matured.  The Company  funded this debt payment with  long-term  financing
under revolving credit facilities.

NOTE 12: In the past  several  years,  the  Company  has sold or exited  various
operations  of the  Company.  The  results  of these  business  units  have been
reclassified  as  "Discontinued   Operations"  in  the  accompanying   financial
statements.  The following table summarizes the activity during the three months
ended  March  31,  2005 for the  remaining  liabilities  from  the  discontinued
operations.  The Company  continues to believe that the  remaining  reserves are
adequate and reasonable.

 (IN THOUSANDS)                 Balance at          Cash          Balance at
                               December 31,       Payments         Mar. 31,
                                   2004           or Other           2005
                              ---------------    -----------     --------------
 Remaining liabilities from
   discontinued operations       $30,593           $2,499           $28,094


NOTE 13: In the  ordinary  course,  the Company is subject to review by domestic
and foreign  taxing  authorities,  including  the IRS. In the second  quarter of
2005, the IRS commenced the audits of the Company's 2003,  2004, and 2005 fiscal
years. As with any review of this nature,  the outcome of the IRS examination is
not known at this time.

NOTE 14:  The  business  of the  Company is  conducted  through  five  operating
segments:   TruGreen,   Terminix,   American  Home  Shield,  ARS/AMS  and  Other
Operations.  The TruGreen segment provides  residential and commercial lawn care
and landscaping  services  through the TruGreen  ChemLawn and TruGreen  LandCare
companies.  The Terminix  segment  provides termite and pest control services to
residential and commercial customers.  The American Home Shield segment provides
home  warranties to consumers  that cover HVAC,  plumbing and other home systems
and appliances.  This segment also includes home inspection services provided by
AmeriSpec.   The  ARS/AMS  segment   provides  HVAC,   plumbing  and  electrical
installation  and  repair  services  provided  under  the ARS  Service  Express,
American Mechanical Services and Rescue Rooter brand names. The Other Operations
segment  includes the franchise and  company-owned  operations of  ServiceMaster
Clean,  Furniture  Medic and Merry Maids,  which provide  disaster  restoration,
cleaning,  furniture  repair and maid  services.  The segment also  includes the
Company's headquarters operations, which provide various technology,  marketing,
finance,  legal  and other  support  services  to the  business  units.  Segment
information is presented in the following table.



                                       10
<PAGE>











(IN THOUSANDS)                           Three Months        Three Months
                                        Ended Mar. 31,      Ended Mar. 31,
                                             2005                 2004
--------------------------------------------------------------------------
Operating Revenue:
  TruGreen                                   $222,982            $224,659
  Terminix                                    247,745             236,796
  American Home Shield                        111,010             102,797
  ARS/AMS                                     158,549             153,984
  Other Operations                             42,023              38,655
--------------------------------------------------------------------------
Total Operating Revenue                      $782,309            $756,891
==========================================================================

Operating Income:
  TruGreen                                   $(7,608)            $(2,898)
  Terminix                                     30,765              36,254
  American Home Shield                         14,273              10,116
  ARS/AMS                                     (3,505)             (3,648)
  Other Operations                            (8,075)             (8,721)
--------------------------------------------------------------------------
Total Operating Income                        $25,850             $31,103
==========================================================================

<TABLE>

(IN THOUSANDS)                                         As of                        As of
                                                    Mar. 31, 2005              Dec. 31, 2004
----------------------------------------------------------------------------------------------
<S>                                                     <C>                          <C>
Identifiable Assets:
  TruGreen                                              $1,073,534                   $957,683
  Terminix                                                 855,468                    843,272
  American Home Shield                                     466,098                    474,326
  ARS/AMS                                                  191,463                    191,618
  Other Operations                                         510,896                    673,303
----------------------------------------------------------------------------------------------
Total Identifiable Assets                               $3,097,459                 $3,140,202
==============================================================================================

(IN THOUSANDS)                                       As of                    As of
                                                 Mar. 31, 2005            Mar. 31, 2004
----------------------------------------------------------------------------------------------
Capital Employed: (1)
  TruGreen                                                $862,573                   $850,163
  Terminix                                                 626,962                    598,445
  American Home Shield                                     167,813                    135,435
  ARS/AMS                                                   90,871                     94,805
  Other Operations                                         196,078                      6,717
----------------------------------------------------------------------------------------------
Total Capital Employed                                  $1,944,297                 $1,685,565
==============================================================================================
</TABLE>


(1)  Capital  employed  is a  non-U.S.  GAAP  measure  that  is  defined  as the
     segment's total assets less  liabilities,  exclusive of debt balances.  The
     Company  believes this  information  is useful to investors in helping them
     compute  return on capital  measures and therefore  better  understand  the
     performance of the Company's business segments.

The  combined  franchise  operations  of  ServiceMaster  Clean and  Merry  Maids
comprised  approximately five percent of the consolidated  revenue for the three
months ended March 31, 2005 and 2004. Due to the seasonality of the TruGreen and
Terminix operations,  these operations comprised approximately 24 percent and 21
percent of the consolidated  operating income before  headquarter  overheads for
the three  months  ended  March 31, 2005 and 2004,  respectively,  a much higher
percentage than is expected for subsequent quarters and the year as a whole.


                                       11
<PAGE>






                 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS


RESULTS OF OPERATIONS

FIRST QUARTER 2005 COMPARED TO FIRST QUARTER 2004

ServiceMaster  (the  "Company")  reported  first  quarter  2005  revenue of $782
million,  a three percent increase  compared to 2004. First quarter 2005 diluted
earnings per share were $.04,  consistent  with 2004.  Operating  income for the
first  quarter was $26 million  compared to $31 million in 2004.  The Company is
committed  to  consistent,   sustainable   revenue  growth  and,  as  previously
disclosed,  made  incremental  off-season  investments in the first quarter that
should help it continue to achieve that  objective in subsequent  periods of the
year. The current quarter results include incremental investments in salespeople
and  marketing  programs,  primarily at Terminix and American  Home Shield.  The
first  quarter  results  were  unfavorably  impacted  by  later  winter  weather
conditions  than last year,  which  resulted in delayed  production of available
lawn care service  applications  at TruGreen  ChemLawn and reduced termite swarm
activity at Terminix.

The Company has  re-affirmed its outlook for the year and expects revenue growth
to be in the mid- to  high-single  digit range and that  earnings per share will
grow somewhat faster than revenues.  Earnings per share growth is anticipated at
a higher rate than revenue  growth due to the Company's  ability to leverage its
cost base on the incremental  volume. The Company continues to remain focused on
revenue growth,  increased customer  retention,  and improved price realization.
Throughout  2005, the Company expects to continue to overcome  certain  external
factors that it does not directly control (e.g.,  rapidly rising fuel and health
insurance costs and unfavorable  weather).  As demonstrated in 2004, the Company
believes  these  challenges  can be  mitigated  and in  some  cases  used to its
competitive advantage through a combination of focused cost controls,  strategic
initiatives,  improved  customer  retention,  and  effective  execution by field
employees.  In addition,  the Company  expects net cash provided from  operating
activities  for 2005 to  continue to exceed net income  similar to prior  years.
However,  the rate of growth in cash flows is expected to temporarily subside in
2005 primarily due to the previously disclosed and non-recurring payments to the
Internal  Revenue Service and a higher level of incentive  payments made in 2005
than in 2004.

Cost of services  rendered and products sold increased two percent for the first
quarter and  decreased as a  percentage  of revenue to 71.1 percent in 2005 from
72.0 percent in 2004. This decrease  reflects a change in the mix of business as
Terminix  and American  Home Shield  increased  in size in  relationship  to the
overall business of the Company.  These businesses  generally  operate at higher
gross margin  levels than the rest of the  business,  but also incur  relatively
higher selling and administrative expenses.  Selling and administrative expenses
increased 11 percent for the quarter.  As a percentage  of revenue,  these costs
increased to 25.4 percent for the quarter in 2005 from 23.7 percent in 2004. The
increase in selling and administrative  expenses reflects investments associated
with an increase in the size of the sales forces and expanded  marketing efforts
primarily at Terminix and American Home Shield and other  strategic  initiatives
which are expected to benefit future periods,  as well as the change in business
mix described above.

The first  quarter was impacted by two  significant  cost  factors.  The Company
annually  consumes over 36 million gallons of fuel, and hedges two-thirds of the
estimated usage every year. The significant  increase in fuel costs,  net of the
impact  of  the  hedge,  have  adversely   impacted  first  quarter  results  by
approximately a half cent per share.  The Company is currently  piloting routing
and scheduling software and GPS technologies which, among other benefits,  would
tighten routes and reduce drive time and fuel  consumption  in future years.  On
the positive side, a cost that has been trending  favorably relates to insurance
claims. The Company is beginning to experience tangible results from its efforts
to reduce safety related costs,  which include  workers  compensation,  auto and
general liability claims.  Such costs total over $120 million annually,  and had
been increasing at double-digit  rates. The Company believes it is succeeding in
its  efforts  to  create a safety  culture  throughout  the  enterprise,  and is
experiencing  a sharp  decline in both the number and the severity of incidents.
In total, first quarter costs were relatively flat.


                                       12
<PAGE>


Net  non-operating  expenses for the quarter were $8 million  compared  with $12
million in the prior year. A modest  increase in interest  expense due to higher
interest  rates and debt balances was more than offset by a $5 million  increase
in income  experienced on the American Home Shield  investment  portfolio.  This
increase  included a $2.5 million  favorable  correction in the accounting for a
specific  investment  at American  Home  Shield.  It is  important  to note that
investment  gains are an integral  part of the business  model at American  Home
Shield, and there will always be some market-based  variability in the amount of
gains realized from quarter to quarter.

KEY PERFORMANCE INDICATORS

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


                                                                  KEY PERFORMANCE INDICATORS
                                                                       As of March 31,

                                                               2005                        2004
                                                         -----------------           -----------------
         <S>                                                 <C>                         <C>
         TRUGREEN  CHEMLAWN-
            Growth in Full Program Contracts                    6% (a)                      2%
            Customer Retention Rate                          65.5% (a)                   63.6%

         TERMINIX -
            Growth in Pest Control Customers                    6%                          4%
            Pest Control Customer Retention Rate             77.2%                       77.6%

            Growth in Termite Customers                         0%                         -2%
            Termite Customer Retention Rate                  87.8%                       88.2%

         AMERICAN HOME SHIELD -
            Growth in Warranty Contracts                        5%                          6%
            Customer Retention Rate                          55.7%                       54.7%
</TABLE>

(a)  Customer  count  growth  in 2005,  excluding  the  impact  of the  Canadian
     acquisition  completed in April 2004, was  approximately  two percent.  The
     customer  retention rate  improvement in 2005,  excluding the impact of the
     Canadian acquisition added to the customer base, was approximately 90 basis
     points.

SEGMENT REVIEW

The TruGreen  segment  includes lawn care services  performed under the TruGreen
ChemLawn  brand  name and  landscape  maintenance  services  provided  under the
TruGreen  LandCare  brand name.  The TruGreen  segment  reported  first  quarter
revenue of $223 million,  one percent below the prior year. The segment reported
an operating  loss for the quarter of ($8)  million  compared to ($3) million in
2004.

Revenue in the lawn care  operations  decreased two percent to $123 million from
$125  million  in 2004.  The  decrease  in revenue  reflects  the impact of less
favorable  weather  conditions,  primarily  in  six  operating  regions  in  the
northeast  and  midwest,  which  delayed  TruGreen  ChemLawn's  ability to begin
servicing  residential  contracts  that  had  already  been  sold.  On  average,
production in these regions was more than five days below both last year and six
year historical averages,  resulting in delayed revenues of over $9 million. The
Company  expects that this  revenue will be recovered  over the second and third
quarters,  with only modest  incremental costs.  Customer counts,  excluding the
impact of the Canadian  acquisition,  increased two percent reflecting continued
improved customer retention,  partially offset by a modest decline in new sales.
Expansion of the Company's neighborhood selling campaign and direct mail efforts
have helped substantially offset an anticipated decrease in telemarketing sales,
which resulted from growth in the number of households signed up to the National
Do Not Call Registry.  Overall,  the Company's  neighborhood selling efforts are
over three times as extensive as its initial  efforts last year, and now involve
over three  quarters of its  branches.  Total  sales from this new channel  have
tripled during the first quarter, consistent with the Company's expectations. As
the Company continues to develop these alternative sales and marketing channels,
the timing of customer  sales will trend more heavily toward the earlier part of


                                       13
<PAGE>


the  second  quarter,   versus  the  first  quarter  where   telemarketing   has
historically  been  more  heavily  concentrated.  The  migration  away  from the
telemarketing channel continues consistent with the Company's  expectations and,
for the year,  telemarketing  is expected  to  comprise  less than 50 percent of
total sales compared to over 90 percent three years ago.  Operating  results for
the quarter were  approximately  $9 million below prior year levels,  reflecting
the impact of the weather-related delays in production as well as the first time
inclusion of $3 million of seasonal losses in the Canadian  operations that were
acquired in April 2004.

First quarter revenue in the landscape maintenance  operations was $100 million,
comparable  to 2004, as continued  solid growth in  enhancement  revenue  (e.g.,
add-on services such as seasonal flower  plantings,  mulching etc.) and a modest
increase in base contract  maintenance  revenue,  was partially offset by branch
consolidations  and closures  that were  completed in early 2004.  Excluding the
impact of branch  consolidations  and closures,  revenue increased three percent
for the quarter.  Customer retention  decreased slightly from last year's level,
and continues to be an area requiring improvement.  Management is placing strong
focus on better  communications and service-level  consistency at each branches'
top 25 customer  locations.  These operations achieved a $5 million reduction in
operating losses for the quarter compared to prior year levels.  The improvement
reflected  higher  volume and gross  margins,  as well as a favorable $2 million
impact from branches closed in 2004.

Capital  employed  in the  TruGreen  segment  increased  one  percent  primarily
reflecting  the  impact  of the 2004  Canadian  acquisition,  offset  in part by
improved working capital management. Capital employed is a non-U.S. GAAP measure
that is defined as the  segment's  total assets less  liabilities,  exclusive of
debt balances.  The Company  believes this information is useful to investors in
helping them compute return on capital measures and therefore better  understand
the performance of the Company's business segments.

The Terminix segment, which includes termite and pest control services, reported
a five percent  increase in first quarter  revenue to $248 million,  compared to
$237  million in 2004.  Operating  income  decreased  15 percent to $31  million
compared  to $36  million  in  2004.  Revenues  from  sales of  initial  termite
treatments,  ("termite  completions")  increased modestly,  reflecting a strong,
nine percent increase in renewable unit sales, offset by a shift in mix to lower
priced  services.  The unit sales growth was  supported  by the  expanded  sales
force;  partially  offset by reduced termite swarm activity from cooler seasonal
temperatures.  In March, the Company introduced a new bait option which utilizes
an active  ingredient  from day one and provides  meaningful  cost and marketing
advantages. Since introduction,  the Company has seen bait sales as a percentage
of total sales rebound back toward prior year levels.  Termite  renewal  revenue
increased modestly,  reflecting  improved pricing,  partially offset by a slight
decrease  in customer  retention.  Management  has taken  actions to address the
decline in  retention  through  improving  customer  communication  and  problem
resolution.  Total termite customer counts remained relatively flat,  reflecting
the growth in unit sales,  offset by the decline in the rate of retention.  Pest
control  operations  experienced  solid  growth in  customers,  reflecting  a 15
percent  increase  in unit  sales,  partially  offset by a decline  in  customer
retention.  The  overall  operating  income  comparisons  for the  segment  were
unfavorably  impacted by  incremental  investments  which  included a 15 percent
increase  in the  sales  force  headcount  and  costs to  re-organize  the field
operations.  The Company also  recorded a $3 million  unfavorable  correction of
reserve levels relating to prior year termite damage claims. Capital employed in
the  Terminix  segment   increased  five  percent,   reflecting  the  impact  of
acquisitions.

The American Home Shield  segment,  which provides home  warranties to consumers
that cover heating,  ventilation and air conditioning (HVAC), plumbing and other
home systems and  appliances,  reported an eight percent  increase in revenue to
$111  million  from $103  million in 2004 and  operating  income of $14  million
compared to $10 million in 2004. New warranty  contracts written increased seven
percent,  a sharp rebound from fourth quarter 2004 levels.  Renewal sales, which
are American Home Shield's largest source of revenue, experienced strong growth,
reflecting a larger base of renewable customers and an overall improved customer
retention  rate.  The  improvement  in  retention  reflects a  favorable  mix in
customers  renewing as well as a reduced level of  non-renewed  contracts due to
mortgage  refinancings in the consumer sales channel.  Real estate sales,  which
are American Home  Shield's  second  largest  channel,  were  comparable to 2004
levels.  Consumer  sales,  which are the smallest but fastest  growing  channel,
experienced  double-digit  growth,  reflecting  an  increased  level of targeted
direct mail solicitations. The substantial increase in operating income resulted
from  continued  favorable  trending in costs per claim


                                       14
<PAGE>


coupled with a slightly lower incident rate of claims.  The Company continued to
experience  very  strong  control  over  costs per  claim,  which were down four
percent (or $2.3  million) in  comparison  to 2004  levels,  and  represented  a
compound rate of increase  over the past three years of under one percent.  Mild
weather also resulted in a three percent  decrease in the claim  incidence  rate
during the quarter,  favorably  impacting profits by approximately $1.7 million.
Partially  offsetting  these  factors were  continuing  investments  to increase
market penetration and customer retention. Capital employed increased 24 percent
reflecting volume growth in the business resulting in a higher level of cash and
marketable  securities  balances.  The  calculation of capital  employed for the
American  Home  Shield  segment  includes  approximately  $249  million and $212
million of cash, cash  equivalents  and marketable  securities at March 31, 2005
and 2004, respectively.

The ARS/AMS segment provides direct HVAC,  plumbing and electrical  installation
and repair  services  under the brand  names of ARS  Service  Express and Rescue
Rooter  (collectively  "ARS Service  Express"),  as well as American  Mechanical
Services  (AMS) for large  commercial  accounts.  Revenue for the first  quarter
increased  three percent to $159 million in 2005 from $154 million in 2004. This
segment's  seasonal  operating  loss of ($4) million was comparable to 2004. The
revenue  increase   resulted  from  continued  strong  increases  in  commercial
installation  revenue in the AMS  operations  and modest  growth in  residential
construction  revenue.  These  increases  were  partially  offset by declines in
plumbing and HVAC service revenue.  Plumbing revenue decreased in the quarter as
continued declines in retail service calls more than offset increases from sewer
line repairs and light commercial  services.  Moderate winter weather  adversely
impacted the HVAC  operations,  which  experienced a decline in service revenue.
The segment achieved good growth in HVAC replacement  sales revenue supported by
the Company's retail outlet initiative and its efforts to increase the sales mix
of higher priced and more energy  efficient  units.  The segment's first quarter
operating loss in 2005 was comparable to 2004 as increased profits on commercial
projects  were offset by the impact of volume  decline in the  plumbing and HVAC
service lines. Capital employed in this segment decreased four percent.

The Other  Operations  segment  includes the Company's  ServiceMaster  Clean and
Merry Maids  operations as well as its headquarters  functions.  Revenue in this
segment  increased nine percent to $42 million  compared to $39 million in 2004.
On  a  combined  basis,  the  ServiceMaster  Clean  and  Merry  Maids  franchise
operations  reported  revenue  growth of nine  percent and a strong  increase in
operating  income.  ServiceMaster  Clean  experienced  strong growth in disaster
restoration  services and continued good momentum in new franchise sales.  Merry
Maids continued to experience  very strong  internal  revenue growth in both the
branch and franchise operations. The segment as a whole reported a smaller first
quarter  operating  loss in 2005,  reflecting  an increase  in profits  from the
combined  franchise  operations and lower  insurance  costs at the  headquarters
level,  offset in part by increases in certain  strategic  investments.  Capital
employed in this segment increased primarily  reflecting the deferred tax assets
recorded in the fourth  quarter of 2004 at the  conclusion of the IRS reviews of
the Company's federal income taxes through the year 2002.

FINANCIAL POSITION AND LIQUIDITY

CASH FLOWS FROM OPERATING ACTIVITIES
Net cash used for operating  activities  was $148 million in the first  quarter,
compared to $16 million  provided from  operating  activities in the prior year.
The decrease reflects $131 million in tax payments resulting from the previously
disclosed  agreement with the IRS. The Company anticipates that, pursuant to the
agreement,  this payment will be partially  offset in the second half of 2005 by
an  approximate  $45 million  reduction  in estimated  tax  payments  that would
otherwise  have been paid in that period.  First quarter cash flows also include
the impact of increased  incentive  payments  made early in the year relating to
2004 performance.

Full year cash provided from operating  activities is expected to remain strong,
reflecting a solid earnings base, businesses that need relatively little working
capital to fund growth in their  operations,  and  significant  annual  deferred
taxes.  However,  the  first  quarter  cash  flows  generally  reflect  seasonal
investments  and  working  capital  usage  as many of the  Company's  businesses
prepare for the peak summer and fall production season.


                                       15
<PAGE>



The  significant  annual cash tax benefit  primarily  represents a large base of
amortizable intangible assets which exist for income tax reporting purposes, but
not for book purposes. A significant portion of these assets arose in connection
with the Company's 1997 conversion from a limited  partnership to a corporation.
The  amortization of the tax basis will result in  approximately  $57 million of
average annual cash tax benefits through 2012 for which no corresponding  income
statement benefit is recorded.

In the ordinary course, the Company is subject to review by domestic and foreign
taxing  authorities,  including the IRS. In the second  quarter of 2005, the IRS
commenced the audits of the Company's 2003, 2004, and 2005 fiscal years. As with
any review of this nature,  the outcome of the IRS  examination  is not known at
this time.

CASH FLOWS FROM INVESTING ACTIVITIES
Capital  expenditures,  which include  recurring  capital needs and  information
technology  projects,   were  comparable  to  prior  year  levels.  The  Company
anticipates   approximately  $50  million  of  capital   expenditures  in  2005,
reflecting   investments  in  information  systems  and  productivity  enhancing
operating systems. The Company has no material capital commitments at this time.

Tuck-in acquisitions in the first quarter of 2005 totaled $8 million, comparable
to prior year levels.  Consideration consisted of cash payments, seller financed
notes and Company stock.  In 2005,  the Company  expects to continue its tuck-in
acquisition  program  at both  Terminix  and  TruGreen  ChemLawn,  with  overall
acquisitions slightly higher than the 2004 level.

CASH FLOWS FROM FINANCING ACTIVITIES
Cash  dividends paid to  shareholders  totaled $32 million or $.11 per share for
the three months ended March 31, 2005.  In May 2005,  the Company  announced the
declaration  of a cash  dividend  of $.11 per share  payable on May 31,  2005 to
shareholders of record on May 16, 2005. The timing and amount of future dividend
increases  are at the  discretion  of the Board of Directors and will depend on,
among  other  things,  the  Company's  capital  structure  objectives  and  cash
requirements.

In July  2000,  the  Board  of  Directors  authorized  $350  million  for  share
repurchases.   The  Company   completed   approximately  $16  million  in  share
repurchases  in the first three months of 2005 at an average price of $13.64 per
share.  There remains  approximately $65 million available for repurchases under
the July  2000  authorization.  The  Company  anticipates  continuing  its share
repurchase  program  in 2005 at a similar  level to 2004.  The  actual  level of
future share  repurchases  will depend on various  factors such as the Company's
commitment  to  maintain  investment  grade  credit  rating and other  strategic
investment opportunities.

LIQUIDITY
Cash and short and long-term  marketable  securities totaled  approximately $359
million at March 31,  2005,  compared  with $496  million at December  31, 2004.
Approximately $300 million of the 2005 amount is effectively required to support
regulatory  requirements at American Home Shield and for other  purposes.  Total
debt was $876 million at March 31, 2005,  approximately  $71 million higher than
the amount at December 31, 2004.

Approximately  50 percent of the Company's debt matures beyond five years and 40
percent  beyond  fifteen  years.  In April 2005,  $137 million of the  Company's
public  debt  matured.  The  Company  funded this debt  payment  with  long-term
financing under the existing revolving credit facilities.

Management  believes that funds  generated from  operating  activities and other
existing  resources  will  continue to be adequate  to satisfy  ongoing  working
capital needs of the Company. The Company maintains a five-year revolving credit
facility of $500 million.  In May 2005, this agreement was amended to extend the
maturity  date to May  2010.  As of March  31,  2005,  the  Company  had  issued
approximately  $140  million  of  letters of credit  under  this  facility,  had
outstanding   borrowings  of  $80  million,   and  had  unused   commitments  of
approximately  $280  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  arrangement
enabling it to sell,  on a revolving  basis,  certain  receivables  to unrelated
third party purchasers. The agreement is a 364-day facility that is renewable at
the option of the  purchasers.  The  Company  may sell up to $70  million of its
receivables to these purchasers in the future and therefore would


                                       16
<PAGE>



have  immediate  access to cash  proceeds  from these  sales.  The amount of the
eligible receivables varies during the year based on seasonality of the business
and will at times limit the amount  available to the  Company.  During the three
month  period  ended March 31,  2005,  there were no  receivables  sold to third
parties under this agreement.

There have been no material changes in the Company's financing  agreements since
December 31, 2004. As described in the Company's 2004 Annual Report, the Company
is party to a number of debt  agreements  that  require it to  maintain  certain
financial and other  covenants,  including  limitations on  indebtedness  and an
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 dividend and share repurchase plans in the near future. Failure by the
Company to maintain  these  covenants  could result in the  acceleration  of the
maturity of the debt. At March 31, 2005, the Company was in compliance  with the
covenants  related to these debt agreements and, based on its operating  outlook
for the  remainder  of 2005,  expects to be able to maintain  compliance  in the
future. The Company does not have any debt agreements that contain put rights or
provide for acceleration of maturity as a result of a change in credit rating.

The Company  maintains  lease  facilities  with banks totaling $68 million which
provide for the acquisition and development of branch properties to be leased by
the Company. At March 31, 2005, there was approximately $68 million funded under
these  facilities.  Approximately $15 million of these leases have been included
on the  balance  sheet as assets  with  related  debt as of March  31,  2005 and
December  31,  2004.  The  balance  of the  funded  amount  has been  treated as
operating leases. Approximately $15 million of the available facility expires in
January  2008 and the  remaining  $53 million  expires in  September  2009.  The
Company has guaranteed the residual value of the properties  under the leases up
to 82 percent of the fair  market  value at the  commencement  of the lease.  At
March 31, 2005,  the Company's  residual value  guarantee  related to the leased
assets totaled $56 million for which the Company has recorded the estimated fair
value  of  this  guarantee  (approximately  $1.1  million)  in the  Consolidated
Statements of Financial Position.

The  majority  of the  Company's  fleet and some  equipment  are leased  through
operating leases.  The lease terms are non-cancelable for the first twelve month
term, and then are month-to-month, cancelable at the Company's option. There are
residual value  guarantees  (ranging from 70 percent to 87 percent  depending on
the  agreement) on these  vehicles and equipment,  which  historically  have not
resulted in significant  net payments to the lessors.  At March 31, 2005,  there
was approximately $256 million of residual value relating to the Company's fleet
and equipment leases. The fair value guarantee of the assets under the leases is
expected to fully mitigate the Company's  obligations under the agreements.  The
fair value of this  guarantee  is not  material  to the  Company's  consolidated
financial statements.

The  Company's  2004  Annual  Report   included   disclosure  of  the  Company's
contractual  obligations  and  commitments  as of December 31, 2004. The Company
continues to make the contractually  required  payments and therefore,  the 2005
obligations  and  commitments  as listed in the December 31, 2004 Annual  Report
have been reduced by the required  payments.  In the first quarter of 2005,  the
Company signed a product supply agreement with minimum  purchases of $17 million
over the next 18 months.

FINANCIAL POSITION - CONTINUING OPERATIONS
Receivables and inventories  increased from year-end levels,  reflecting general
business growth and increased seasonal activity.

Prepaid expenses and other assets increased from year-end  primarily  reflecting
preseason  advertising costs at TruGreen ChemLawn and Terminix as well as annual
repairs and  maintenance  procedures  that are performed in the first quarter at
TruGreen  ChemLawn.  These costs are deferred and recognized over the production
season and are not deferred  beyond the  calendar  year end.  Deferred  customer
acquisition  costs  increased  reflecting  the  seasonality  in  the  lawn  care
operations. In the winter and early spring, this business sells a series of lawn
applications  to  customers,  which  are  rendered  primarily  in March  through
October.   These  direct  and  incremental  selling  expenses  which  relate  to
successful sales are deferred and recognized over the production  season and are
not  deferred  beyond the  calendar  year-end.  The  Company  capitalizes



                                       17
<PAGE>


sales  commissions  and other  direct  contract  acquisition  costs  relating to
termite baiting and pest contracts,  as well as home warranty agreements.  These
costs vary with and are directly related to a new sale.

Property and equipment was comparable to year-end  levels.  The Company does not
have any material capital commitments at this time.

Deferred  revenue  increased from year-end  levels,  reflecting the  significant
amount of customer  prepayments  received in the first quarter  (pre-season)  at
TruGreen  ChemLawn.  Payroll and related  expenses have  decreased from year-end
levels reflecting  payments related to 2004 performance that had been accrued at
year-end. The decrease in income taxes payable from year-end levels reflects the
February 2005 federal tax payment related to the IRS agreement.

The Company has minority investors in Terminix. This minority ownership reflects
an interest  issued to Allied Bruce  Terminix  Companies in connection  with the
acquisition of its business in 2001.  This equity  security is convertible  into
eight  million   ServiceMaster  common  shares.  The  ServiceMaster  shares  are
considered in the shares used for the calculation of diluted earnings per share.

Total  shareholders'  equity was $969 million at March 31, 2005 and $992 million
at December 31, 2004. The decrease  reflects  operating  profits in the business
offset by cash dividend payments and share repurchases.

FINANCIAL POSITION - DISCONTINUED OPERATIONS
The  assets  and  liabilities  related  to  discontinued  businesses  have  been
classified  in separate  captions on the  Consolidated  Statements  of Financial
Position.  Assets from the  discontinued  operations have declined from year-end
levels  representing  collections  on  receivables.  The  remaining  liabilities
primarily represent  obligations related to long-term  self-insurance claims and
certain   contractual   obligations   related  to  international   pest  control
operations.




FORWARD-LOOKING STATEMENTS
THE COMPANY'S FORM 10-Q FILING CONTAINS OR INCORPORATES BY REFERENCE  STATEMENTS
CONCERNING   FUTURE  RESULTS  AND  OTHER  MATTERS  THAT  MAY  BE  DEEMED  TO  BE
"FORWARD-LOOKING  STATEMENTS"  WITHIN  THE  MEANING  OF THE  PRIVATE  SECURITIES
LITIGATION  REFORM ACT OF 1995. THE COMPANY  INTENDS THAT THESE  FORWARD-LOOKING
STATEMENTS,  WHICH  LOOK  FORWARD  IN TIME AND  INCLUDE  EVERYTHING  OTHER  THAN
HISTORICAL  INFORMATION,  BE  SUBJECT  TO  THE  SAFE  HARBORS  CREATED  BY  SUCH
LEGISLATION.  THE COMPANY NOTES THAT THESE  FORWARD-LOOKING  STATEMENTS  INVOLVE
RISKS AND UNCERTAINTIES  THAT COULD AFFECT ITS RESULTS OF OPERATIONS,  FINANCIAL
CONDITION  OR CASH  FLOWS.  FACTORS  THAT COULD CAUSE  ACTUAL  RESULTS TO DIFFER
MATERIALLY  FROM  THOSE  EXPRESSED  OR IMPLIED  IN A  FORWARD-LOOKING  STATEMENT
INCLUDE THE FOLLOWING (AMONG OTHERS):  WEATHER CONDITIONS THAT AFFECT THE DEMAND
FOR THE COMPANY'S SERVICES;  CHANGES IN COMPETITION IN THE MARKETS SERVED BY THE
COMPANY;  LABOR  SHORTAGES OR INCREASES IN WAGE RATES;  UNEXPECTED  INCREASES IN
OPERATING COSTS,  SUCH AS HIGHER INSURANCE  PREMIUMS,  SELF INSURANCE AND HEALTH
CARE  CLAIM  COSTS;  HIGHER  FUEL  PRICES;  CHANGES  IN THE  TYPES OR MIX OF THE
COMPANY'S  SERVICE  OFFERINGS OR PRODUCTS;  INCREASED  GOVERNMENTAL  REGULATION,
INCLUDING  TELEMARKETING;  GENERAL  ECONOMIC  CONDITIONS  IN THE UNITED  STATES,
ESPECIALLY AS THEY MAY AFFECT HOME SALES OR CONSUMER SPENDING LEVELS;  AND OTHER
FACTORS  DESCRIBED FROM TIME TO TIME IN DOCUMENTS  FILED BY THE COMPANY WITH THE
SECURITIES AND EXCHANGE COMMISSION.



                                       18
<PAGE>





                    QUANTITATIVE AND QUALITATIVE DISCLOSURES
                                ABOUT MARKET RISK

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

The  Company  does  not hold or  issue  financial  instruments  for  trading  or
speculative   purposes.   The  Company  has  entered  into  specific   financial
arrangements,  primarily fuel hedges, 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 derivative  financial
instrument transactions is not material to the Company's financial statements.

In December 2003 and January 2004,  the Company  entered into interest rate swap
agreements  with a total  notional  amount of $165  million.  Under the terms of
these  agreements,  the Company  pays a floating  rate of  interest  (based on a
specified  spread over six-month  LIBOR) on the notional  amount and the Company
receives a fixed rate of interest at 7.88% on the notional amount. The impact of
these swap transactions was to convert $165 million of the Company's debt from a
fixed rate of 7.88% to a variable  rate based on LIBOR (7.0% average rate during
the first quarter).

The Company generally  maintains the majority of its debt at fixed rates.  After
the effect of the interest swap  agreements,  approximately  71 percent of total
debt at March 31, 2005 was at a fixed rate.  With respect to other  obligations,
the payments on the approximately  $68 million of funding  outstanding under the
Company's  real  estate  operating  lease  facilities  as well as its  fleet and
equipment  operating leases  (approximately  $256 million in residual value) are
tied to floating  interest  rates.  The Company's  exposure to interest  expense
based on floating rates is partially  offset by floating rate investment  income
earned on cash and  marketable  securities.  The  Company  believes  its overall
exposure to interest rate fluctuations is not material to its overall results of
operations.

The Company has several debt and lease  agreements  where the  interest  rate or
rent payable under the agreements  automatically adjusts based on changes in the
Company's credit ratings.  While the Company is not currently expecting a change
in its credit  ratings,  based on amounts  outstanding  at March 31, 2005, a one
rating category improvement in the Company's credit ratings would reduce pre-tax
annual expense by approximately $0.7 million. A one rating category reduction in
the Company's  credit  ratings would increase  pre-tax  expense on an annualized
basis by approximately $0.9 million.

The following table summarizes  information  about the Company's fixed rate debt
as of December 31,  2004,  including  the  principal  cash  payments and related
weighted-average  interest rates by expected  maturity dates.  The fair-value of
the  Company's  fixed rate debt was  approximately  $673 million at December 31,
2004.

                              Expected Maturity Date
                       -------------------------------------
                                                             There-
   (In millions)       2005   2006    2007    2008   2009    after    Total
  ---------------------------------------------------------------------------
  Fixed rate debt      $160   $13     $62     $10     $21    $359     $625
  Avg. rate            8.0%   6.4%    7.0%    5.8%   7.9%    7.5%     7.5%
  ===========================================================================

As  previously  discussed,  the  Company  has entered  into  interest  rate swap
agreements,  the impact of which was to convert  $165  million of the  Company's
2009 maturity debt from a fixed rate of 7.88% to a variable rate based on LIBOR.



                                       19
<PAGE>



                             CONTROLS AND PROCEDURES

The Company's  Chairman and Chief Executive  Officer,  Jonathan P. Ward, and the
Company's  President  and  Chief  Financial  Officer,  Ernest  J.  Mrozek,  have
evaluated the Company's  disclosure controls and procedures as of the end of the
period covered by this report.

The Company's  disclosure controls and procedures include a roll-up of financial
and  non-financial  reporting that is  consolidated  in the principal  executive
office of the  Company in Downers  Grove,  Illinois.  The  reporting  process is
designed to ensure that  information  required to be disclosed by the Company in
the  reports  that it files  with or  submits  to the  Securities  and  Exchange
Commission  is recorded,  processed,  summarized  and  reported  within the time
periods specified in the Securities and Exchange  Commission's  rules and forms.
Messrs. Ward and Mrozek have concluded that both the design and operation of the
Company's disclosure controls and procedures are effective.

There were no changes in the Company's internal control over financial reporting
that  occurred  during  the  Company's  most  recent  fiscal  quarter  that have
materially  affected,  or  are  reasonably  likely  to  materially  affect,  the
Company's internal control over financial reporting.



                                       20
<PAGE>




PART II. OTHER INFORMATION

ITEM 2:  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

SHARE REPURCHASES:

In July  2000,  the  Board  of  Directors  authorized  $350  million  for  share
repurchases.  The following  table  summarizes the Company's  common stock share
repurchases for the three months ended March 31, 2005 under its share repurchase
authorization. Decisions relating to any future share repurchases will depend on
various factors such as the Company's  commitment to maintain  investment  grade
credit ratings and other strategic investment opportunities.
<TABLE>



                                                                                    Total               Approximate
                                                                                   Number              Dollar Value
                                                                                  of Shares           of Shares that
                                                                                Purchased as            May Yet be
                                        Total Number       Average Price      Part of Publicly           Purchased
                                          of Shares          Paid per             Announced              Under the
                                          Purchased            Share                Plan                   Plan
---------------------------------------------------------------------------------------------------------------------
<S>                                        <C>                <C>                    <C>               <C>
January 1, 2005 through
  January 31, 2005                              -                $ -                      -            $81,000,000

February 1, 2005 through
  February 28, 2005                        50,000             $13.37                 50,000            $81,000,000

March 1, 2005 through
  March 31, 2005                        1,141,575             $13.65              1,141,575            $65,000,000

                                ------------------------------------------------------------
Total                                   1,191,575             $13.64              1,191,575
                                ============================================================
</TABLE>



ITEM 6: EXHIBITS

EXHIBIT NO.    DESCRIPTION OF EXHIBIT

3(i)           Amended   and   Restated    Certificate   of   Incorporation   of
               ServiceMaster,  amended as of May 9,  2005,  is  incorporated  by
               reference to Exhibit 3(i) to  ServiceMaster's  Current  Report on
               Form 8-K dated May 9, 2005

3(ii)          Bylaws  of  ServiceMaster,   amended  as  of  May  9,  2005,  are
               incorporated  by  reference to Exhibit  3(ii) to  ServiceMaster's
               Current Report on Form 8-K dated May 9, 2005

31.1           Certification  of Chief Executive  Officer Pursuant to Rule 13a -
               14(a) or 15d - 14(a),  as adopted  pursuant to Section 302 of the
               Sarbanes-Oxley Act of 2002

31.2           Certification  of Chief Financial  Officer Pursuant to Rule 13a -
               14(a) or 15d - 14(a),  as adopted  pursuant to Section 302 of the
               Sarbanes-Oxley Act of 2002

32.1           Certification of Chief Executive Officer Pursuant to Section 1350
               of Chapter 63 of Title 18 of the United  States Code,  as adopted
               pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2           Certification of Chief Financial Officer Pursuant to Section 1350
               of Chapter 63 of Title 18 of the United  States Code,  as adopted
               pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



                                       21
<PAGE>





                                    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:  May 10, 2005


                          THE SERVICEMASTER COMPANY
                          (Registrant)

                          By:  /S/ ERNEST J. MROZEK
                               ----------------------------

                          Ernest J. Mrozek
                          President and Chief Financial Officer







                                       22