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 September 30, 2004

                     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: 290,815,000 shares of common stock on November 8, 2004.




<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 and
   nine months ended September 30, 2004 and September 30, 2003                 3

Condensed Consolidated Statements of Financial Position
   as of September 30, 2004 and December 31, 2003                              4

Condensed Consolidated Statements of Cash Flows for the nine months
   ended September 30, 2004 and September 30, 2003                             5

Notes to Condensed Consolidated Financial Statements                           6

Item 2: Management Discussion and Analysis of Financial
    Condition and Results of Operations                                       13

Item 3:  Quantitative and Qualitative Disclosures About
    Market Risk                                                               23

Item 4: Controls and Procedures                                               24


PART II.  OTHER INFORMATION

Item 2:  Unregistered Sales of Equity Securities and Use of Proceeds          25

Item 6:  Exhibits                                                             25

Signature                                                                     26

<PAGE>






                          PART I. FINANCIAL INFORMATION

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

<TABLE>

                                                                 Three Months Ended            Nine Months Ended
                                                                    September 30,                 September 30,
                                                                 2004           2003           2004           2003
                                                             -----------    -----------    -----------    -----------

<S>                                                          <C>            <C>            <C>            <C>
OPERATING REVENUE ........................................   $ 1,053,867    $ 1,018,263    $ 2,899,474    $ 2,762,076

OPERATING COSTS AND EXPENSES:
Cost of services rendered and products sold ..............       686,992        670,321      1,929,754      1,844,558
Selling and administrative expenses ......................       240,546        221,105        679,984        637,362
Amortization expense .....................................         1,503          1,126          4,436          4,488
Charge for impaired assets ...............................             -        480,670              -        480,670
                                                             -----------    -----------    -----------    -----------
Total operating costs and expenses .......................       929,041      1,373,222      2,614,174      2,967,078
                                                             -----------    -----------    -----------    -----------


OPERATING INCOME (LOSS) ..................................       124,826       (354,959)       285,300       (205,002)

NON-OPERATING EXPENSE (INCOME):
Interest expense .........................................        15,210         16,285         45,148         49,223
Interest and investment income ...........................        (3,913)        (1,857)       (11,519)        (6,201)
Minority interest and other expense, net .................         2,047          1,986          6,179          6,104
                                                             -----------    -----------    -----------    -----------

INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
       INCOME TAXES ......................................       111,482       (371,373)       245,492       (254,128)
Provision for income taxes, includes a $98 million benefit
   relating to the impairment charge in 2003 .............        43,139        (54,847)        95,000         (8,774)
                                                             -----------    -----------    -----------    -----------

INCOME (LOSS) FROM CONTINUING OPERATIONS .................        68,343       (316,526)       150,492       (245,354)

Loss from discontinued operations, net of income taxes ...          (619)        (1,440)        (1,173)        (2,387)
                                                             -----------    -----------    -----------    -----------
NET INCOME (LOSS) ........................................   $    67,724    $  (317,966)   $   149,319    $  (247,741)
                                                             ===========    ===========    ===========    ===========

PER SHARE:
BASIC EARNINGS (LOSS) PER SHARE:
Income (loss) from continuing operations .................   $      0.24    $     (1.08)   $      0.52    $     (0.83)

Loss from Discontinued operations ........................             -              -              -          (0.01)
                                                             -----------    -----------    -----------    -----------
Basic earnings (loss) per share ..........................   $      0.23    $     (1.08)   $      0.51    $     (0.84)
                                                             ===========    ===========    ===========    ===========
SHARES ...................................................       290,258        294,119        290,647        296,233


DILUTED EARNINGS (LOSS) PER SHARE:
Income (loss) from continuing operations .................   $      0.23    $     (1.08)   $      0.51    $     (0.83)

Loss from Discontinued operations ........................             -              -              -          (0.01)
                                                             -----------    -----------    -----------    -----------
Diluted earnings (loss) per share ........................   $      0.23    $     (1.08)   $      0.50    $     (0.84)
                                                             ===========    ===========    ===========    ===========
SHARES ...................................................       303,336        294,119        303,437        296,233


</TABLE>



            SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                                       3
<PAGE>


<TABLE>

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

                                                                  As of Sept. 30,  As of Dec. 31,
ASSETS                                                                  2004           2003
                                                                   -------------   -----------
CURRENT ASSETS:
<S>                                                                 <C>            <C>
Cash and cash equivalents .......................................   $   202,730    $   228,161
Marketable securities ...........................................       104,834         90,540
Receivables, less allowance of $28,808 and $26,220, respectively        426,917        333,834
Inventories .....................................................        67,183         70,163
Prepaid expenses and other assets ...............................        50,267         33,408
Deferred customer acquisition costs .............................        45,908         41,806
Deferred taxes and income taxes receivable ......................        71,697         87,589
Assets of discontinued operations ...............................         4,887          5,273
                                                                    -----------    -----------
       Total Current Assets .....................................       974,423        890,774
                                                                    -----------    -----------
PROPERTY AND EQUIPMENT:
   At cost ......................................................       414,095        387,569
   Less: accumulated depreciation ...............................      (228,520)      (208,054)
                                                                    -----------    -----------
     Net property and equipment .................................       185,575        179,515
                                                                    -----------    -----------

OTHER  ASSETS:
Goodwill ........................................................     1,552,865      1,516,206
Intangible assets, primarily trade names ........................       220,393        216,453
Notes receivable ................................................        38,417         46,441
Long-term marketable securities .................................       111,355         92,562
Other assets ....................................................        11,792         14,475
                                                                    -----------    -----------
       Total Assets .............................................   $ 3,094,820    $ 2,956,426
                                                                    ===========    ===========

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable ................................................   $    86,315    $    86,963
Accrued liabilities:
   Payroll and related expenses .................................       117,434         89,427
   Self-insured claims and related expenses .....................       104,441         73,320
   Income taxes payable .........................................        17,341              -
   Other ........................................................       104,006        100,454
Deferred revenues ...............................................       435,899        419,915
Liabilities of discontinued operations ..........................        10,360         14,380
Current portion of long-term debt ...............................        21,758         33,781
                                                                    -----------    -----------
       Total Current Liabilities ................................       897,554        818,240
                                                                    -----------    -----------

LONG-TERM DEBT ..................................................       786,114        785,490

LONG-TERM LIABILITIES:
     Deferred taxes .............................................       323,063        276,000
     Liabilities of discontinued operations .....................        30,867         34,396
     Other long-term obligations ................................       122,463        125,474
                                                                    -----------    -----------
        Total Long-Term Liabilities .............................       476,393        435,870
                                                                    -----------    -----------

MINORITY INTEREST ...............................................       100,000        100,309

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
Common stock $0.01 par value, authorized 1,000,000 shares; issued
     318,235 and 317,315 shares, respectively ...................         3,182          3,173
Additional paid-in capital ......................................     1,071,442      1,061,640
Retained earnings ...............................................        62,348          6,365
Accumulated other comprehensive income ..........................         4,961          7,932
Restricted stock ................................................        (8,833)        (4,368)
Treasury stock ..................................................      (298,341)      (258,225)
                                                                    -----------    -----------
       Total Shareholders' Equity ...............................       834,759        816,517
                                                                    -----------    -----------
       Total Liabilities and Shareholders' Equity ...............   $ 3,094,820    $ 2,956,426
                                                                    ===========    ===========

</TABLE>

            SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                                       4
<PAGE>
<TABLE>

                            THE SERVICEMASTER COMPANY
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                                 (IN THOUSANDS)
                                                                               Nine Months Ended
                                                                                 September 30,
                                                                               2004         2003
                                                                            ---------    ---------
<S>                                                                         <C>          <C>
CASH AND CASH EQUIVALENTS AT JANUARY 1 ..................................   $ 228,161    $ 227,177


CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) .......................................................     149,319     (247,741)
     Adjustments to reconcile net income to net cash flows from operating
      activities:
        Loss from discontinued operations ...............................       1,173        2,387
        Charge for impaired assets, net of tax ..........................           -      383,152
        Depreciation expense ............................................      36,658       36,972
        Amortization expense ............................................       4,436        4,488
        Deferred income tax expense .....................................      82,450       81,500

         Change in working capital, net of acquisitions:
            Receivables .................................................     (90,238)     (71,876)
            Inventories and other current assets ........................     (14,696)     (16,495)
            Accounts payable ............................................       5,432       (5,665)
            Deferred revenues ...........................................       7,569       (2,488)
            Accrued liabilities .........................................      53,400         (443)
            Other, net ..................................................       5,540        2,156
                                                                            ---------    ---------
NET CASH PROVIDED FROM OPERATING ACTIVITIES .............................     241,043      165,947
                                                                            ---------    ---------


CASH FLOWS FROM INVESTING ACTIVITIES:
      Property additions ................................................     (39,903)     (30,059)
      Sale of equipment and other assets ................................       7,271        8,581
      Business acquisitions, net of cash acquired .......................     (26,519)     (24,297)
      Notes receivable, financial investments and securities ............     (32,505)     (15,155)
      Proceeds from business sales ......................................           -       21,300
                                                                            ---------    ---------
NET CASH USED FOR INVESTING ACTIVITIES ..................................     (91,656)     (39,630)
                                                                            ---------    ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
      Net payments of debt ..............................................     (29,778)     (24,802)
      Purchase of ServiceMaster stock ...................................     (55,482)     (56,768)
      Shareholders' dividends ...........................................     (93,336)     (93,814)
      Other, net ........................................................      11,737       11,392
                                                                            ---------    ---------
NET CASH USED FOR FINANCING ACTIVITIES ..................................    (166,859)    (163,992)
                                                                            ---------    ---------

NET CASH USED FOR DISCONTINUED OPERATIONS ...............................      (7,959)     (18,260)
                                                                            ---------    ---------

CASH DECREASE DURING THE PERIOD .........................................     (25,431)     (55,935)
                                                                            ---------    ---------

CASH AND CASH EQUIVALENTS AT SEPTEMBER 30 ...............................   $ 202,730    $ 171,242
                                                                            =========    =========

</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, 2003 (2003
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  treatment).  Termite  services  using  baiting  systems  as well as home
warranty  services  typically 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.  Revenue  from trade  name  licensing  arrangements  is
recognized when earned.  Franchised  revenues (which in the aggregate  represent
approximately  three percent of  consolidated  revenue)  consist  principally of
monthly fee revenue, which 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.  Income from franchised  revenue  represented  nine percent and eight
percent of  consolidated  operating  income  before  impairment  charges for the
three-month  periods  ended  September 30, 2004 and 2003,  respectively,  and 12
percent  and 11 percent  of  consolidated  operating  income  before  impairment
charges for the nine months ended September 30, 2004 and 2003, respectively. 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 $436 million and $420  million of deferred  revenue at September
30, 2004 and  December  31,  2003,  respectively,  which  consist  primarily  of
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.
The Company also defers,  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.


                                       6
<PAGE>


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  2003  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 receivables,  accruals for self-insured retention limits related to medical,
workers  compensation,  auto and general liability insurance,  accruals for home
warranty claims,  the possible outcome of outstanding  litigation,  accruals for
income tax  liabilities  as well as  deferred  tax  accounts,  useful  lives for
depreciation  and  amortization  expense,  and the  valuation  of  tangible  and
intangible  assets.  In 2004,  there have been no  changes in these  significant
areas that  require  estimates  or in the  methodologies  which  underlie  these
associated  estimates.  In the second quarter of 2004, there was a change in the
estimated  allocation of annual  fertilizer and weed control costs to first half
applications,   which  are  relatively  more  costly.  This  change  accelerated
recognition of  approximately $6 million of expense into the second quarter that
will result in a corresponding benefit primarily in the fourth quarter of 2004.

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.

The Company records deferred income tax balances based on the net tax effects of
temporary  differences  between the carrying value of assets and liabilities for
financial  reporting  purposes and income tax  purposes.  There are  significant
amortizable  intangible  assets for tax  reporting  purposes  (not for financial
reporting  purposes)  which arose as a result of the  Company's  reincorporation
from partnership to corporate form in 1997. The Company records its deferred tax
items based on the estimated  ultimate value of the tax basis. The Company's tax
estimates are adjusted when required to reflect changes based on factors such as
changes in tax laws, results of tax authority reviews and statutory limitations.

In the event that actual  results  differ from the  estimates  discussed in this
note, the Company would reflect those changes,  which could be material,  in the
period that the difference is 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. In
the  Company's  next annual  impairment  review,  the Company will carry forward
certain  reporting unit valuations as their values were  significantly in excess
of the recorded  goodwill as of the most recent  valuation  date.  However,  the
Company will not be able to carry forward the most recent  valuation for the ARS
operations as a result of the impairment  charge recorded in 2003 and due to the
current operating performance of the business, which has been adversely impacted
by cooler  seasonal  temperatures.  Accordingly,  ARS will  require a  valuation
analysis in the fourth quarter.  Based on management's  expectations for the ARS
operations and in light of weather-affected  results, the operating  performance
of ARS in the third  quarter  does not  constitute  an event  that  requires  an
earlier impairment assessment.

In the third quarter of 2003, the Company recorded a non-cash  impairment charge
related to its goodwill and intangible  assets  totaling $481 million pre-tax or
$383  million  net of tax.  The charge  consisted  of $224  million at  American
Residential  Services,  $68 million at  American  Mechanical  Services  and $189
million  at  TruGreen  LandCare.  The  impairment  charge  included a portion of
goodwill that was not

                                       7
<PAGE>


deductible  for tax  purposes,  resulting  in a tax benefit of $98  million,  or
approximately 20 percent of the pre-tax charge amount.

In April 2004,  TruGreen  ChemLawn  acquired the assets of  Greenspace  Services
Limited,  Canada's largest  professional  lawn care service company.  Intangible
assets  recorded  were less than $15  million.  The  preliminary  allocation  of
purchase price is subject to change later this year as additional information is
obtained.  The balance of goodwill and  intangible  assets that was added during
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,                                    Sept. 30,
                                 2003          Additions      Amort.          2004
                              -----------    -----------   -----------   -------------
<S>                           <C>            <C>            <C>           <C>
Goodwill(1)                   $ 1,516,206    $    36,659    $        -    $ 1,552,865
Trade names(1)                    204,793              -             -        204,793

Other intangible assets            35,432          8,376             -         43,808
Accumulated amortization(2)       (23,772)             -        (4,436)       (28,208)
                              -----------    -----------   -----------    -----------
Net other intangibles              11,660          8,376        (4,436)        15,600
                              -----------    -----------   -----------    -----------
Total                         $ 1,732,659    $    45,035   $    (4,436)   $ 1,773,258
                              ===========    ===========   ===========    ===========

</TABLE>

(1)  Not subject to amortization.
(2)  Annual amortization expense of approximately $6 million in 2004 is expected
     to decline over the next five years.

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

            (In thousands)          Sept. 30,     Dec. 31,
                                      2004          2003
                                   ----------   -----------

            TruGreen               $  675,540   $  652,534
            Terminix                  635,817      622,351
            American Home Shield       72,085       72,085
            ARS/AMS                    56,171       56,171
            Other Operations          113,252      113,065
                                   ----------   ----------
            Total                  $1,552,865   $1,516,206
                                   ==========   ==========


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.  Due to losses
incurred  for both the three and nine  months  ended  September  30,  2003,  the
earnings  per share  calculation  does not  include  the  effects  of options or
conversion of debentures as it would result in a less dilutive computation. As a
result, diluted earnings per share for the three and nine months ended September
30, 2003 are the same as basic  earnings per share.  Had the Company  recognized
income from continuing  operations for the three and nine months ended September
30, 2003, incremental shares attributable to the assumed exercise of outstanding
options and  conversion of the debentures  would have  increased  diluted shares
outstanding  by 12 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 and $3.6 million for the
three and nine months ended September 30, 2003, respectively.

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.


                                       8
<PAGE>



<TABLE>


(In thousands, except per share data)                          Three Months                           Three Months
                                                         Ended September 30, 2004               Ended September 30, 2003
                                                     --------------------------------       ---------------------------------
CONTINUING OPERATIONS:                                 Income       Shares      EPS            (Loss)      Shares       EPS
----------------------                               ----------   ---------  --------        ----------   ---------  ----------
<S>                                                    <C>          <C>        <C>            <C>           <C>         <C>
 Basic earnings (loss) per share                       $68,343      290,258    $0.24          $(316,526)    294,119     $(1.08)
                                                                             ========                                ==========
 Effect of dilutive securities, net of tax:
  Options                                                             5,078                                       -
  Convertible Securities                                 1,178        8,000                           -           -
                                                     ----------   ---------                  ----------   ---------

 Diluted earnings (loss) per share                     $69,521     303,336     $0.23        $(316,526)      294,119     $(1.08)
                                                     ==========   =========  ========       ==========  =========    ==========
</TABLE>
<TABLE>



(In thousands, except per share data)                          Nine Months                             Nine Months
                                                         Ended September 30, 2004               Ended September 30, 2003
                                                     --------------------------------       ---------------------------------
CONTINUING OPERATIONS:                                Income       Shares      EPS           (Loss)      Shares       EPS
----------------------                               ---------   ---------  --------       ----------  ---------  ----------
<S>                                                  <C>          <C>        <C>            <C>          <C>        <C>
 Basic earnings (loss) per share                     $150,492     290,647    $0.52          $(245,354)   296,233    $(0.83)
                                                                             ========                              ==========
 Effect of dilutive securities, net of tax:
  Options                                                            4,790                                     -
  Convertible Securities                                 3,534       8,000                          -          -
                                                     ----------   ---------                 ----------  ---------

 Diluted earnings (loss) per share                    $154,026     303,437     $0.51        $(245,354)   296,233    $(0.83)
                                                     ==========   =========  ========       ==========  =========  ==========

</TABLE>


NOTE 7: The Company is accounting  for employee  stock  options as  compensation
expense in accordance with SFAS 123, "Accounting for Stock-Based  Compensation."
SFAS 148 "Accounting  for Stock-Based  Compensation - Transition and Disclosure,
an  amendment  of FASB  Statement  No.  123",  provides  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 subsequent to 2002.

Prior to 2003,  the Company  accounted  for  employee  share  options  under the
intrinsic  method of  Accounting  Principles  Board Opinion No. 25, as permitted
under GAAP. Had compensation  expense for employee options been determined under
the fair-value based method of SFAS 123 for all periods,  proforma  reported net
income and net earnings per share would reflect the following:

<TABLE>


                                                     Three Months Ended                  Nine Months Ended
                                                        September 30,                      September 30,
(In thousands, except per share data)              2004               2003              2004            2003
                                              ---------------   ---------------    ------------- -- ------------
<S>                                                  <C>             <C>                <C>           <C>
Net income (loss) as reported                        $67,724         $(317,966)         $149,319      $(247,741)

Add back:  Stock-based compensation
  expense included in reported net income,
  net of related tax effects                             291                233              830             710

Deduct:  Stock-based compensation
  expense determined under fair-value method,
  net of related tax effects                         (1,396)            (1,922)          (4,216)         (5,683)
                                              ---------------    ---------------    -------------    ------------
Proforma net income (loss)                           $66,619         $(319,655)         $145,933      $(252,714)
                                              ===============    ===============    =============    ============


Basic Earnings (Loss) Per Share:
  As reported                                          $0.23            $(1.08)            $0.51         $(0.84)

  Proforma                                             $0.23            $(1.09)            $0.50         $(0.85)

Diluted Earnings (Loss) Per Share:
  As reported                                          $0.23            $(1.08)            $0.50         $(0.84)

  Proforma                                             $0.22            $(1.09)            $0.49         $(0.85)
</TABLE>


In March  2004,  the  Financial  Accounting  Standards  Board  (FASB)  issued an
Exposure Draft,  "Share-Based  Payment,  an Amendment of FASB Statements No. 123
and 95". In its current  form,  this Exposure  Draft would require  companies to
record stock options and share grants at fair value and recognize  this value as
compensation expense over their vesting period. The Exposure Draft would require
companies to record compensation  expense for newly issued awards as well as the
unvested portion of previously  issued awards that remain  outstanding as of the
date  of  the  adoption  of  the  Exposure  Draft.  ServiceMaster  has  recorded
compensation  expense  relating to the vesting of awards  granted  subsequent to
2002. In October 2004, the FASB  tentatively  agreed to delay the effective date
of the Exposure Draft to periods beginning after June


                                       9
<PAGE>


15,  2005   (ServiceMaster's   third   quarter   2005   financial   statements).
ServiceMaster  is currently  assessing  the  potential  impact of this  Exposure
Draft.

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 nine
months ended September 30, 2004 and 2003 is presented in the following table:


                                       (IN THOUSANDS)
                                      2004        2003
                                    --------    --------
CASH PAID FOR OR (RECEIVED FROM):
Interest expense ................   $ 52,836    $ 53,698
Interest and investment income...   $(12,713)   $ (5,680)
Income taxes ....................   $ 11,796    $  6,081

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 2004 as a result of a higher
level of tax refunds received in the prior year.

NOTE 9: Total comprehensive income (loss) was $66 million and ($317) million for
the three  months  ended  September  30,  2004 and 2003,  respectively  and $146
million  and ($242)  million for the nine months  ended  September  30, 2004 and
2003,  respectively.  Total  comprehensive  income (loss) includes primarily net
income (loss),  changes in unrealized gains and losses on marketable  securities
and foreign currency translation balances.

NOTE 10: The Company has an agreement  which provides for the ongoing  revolving
sale of a designated  pool of accounts  receivable of TruGreen 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
interest.  During the nine months ended September 30, 2004 and 2003,  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 $65  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 $808 million at September  30, 2004,  approximately  $11
million  below the level at December 31, 2003.  Approximately  44 percent of the
Company's  debt matures  beyond five years and 34 percent  beyond fifteen years.
The  Company's  next public debt  maturity of  approximately  $138 million is in
April  2005.  The  Company has both the intent and ability to pay this debt with
other  long  term  financing,  and it is  classified  as  long-term  debt in the
Consolidated  Statements  of Financial  Position.  On May 19, 2004,  the Company
entered into a $500 million senior unsecured bank revolving credit facility that
expires on May 19, 2009. This credit facility  replaced an existing $490 million
credit facility that was due to expire in December 2004. In the third quarter of
2004, the Company replaced an $80 million  operating lease facility that was due
to expire in October  2004 with a new  five-year  operating  lease  facility  of
approximately $53 million expiring in September 2009.

NOTE 12: During the third quarter of 2003, the Company sold substantially all of
the assets and related operational  obligations of Trees, Inc., the utility line
clearing  operations  of TruGreen  LandCare.  The  results of the  utility  line
clearing  operations of Trees,  Inc.  have been  reclassified  as  "Discontinued
Operations" and are not included in continuing operations.

In October 2001, the Company's Board of Directors approved a series of strategic
actions, which were the culmination of an extensive portfolio review process. As
part of this portfolio review, the Company sold or exited certain  non-strategic
or  under-performing   businesses  in  2001  and  2002.  The  results  of  these

                                       10
<PAGE>



discontinued business units have been reclassified as "Discontinued  Operations"
in the accompanying financial statements.

The  following  table  summarizes  the  activity  during the nine  months  ended
September  30,  2004  for  the  remaining   liabilities  from  the  discontinued
operations.  The Company  believes  that the remaining  reserves  continue to be
adequate and reasonable.

(IN THOUSANDS)                   Balance at                        Balance at
                                December 31,         Cash           Sept. 30,
                                    2003           Payments           2004
                               ---------------    -----------     --------------
Remaining liabilities from
  discontinued operations
     LandCare Construction             $7,152         $2,287             $4,865
     LandCare utility line
        clearing business               9,011          1,963              7,048
     Certified Systems, Inc.           11,024          2,192              8,832
     Management Services                  283             81                202
     International businesses          21,306          1,026             20,280

NOTE 13: In the  ordinary  course,  the Company is subject to review by domestic
and foreign taxing authorities,  including the Internal Revenue Service ("IRS").
From  1986  through  1997 most  operations  of the  Company  were  conducted  in
partnership form, free of federal corporate income tax. During that period,  the
Company  was not  reviewed  by the IRS.  In 1997,  the  Company  converted  from
partnership to corporate  form. In 2003, the IRS commenced an examination of the
Company's  consolidated  income tax returns for 2002, 2001 and 2000. The Company
expects the IRS examination to be in its final stages in late 2004 and completed
early in  2005.  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.  In accordance with 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.  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 and plumbing  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 and other support services to the
business units. Segment information is presented in the following table.



                                       11
<PAGE>

<TABLE>


(IN THOUSANDS)                                  Three Months        Three Months            Nine Months          Nine Months
                                               Ended Sept. 30,     Ended Sept. 30,         Ended Sept. 30,      Ended Sept. 30,
                                                     2004                2003                   2004                  2003
--------------------------------------------------------------------------------     ------------------------------------------
<S>                                                <C>                <C>                     <C>                   <C>
Operating Revenue:
  TruGreen                                          $438,474            $418,106              $1,116,843            $1,056,943
  Terminix                                           253,235             246,714                 772,349               733,208
  American Home Shield (1)                           137,961             132,096                 374,220               352,469
  ARS/AMS                                            181,097             181,538                 514,778               505,948
  Other Operations                                    43,100              39,809                 121,284               113,508
---------------------------------------------------------------------------------    -------------------------------------------
Total Operating Revenue                           $1,053,867          $1,018,263              $2,899,474            $2,762,076
=================================================================================    ===========================================

Operating Income (Loss):
  TruGreen (1)                                       $79,983          $(117,148)                $142,982             $(57,739)
    TRUGREEN WITHOUT IMPAIRMENT CHARGE (2)            79,983              71,722                 142,982               131,131
  Terminix                                            26,695              32,461                 111,432               107,886
  American Home Shield (1)                            23,433              21,602                  57,386                52,923
  ARS/AMS                                              4,302           (284,482)                   2,267             (281,814)
    ARS/AMS WITHOUT IMPAIRMENT CHARGE (2)              4,302               7,318                   2,267                 9,986
  Other Operations                                   (9,587)             (7,392)                (28,767)              (26,258)
---------------------------------------------------------------------------------    -------------------------------------------
Total Operating Income (Loss)                       $124,826          $(354,959)                $285,300            $(205,002)
=================================================================================    ===========================================

</TABLE>

(1)  American Home  Shield's  results for the three months and nine months ended
     September 30, 2004 include the impact of a $5.5 million cumulative non-cash
     negative adjustment to revenue and operating income related to a conversion
     of its deferred revenue  calculation from a historical manual process to an
     automated  computation.  TruGreen's  results for the three  months and nine
     months ended  September 30, 2004 include a $4 million gain from the sale of
     a support facility.

(2)  In the third  quarter of 2003,  the Company  recorded a  non-cash,  pre-tax
     impairment  charge of $481 million  related to its goodwill and  intangible
     assets.  Approximately  $189 million of the charge is  associated  with the
     TruGreen  LandCare  operations  reported in the TruGreen  segment,  and the
     remaining  $292  million  relates  to the  ARS/AMS  segment.  In  order  to
     facilitate  comparisons  of ongoing  operating  performance  of  continuing
     operations,  the Company also has presented segment results after adjusting
     for the impact of the impairment charge.

<TABLE>


(IN THOUSANDS)                                                                    As of                    As of
                                                                             Sept. 30, 2004            Dec. 31, 2003
----------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>                         <C>
Identifiable Assets:
  TruGreen                                                                       $990,118                   $911,958
  Terminix                                                                        855,649                    822,407
  American Home Shield                                                            483,527                    422,765
  ARS/AMS                                                                         201,119                    185,528
  Other Operations (and discontinued operations)                                  564,407                    613,768
---------------------------------------------------------------------------------------------------------------------
Total Identifiable Assets                                                      $3,094,820                 $2,956,426
=====================================================================================================================


(IN THOUSANDS)                                                                    As of                    As of
                                                                            Sept. 30, 2004           Sept. 30, 2003
---------------------------------------------------------------------------------------------------------------------
Capital Employed: (1)
  TruGreen                                                                       $899,813                   $905,518
  Terminix                                                                        617,342                    589,101
  American Home Shield                                                            162,734                    128,278
  ARS/AMS                                                                          96,615                     94,074
  Other Operations (and discontinued operations)                                 (33,873)                     52,481
---------------------------------------------------------------------------------------------------------------------
Total Capital Employed                                                         $1,742,631                 $1,769,452
=====================================================================================================================

</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.


                                       12
<PAGE>



      MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
                                 OF OPERATIONS


RESULTS OF OPERATIONS

THIRD QUARTER 2004 COMPARED TO THIRD QUARTER 2003

CONSOLIDATED OVERVIEW

ServiceMaster  (the  "Company")  reported  third  quarter  2004 revenue of $1.05
billion,  a three percent increase  compared to 2003. Third quarter 2004 diluted
earnings per share were $.23 compared to a loss of ($1.08) in 2003.  The diluted
earnings  per share for 2003 include a non-cash  impairment  charge of $1.30 per
share ($481 million pre-tax, $383 million after-tax).

Operating  income for the third  quarter was $125 million  compared to a loss of
($355) million in 2003. The increase in operating  income reflects the impact of
the 2003  impairment  charge ($481  million) as well as  increases  from revenue
growth and  operating  efficiencies  that were  offset by  significant  one-time
step-ups in two key costs that have been  previously  disclosed  throughout  the
year:  (i) the return to more normal  levels of variable  compensation  and (ii)
umbrella insurance  premiums,  which increased  significantly  earlier this year
when a multi-year,  fixed premium contract expired. The combined impact of these
items  totaled  approximately  $9.5  million.   Additionally,   there  were  two
non-recurring  items recorded in operating  income in the third quarter of 2004.
Specifically,  American Home Shield recorded a $5.5 million cumulative  non-cash
negative  adjustment to revenue and operating  income related to a conversion of
its  deferred  revenue  calculation  from  a  historical  manual  process  to an
automated  computation.  Also in the quarter,  TruGreen  ChemLawn  realized a $4
million gain from the sale of a support facility.

Cost of services  rendered and products sold increased two percent for the third
quarter and  decreased as a  percentage  of revenue to 65.2 percent in 2004 from
65.8 percent in 2003. The decrease primarily reflects a change in the mix of the
business as TruGreen ChemLawn and Terminix  increased in size in relationship to
the overall  business of the  Company.  These  businesses  generally  operate at
higher gross margins then the rest of the business,  but incur  somewhat  higher
selling and  administrative  expenses as a  percentage  of revenue.  Selling and
administrative  expenses increased nine percent for the quarter. As a percentage
of revenue,  these costs  increased to 22.8 percent for the quarter in 2004 from
21.7  percent in 2003.  The  increase  in selling  and  administrative  expenses
primarily reflects the change in business mix described above.

Net  non-operating  expense  improved  by  approximately  $3 million  from 2003,
primarily  reflecting a higher level of investment income from security gains in
the American Home Shield investment  portfolio,  as well as the favorable impact
of interest rate swap agreements entered into at the end of 2003 and early 2004.
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.  Such gains, which were abnormally low in 2003, returned to more normal
levels in 2004, based on historical  market returns and the size of the American
Home Shield investment portfolio.

The  Company has  re-affirmed  its  outlook  for the year.  The Company  expects
revenue growth to be in the  mid-single  digits and that earnings per share will
grow somewhat faster than revenues.

SEGMENT REVIEW

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.  The  TruGreen  segment  reported a five percent
increase in third  quarter  revenue to $438 million  compared to $418 million in
2003. The segment  reported  operating income of $80 million in 2004 compared to
an operating loss of ($117)  million in 2003.  During the third quarter of 2003,
the  Company  recorded a non-cash  impairment  charge of $189  million  pre-tax,
relating to goodwill and intangible assets of its TruGreen LandCare operations.


                                       13
<PAGE>


Revenue in the lawn care  operations  grew six percent over 2003,  reflecting an
increased  customer  count and a strong  increase in ancillary  service  revenue
(e.g. aerations,  grub control,  etc.). Customer counts increased seven percent,
with  half  of  that  growth  organic,   resulting  from  continued  significant
improvement  in customer  retention  and the impact of  acquisitions,  partially
offset by a modest net  decline in sales.  The Company has been able to maintain
its  significant  improvement  in  customer  retention.  The  gain in  retention
continues to be geographically  broad-based and a result of concerted management
focus including initiatives to produce more visible results,  improving customer
communication and problem resolution procedures,  focused incentive compensation
structures at all levels, and favorable weather  conditions.  This unprecedented
rate  of  improvement   reflects  three  years  of  intense  focus  on  customer
satisfaction by the entire TruGreen  ChemLawn team. In April,  TruGreen ChemLawn
acquired the assets of  Greenspace  Services  Limited  ("Greenspace"),  Canada's
largest  professional  lawn care service  company.  The  Greenspace  acquisition
continues to perform very well. The lawn care  operations have continued to make
progress  in  diversifying  their  sales  channels,  placing  less  reliance  on
telemarketing and more emphasis on direct mail,  neighborhood selling, and other
efforts.  Third quarter  operating income of the lawn care operations  increased
reflecting  the higher  level of revenue and a $4 million  pre-tax gain from the
sale of a support  facility.  Partially  offsetting  these  benefits were higher
selling  expenses  associated  with new sales  channels,  which are costlier but
produce customers who have tended to stick with us longer. In addition, the lawn
care operations experienced hurricane related production delays as well as sharp
increases in fuel and insurance costs during the period.

Third quarter revenue in the landscape  maintenance business increased slightly,
reflecting comparable amounts of base contract maintenance revenue and continued
stronger  enhancement sales volume (e.g. add-on services such as seasonal flower
plantings,   mulching,   etc.),  partially  offset  by  the  effects  of  branch
consolidations.  Solid  growth in base  contract  maintenance  revenue  from new
customers was offset by lower  retention,  some of which the Company  initiated.
The  growth  in  enhancement  revenue  reflects  focused  sales  efforts  and an
improving  economy.  Excluding  the impact of the branch  consolidations,  third
quarter revenue  increased four percent,  an encouraging sign that this business
is starting to turn. Third quarter operating income of the landscape maintenance
business  improved,  reflecting  the 2003  non-cash  impairment  charge and a $2
million  improvement  from base  operations.  The improvement in base operations
included   an  increase  in  higher   margin   enhancement   revenue  and  labor
efficiencies,  partially offset by higher fuel and insurance  costs.  Management
remains  focused on  improving  operating  consistency  through  better  process
disciplines,  especially in the areas of labor  management and in the pricing of
new jobs.

Capital  employed in the  TruGreen  segment  decreased  one  percent  reflecting
improved  working capital  management  offset in part by  acquisitions.  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 three percent  increase in third quarter revenue to $253 million,  compared to
$247  million in 2003.  Operating  income  decreased  18 percent to $27  million
compared to $32 million in 2003. Terminix continues to make encouraging progress
through  the  significant  changes it has made to its  operating  model with the
implementation of a dual termite offering in 2004, and its continuing  migration
in pest control from monthly to quarterly  service.  Continued  strong growth in
termite  renewal revenue was supported by improved  pricing.  As the Company had
anticipated and explained in its second quarter Form 10-Q filing,  third quarter
termite completion revenue dollars were down modestly as very solid increases in
unit  volume and  improvements  in realized  prices were offset by the  negative
effects on revenue of the mix shift from higher priced bait  treatments to lower
priced  liquid  treatments.  The Company is  encouraged  by the strong growth in
termite  completion  units which has been  achieved  thus far in the  post-swarm
season, where weather is not as prominent of a factor. On the pest control side,
the  continuing  shift to quarterly  service  frequency has had an adverse short
term  effect  on  revenues,   but  with  an  offsetting   improvement  in  labor
efficiencies.  This  change in service  frequency,  along  with other  operating
measures that we have taken,  has also  contributed  to a sharp  improvement  in
customer  retention.  The decrease in third quarter  operating  income primarily
resulted from factors that the Company had previously anticipated and disclosed,
and  included  timing  differences  related to the termite mix shift,  increased
investments  in the sales force and higher  fuel and bad debt costs.


                                       14
<PAGE>


Hurricanes  also had an adverse  impact,  as they hit areas where Terminix has a
strong presence.  Overall, the Company believes that the Terminix team is making
solid  progress on key operating and  marketing  initiatives,  and expects it to
achieve good full year growth in revenues and profits.  Capital  employed in the
Terminix segment  increased five percent,  reflecting the impact of acquisitions
and growth in the business.

The American  Home Shield (AHS)  segment,  which  provides  home  warranties  to
consumers that cover heating,  ventilation and air conditioning (HVAC), plumbing
and other home  systems  and  appliances,  reported a four  percent  increase in
revenue to $138 million from $132  million in 2003 and  operating  income of $23
million  compared to $22 million in 2003. Both the revenue and operating  income
comparisons  are  impacted  by  a  $5.5  million  cumulative  non-cash  negative
adjustment  recorded in the third quarter this year related to a conversion from
a historical  manual deferred revenue  calculation to an automated  computation.
Solid new sales  growth in the  direct-to-consumer  channel was  supported by an
increase in direct mail solicitations.  Renewal sales showed strong improvement,
reflecting  the larger  renewal  base of customers  and a modest  decline in the
customer  retention  rate.  Sales in the real estate  channel  declined as sales
volume has been  adversely  affected  by  double-digit  declines  in home resale
listings in high warranty  usage states.  In the first  quarter,  AHS launched a
pilot  program in two states to increase  real estate sales in  under-penetrated
markets. This program has performed well and its scope was expanded in the third
quarter. Management is focused on replicating high performing account executives
through increased up-front training and marketing support in these markets.  The
increase in third quarter  operating  income  reflects the favorable  effects of
revenue growth and lower air  conditioning  claims costs due to cooler  seasonal
temperatures.  This  was  partially  offset  by  the  aforementioned  cumulative
deferred  revenue  adjustment  and  continuing  investments in key marketing and
customer service initiatives.

Capital employed  increased 27 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 AHS segment includes  approximately $261
million and $209 million of cash, cash equivalents and marketable  securities at
September 30, 2004 and 2003, respectively.

The ARS/AMS segment  provides direct HVAC and plumbing  installation  and repair
services under the ARS Service Express,  Rescue Rooter, and American  Mechanical
Services (for large  commercial  accounts)  brand names.  Third quarter  segment
revenue of $181  million  was  consistent  with the prior  year.  Excluding  the
effects of branch  closures,  third quarter  revenue  increased  three  percent.
Positive  growth in two of the three  service  lines within ARS Service  Express
continued from the second quarter into the third quarter. Plumbing revenue again
increased  modestly as relatively strong  improvements in sewer line repairs and
commercial  services  were  partially  offset  by  continued  softness  in  core
residential  service calls.  Residential  construction  and  commercial  project
revenues  had  another  strong  quarter.  Cooler  seasonal  temperatures,  which
benefited   American  Home  Shield,   posed  a  significant   challenge  to  the
air-conditioning  business of ARS,  which  experienced  a sharp  decline in both
service and add-on replacement revenue. Unfortunately,  this negated encouraging
progress on several underlying  operating  intitiatives,  including the two hour
on-time arrival  guarantee,  the retail initiative and efforts to increase sales
closing rates and average ticket prices.  The segment reported  operating income
of $4 million compared with an operating loss of ($284) million in 2003.  During
the third quarter of 2003, the Company  recorded a pre-tax  non-cash  impairment
charge of $292 million relating to goodwill and intangible assets of its ARS/AMS
segment.  The increase in the segment's  operating income reflects the impact of
the 2003 non-cash impairment charge,  partially offset by the negative impact of
cooler weather and increased costs related to sales,  marketing,  and insurance.
At AMS, the project  backlog and revenue have shown  strong  increases  over the
past several months and profits,  while still cyclically reduced,  were improved
over the prior year. However, due to continued  competitive industry conditions,
related margins are still below prior year and the backlog consists of a greater
mix of longer duration  contracts.  If bidding activity continues to strengthen,
the Company would expect to see margins begin to improve to more normal  levels.
Capital employed increased three percent to $97 million.

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 eight percent to $43 million compared to $40 million in 2003.
The ServiceMaster Clean and Merry Maids franchise operations reported a combined
increase in revenue of 11 percent,  primarily driven by continued strong results
in disaster  restoration  services and improved internal growth in maid service.
The strong momentum in disaster  restoration services is expected to continue in
the fourth quarter,  supported by clean-up work related to the


                                       15
<PAGE>


hurricanes.  The  increase  in the  segment's  operating  loss  for the  quarter
reflects an increase in variable  compensation at the headquarters level, offset
in part by an  increase  in  profits  from the  combined  franchise  operations.
Capital employed in this segment decreased  approximately $86 million reflecting
the Company's annual cash benefit from deferred income taxes.


RESULTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO SEPTEMBER 30, 2003

CONSOLIDATED REVIEW

The  Company  reported  revenue  of  $2.90  billion  for the nine  months  ended
September 30, 2004, a five percent increase over 2003.  Substantially all of the
five  percent   reported  revenue  growth  was  derived  from  internal  sources
(reflecting  increased  customer  counts and improved  pricing) as the impact of
acquisitions  was offset by a decrease in revenue  related to selected  branches
that were  shut-down in 2003.  For the nine months,  diluted  earnings per share
were $.50  compared  with a loss of ($.84) in 2003.  Diluted  earnings per share
from continuing operations were $.51, compared with a loss of ($.83) reported in
2003. The 2003 results include the non-cash  impairment  charge of $1.29 for the
nine months ($481 million pre-tax, $383 million after-tax).

Operating  income for the nine months was $285 million  compared  with a loss of
($205) million in 2003, which includes the impact of the impairment charge ($481
million).  For the nine months,  all of the Company's business segments reported
increases in revenue and most segments also reported solid  increases in profits
before the impact of the 2003  impairment  charge,  led by TruGreen's  lawn care
operations and American Home Shield. The cost controls and the focus on improved
efficiencies that were evident  throughout the enterprise during the second half
of last year  remained  firmly in place,  helping  the  Company to offset  large
increases  in certain key costs such as  variable  compensation,  insurance  and
fuel.

Cost of services  rendered and products sold increased five percent for the nine
months and  decreased  as a  percentage  of revenue to 66.6 percent in 2004 from
66.8  percent in 2003.  Selling  and  administrative  expenses  increased  seven
percent and  increased as a  percentage  of revenue to 23.5 percent in 2004 from
23.1 percent in 2003. As discussed in the third quarter comparison, the decrease
in cost of  services  as a  percentage  of revenue  and  increase in selling and
administrative expense as a percentage of revenue primarily reflects a change in
the mix of the business as TruGreen  ChemLawn and Terminix  increased in size in
relationship to the overall business of the Company.

Net  non-operating  expense for the nine months  decreased $9 million from 2003,
reflecting  higher  investment  income  from  realized  securities  gains in the
American Home Shield investment portfolio,  as well as the favorable impact from
interest rate swap agreements.

KEY PERFORMANCE INDICATORS

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


                                       16
<PAGE>




                                                    KEY PERFORMANCE INDICATORS
                                                       As of September 30,

                                                    2004               2003
                                                ------------        -----------
TRUGREEN  CHEMLAWN-
   Growth in Full Program Contracts                       7%                 4%
   Customer Retention Rate                             64.8%              62.2%

TERMINIX -
   Growth in Pest Control Customers                       6%                 2%
   Pest Control Customer Retention Rate                80.1%              76.7%

   Growth in Termite Customers                           -1%                -2%
   Termite Customer Retention Rate                     88.1%              88.0%

AMERICAN HOME SHIELD -
   Growth in Warranty Contracts                           5%                 8%
   Customer Retention Rate                             55.0%            55.4% *

* Restated to conform with the 2004 calculation.



SEGMENT REVIEW

For the nine months, the TruGreen segment reported revenues of $1.1 billion, six
percent  above the prior year.  The segment  reported  operating  income of $143
million  compared  with an  operating  loss of ($58)  million in 2003.  The 2003
results include a non-cash  impairment charge of $189 million pre-tax,  relating
to goodwill and intangible assets of the TruGreen LandCare operations.

Revenue  in the lawn care  operations  increased  eight  percent,  of which four
percent was internal,  and operating  income grew nine percent,  or $13 million,
for the nine months.  The strong revenue growth  reflects higher customer counts
driven by significantly improved retention rates and the impact of acquisitions,
partially offset by a modest decrease in sales.  Overall  year-to-date new sales
were down less than two percent,  reflecting a decline in telemarketing sales of
10  percent,  consistent  with  the  Company's  expectations  in  light  of  the
implementation  of the  National Do Not Call  Registry.  This decline was mostly
offset by  substantial  increases in sales from new channels such as direct mail
and  neighborhood  sales  efforts.  Management is  encouraged  with the progress
TruGreen has made in diversifying its marketing model,  with  telemarketing  now
accounting for about 60 percent of its new sales, down from over 90 percent just
a few years ago. The new sales channels are more costly than telemarketing,  but
they are also  expected  to produce  customers  with  somewhat  higher  customer
retention rates.  The customer  retention rate reflects a strong 260 basis point
improvement,  consistent  with that  reported  as of June 30.  The  increase  in
operating  income  for the nine  months  reflects  the  higher  revenue  and the
resulting  labor and cost  efficiencies  as well as the impact of the Greenspace
acquisition, partially offset by fuel and other key cost increases. As disclosed
in the Company's  second quarter Form 10-Q, the lawn care operation's nine month
results were adversely  impacted by an increase in materials  expense  resulting
from a change in the estimated  allocation of annual fertilizer and weed control
costs to first half applications,  which are relatively more costly. This change
accelerated recognition of approximately $6 million more of interim expense into
the second quarter that will result in a corresponding  benefit primarily in the
fourth quarter of 2004.

Revenue in the landscape  maintenance  business was  consistent  with prior year
levels  reflecting  stronger  enhancement sales volume and a comparable level of
base contract maintenance revenue, offset by a lower level of first quarter snow
removal  revenue than was  experienced  in 2003.  Excluding the impact of branch
consolidations,  nine month revenue increased three percent. Operating income of
the  landscape  maintenance  operations  improved  reflecting  the 2003 non-cash
impairment charge. However, in the first nine months of 2004 base operations had
a $1 million  decline  reflecting  a reduction  in higher  margin  snow  removal
volume,  higher  insurance  and  labor-related  costs as well as $1.8 million of
branch  consolidation  costs.  The Company has  strengthened its leadership team
throughout the year and has expanded its sales efforts.

The Terminix  segment  reported a five percent  increase in revenue for the nine
months to $772  million  compared to $733 million in 2003 and  operating  income
growth of three  percent to $111 million  compared

                                       17
<PAGE>


to $108 million in 2003. The revenue  increase was supported by improved pricing
on termite renewal  contracts,  slightly offset by a modest decline in customers
available  to renew  coming out of last year's  weather-plagued  termite  swarm.
Termite  completion  revenue  increased,  reflecting a solid  increase in volume
following last year's weak termite swarm season and improved price  realization,
partially  offset by the mix shift from the higher  priced bait product to lower
priced liquid treatments. As previously disclosed, with the improved efficacy of
liquid termite treatments, the Company is providing consumers with the choice of
receiving  termite services through baiting systems or liquid  treatments.  With
this enhanced termite  offering,  the Company has experienced a shift in the mix
of its termite  customer base from baiting  systems to liquid  treatments.  This
change in mix is generally proceeding in line with management's expectations. By
offering consumers a choice in treatments and by tightening  controls over price
discounting,  Terminix has been able to increase the average price  realized for
each of the two treatment alternatives,  thus offsetting the adverse, short-term
revenue and profit  impacts of the mix shift.  As previously  disclosed,  liquid
termite treatments are generally less profitable than bait treatments during the
first year, but are more  profitable in the  subsequent,  renewal years with the
two alternatives  having  approximately  equal values over the average life of a
customer.  Pest control revenue  increased  modestly for the nine months and was
driven by continued strong improvement in customer  retention,  partially offset
by a decline in volume of  commercial  pest  control  business.  The  Company is
experiencing  an  unfavorable  impact to revenues from the  increased  number of
customers  receiving  quarterly service visits from monthly service visits. This
shift is slightly  favorable to profits this year reflecting labor  efficiencies
gained from this  change.  For the nine  months,  the  improvement  in operating
income resulted from an increase in revenue and the resulting  production  labor
efficiencies,  partially  offset  by higher  insurance,  fuel and other key cost
areas.

For the nine  months the  American  Home Shield  segment  reported a six percent
increase  in revenue to $374  million  from $352  million in 2003 and  operating
income growth of eight  percent to $57 million  compared to $53 million in 2003.
Both the revenue and operating income comparisons are impacted by a $5.5 million
cumulative  non-cash negative adjustment recorded in the third quarter this year
related to a conversion from a historical manual deferred revenue calculation to
an   automated   computation.   A  very   strong   increase   in  sales  in  the
direct-to-consumer  channel was  supported by an increased  level of direct mail
solicitations.  In  addition,  the  Company  continues  to expand its  marketing
efforts with premier mortgage lenders and financial institutions.  American Home
Shield experienced more moderate growth in its real estate and renewal channels,
with the growth in renewal  sales being  supported  by an increase in  renewable
customers,  partially  offset by less favorable  customer  retention  rates. The
growth  in  operating  income  reflected  the  impact of lower  contract  claims
activity,  primarily due to cooler seasonal  temperatures,  as well as continued
effective  management of the cost per claim,  partially offset by the cumulative
deferred  revenue  adjustment  and  investments  in key  marketing  and customer
service initiatives.

The ARS/AMS  segment  reported a two percent  increase in revenues  for the nine
months to $515 million.  Excluding the effects of year-end 2003 branch closures,
revenue growth was five percent.  The segment  reported  operating  income of $2
million  compared with an operating  loss of ($282) million in 2003. As noted in
the third quarter  comparison,  the 2003 results  include a $292 million pre-tax
charge  relating to goodwill  and  intangible  asset  impairment.  The growth in
revenue   reflected   strong  increases  in  residential  new  construction  and
commercial  project revenue,  offset by a decline in HVAC service revenue.  HVAC
volume was adversely impacted by a reduced level of demand resulting from cooler
seasonal temperatures. Plumbing revenue increased one percent for the nine month
period. Within ARS, meaningful progress has been made on specific initiatives to
improve  brand  differentiation   (through  such  measures  as  on-time  arrival
guarantee), expand sewer line repair revenue, and increase closing rates and the
average sales ticket prices on replacement HVAC sales. The segment's increase in
operating  income  reflects the impact of the 2003 non-cash  impairment  charge,
offset in part by higher sales, marketing,  and insurance costs and the negative
impact of cooler  seasonal  temperatures at ARS, as well as lower margins at AMS
due to depressed industry conditions in commercial real estate.

The Other  Operations  segment  reported a seven percent increase in revenues to
$121  million  for the nine  months  compared  with $114  million  in 2003.  The
combined  ServiceMaster  Clean and Merry  Maids  franchise  operations  reported
revenue  growth  of nine  percent  and a solid  increase  in  operating  income.
ServiceMaster   Clean   continued  to  experience   strong  growth  in  disaster
restoration services and favorable currency impacts on international operations.
At Merry Maids,  a better  economy and improved  sales

                                       18
<PAGE>


processes have driven a steady  increase in internal  revenue growth in both the
branch and franchise operations. The segment's operating loss increased over the
prior year  reflecting  a higher level of variable  compensation  expense at the
headquarters  level  partially  offset  by  increased  profits  in the  combined
franchise operations.

FINANCIAL POSITION AND LIQUIDITY

CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by operating  activities increased by $20 million in the third
quarter and $75 million year-to-date, totaling $241 million for the nine months.
The  improvement  reflects both reduced working capital usage of $58 million and
an increased level of profits.  The  improvement in working  capital  reflects a
lower rate of cash  outflows in early 2004  relating to  incentive  compensation
earned in 2003,  combined with an increased level of non-cash  accruals for 2004
incentives,  reflecting a return to more normal incentive  rates.  Additionally,
the Company experienced favorable impacts from the timing and magnitude of other
payments,  partially  offset by earlier  spending on certain full year marketing
and  advertising  initiatives.  For the full year 2004, the Company expects cash
from  operating  activities  to again exceed  reported net income by at least 50
percent and increase at a rate at or above the earnings growth rate.

The Company  receives a  significant  annual cash benefit due to a large base of
tax-deductible  intangible  assets that exist for income tax reporting  purposes
but not for book  purposes,  a significant  portion of which arose in connection
with the Company's 1997 conversion from a limited  partnership to a corporation.
From  1986  through  1997 most  operations  of the  Company  were  conducted  in
partnership form, free of federal corporate income tax. During that period,  the
IRS did not review the Company. In 2003, the IRS commenced an examination of the
Company's  consolidated  income tax returns for 2002, 2001 and 2000. The Company
expects the IRS examination to be in its final stages in late 2004 and completed
in early  2005.  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 above prior year  levels.  The  Company  anticipates
approximately  $50 million of capital  expenditures in 2004  reflecting  systems
enhancements  and  other  initiatives.  The  Company  has  no  material  capital
commitments at this time.

Tuck-in  acquisitions  for the nine months ended  September 30, 2004 totaled $41
million,  compared  with $31 million in 2003.  Consideration  consisted  of cash
payments ($27 million of the total),  seller  financed  notes and Company stock.
The increase in acquisitions reflects TruGreen ChemLawn's purchase of Greenspace
as well as the  resumption  of tuck-in  acquisition  activity  at  Terminix  and
TruGreen  ChemLawn.  The  Company's  current  expectation  for full year is that
approximately $50 million in cash will be used for acquisitions.

CASH FLOWS FROM FINANCING ACTIVITIES
Cash  dividends paid to  shareholders  totaled $93 million or $.32 per share for
the nine  months  ended  September  30,  2004.  In  November  2004,  the Company
announced a fourth  quarter cash  dividend of $.11 per share  (compared to $.105
per share paid in the fourth  quarter last year),  payable on November 30, 2004,
to  shareholders  of record on  November  11,  2004.  With  this  dividend,  the
Company's  full  year  payment  will  increase  2.4  percent  over 2003 and will
represent the Company's 34th consecutive year of dividend increases.  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.

The ServiceMaster  Company and its Board of Directors review dividend policy and
other capital  structure  objectives on a regular basis. As part of this review,
it was determined that  prevailing  corporate best practice in the United States
is to have dividends declared in the same quarter that they are paid. To achieve
this result,  the Company modified its historic pattern of dividend  declaration
and payment  dates.  The Company will continue to pay its  dividends  quarterly,
with the payment  schedule for each quarter pushed back one month, to the end of
November, February, May and August.

                                       19
<PAGE>


In July  2000,  the  Board  of  Directors  authorized  $350  million  for  share
repurchases.   The  Company   completed   approximately  $55  million  in  share
repurchases  in the first nine  months of 2004 with  approximately  $14  million
occurring  in  the  third  quarter.  There  remains  approximately  $90  million
available for repurchases under the July 2000  authorization.  The Company plans
to continue its share repurchase program in the fourth quarter, and is currently
pacing  toward a full year total in the $75 million  range.  The actual level of
repurchases  will  be  based  on  operating  trends  and  business   acquisition
opportunities,  and will be consistent with the Company's strategy to retain its
investment grade status.

LIQUIDITY
Cash and short and long-term  marketable  securities totaled  approximately $419
million at September 30, 2004,  with  approximately  $300 million of that amount
effectively required to support regulatory  requirements at American Home Shield
and for other  purposes.  Total debt was $808  million at  September  30,  2004,
approximately  $11 million  below the amount at December 31, 2003 and the lowest
level  since  March of 1997.  Approximately  44  percent of the  Company's  debt
matures beyond five years and 34 percent  beyond  fifteen  years.  The Company's
next public debt maturity of  approximately  $138 million is in April 2005.  The
Company  has both the intent  and  ability to pay this debt with other long term
financing.

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.  During the second  quarter of 2004,  the Company
replaced  its  previous  $490  million  credit  facility  with  a new  five-year
revolving  credit facility of $500 million expiring in May 2009. As of September
30, 2004, the Company had issued approximately $162 million of letters of credit
under this facility and had unused  commitments of  approximately  $338 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. At September 30,
2004, 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  receivables to these
purchasers  in the future and  therefore  would  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.

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
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 September 30, 2004, the Company was in compliance  with
the  covenants  related  to these  debt  agreements  and based on its  operating
outlook for the remainder of 2004, expects to be able to maintain  compliance in
the future.

During the third quarter of 2004, the Company replaced an $80 million  operating
lease facility with a new five-year  operating  lease facility of  approximately
$53 million expiring in September 2009. The Company also maintains a $15 million
operating lease facility that expires in January 2008. These facilities provided
for the financing of branch properties to be leased by the Company. At September
30, 2004, the total amount of the  facilities,  approximately  $68 million,  was
funded.  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.  Approximately  $15  million of these  leases  have been  included on the
balance  sheet  as  assets  with  related  debt as of  September  30,  2004  and
approximately $20 million as of December 31, 2003.

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 September  30, 2004,
there was approximately $254 million of residual value relating to the Company's
fleet and equipment leases.

                                       20
<PAGE>

The  Company's  2003  Annual  Report   included   disclosure  of  the  Company's
contractual  obligations  and  commitments  as of December 31, 2003. The Company
continues to make the contractually  required  payments and therefore,  the 2004
obligations  and  commitments  as listed in the December 31, 2003 Annual  Report
have been reduced by the required payments. As disclosed in the Company's second
quarter Form 10-Q  filing,  the  Company's  Board of  Directors  authorized  two
commitments for telecommunication  services totaling  approximately $30 million.
During the third  quarter,  the Company  signed one of the  agreements  totaling
approximately $21 million. The remaining telecommunication agreement is expected
to be finalized  during the fourth quarter of 2004. The net payments on previous
obligations  approximately  offset  the  addition  of the two  telecommunication
agreements  and  therefore,  the level of net purchase  obligations  existing at
September 30, 2004 are comparable to year-end 2003 levels.

FINANCIAL POSITION - CONTINUING OPERATIONS
Receivables  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.

On the other side of the balance sheet, deferred revenue increased from year-end
levels,  reflecting the impact from the seasonal volume of termite baiting sales
and growth in contracts  written at American Home Shield  partially  offset by a
decrease from year-end 2003 levels in customer prepayment balances for lawn care
services.  Payroll and related  expenses have  increased  from  year-end  levels
reflecting  an increased  level of accruals for 2004  incentives  as the Company
returns to more normal  incentive  rates.  Incentive  compensation  payments are
expected  to be made in the first  quarter  of 2005.  Income  taxes  payable  at
September  30, 2004 reflects the Company's  2004  estimated  federal tax payment
expected to be made in the fourth quarter.  Deferred taxes increased  reflecting
the annual tax benefit realized as a result of the large base of  tax-deductible
intangible assets that exist for income tax reporting  purposes but not for book
purposes. As previously  discussed,  a significant portion of the tax-deductible
intangible  assets arose in connection with the Company's 1997 conversion from a
limited partnership to a corporation.

Property and  equipment  increased  modestly from  year-end  levels,  reflecting
general  business  growth.  The  Company  does  not have  any  material  capital
commitments at this time.

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 $835 million at September 30, 2004 and $817
million at December 31, 2003. The increase primarily reflects earnings in the
business partially 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  slightly from
year-end  levels   representing   collections  on  receivables.   The  remaining
liabilities primarily represent obligations related to long-term  self-insurance
claims.


                                       21
<PAGE>




FORWARD-LOOKING STATEMENTS

THE COMPANY'S  ANNUAL REPORT 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;  COMPETITION  IN THE MARKETS SERVED BY THE COMPANY;
LABOR  SHORTAGES OR INCREASES IN WAGE RATES;  UNEXPECTED  INCREASES IN OPERATING
COSTS, SUCH AS HIGHER INSURANCE AND SELF INSURANCE AND HEALTH CARE COSTS; HIGHER
FUEL PRICES; INCREASED GOVERNMENTAL REGULATION INCLUDING TELEMARKETING;  GENERAL
ECONOMIC  CONDITIONS  IN THE UNITED  STATES,  ESPECIALLY AS THEY MAY AFFECT HOME
SALES OR CONSUMER SPENDING LEVELS; TIME AND EXPENSES ASSOCIATED WITH INTEGRATING
AND WINDING DOWN  BUSINESSES;  AND OTHER FACTORS  DESCRIBED FROM TIME TO TIME IN
DOCUMENTS FILED BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION.



                                       22
<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 (5.7% average rate during
the third quarter).

The Company generally  maintains the majority of its debt at fixed rates.  After
the effect of the interest swap  agreements,  approximately  78 percent of total
debt  at  September  30,  2004  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  $254  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 September 30, 2004, a one
rating category improvement in the Company's credit ratings would reduce pre-tax
annual expense by approximately $0.8 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,  2003,  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  $862 million at December 31,
2003.

                              Expected Maturity Date
                       -------------------------------------
                                                             There-
   (In millions)       2004   2005    2006    2007   2008    after    Total
  --------------------------------------------------------------------------
  Fixed rate debt      $28    $151    $12     $60     $8     $540     $799
  Avg. rate            4.8%   8.3%    6.0%    6.7%   6.1%    7.7%     7.6%
  ===========================================================================

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.




                                       23
<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.



                                       24
<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 September 30, 2004 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 (a)          Share                Plan                   Plan
-------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>                 <C>                  <C>                <C>
July 1, 2004 through
  July 31, 2004                                       -                $ -                      -          $ 104,000,000

August 1, 2004 through
  August 31, 2004                               499,300            $ 11.73                499,300           $ 98,000,000

September 1, 2004 through
  September 30, 2004                            651,200            $ 12.80                651,200           $ 90,000,000

                                      ------------------------------------------------------------
Total                                         1,150,500            $ 12.34              1,150,500
                                      ============================================================
</TABLE>


(a) Does not include 639 shares  acquired from employees in connection  with the
settlement of income tax and related  withholding  obligations  arising from the
exercise of stock options or vesting of restricted stock grants.

ITEM 6: EXHIBITS

EXHIBIT NO.    DESCRIPTION OF EXHIBIT
-----------    ----------------------

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



                                       25
<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:  November 9, 2004


                          THE SERVICEMASTER COMPANY
                          (Registrant)

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

                          Ernest J. Mrozek
                          President and Chief Financial Officer




                                       26
<PAGE>