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


                                    FORM 10-Q



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

                  For the quarterly period ended June 30, 2005

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

                     For the transition period from _____  to_____

                         Commission file number 1-14762

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

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

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

                                  630-663-2000
              (Registrant's telephone number, including area code)


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

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

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock: 291,856,000 shares of common stock on August 3, 2005.


<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 six months ended June 30, 2005 and June 30, 2004                        3

Condensed Consolidated Statements of Financial Position
   as of June 30, 2005 and December 31, 2004                                   4

Condensed Consolidated Statements of Cash Flows for the six months
   ended June 30, 2005 and June 30, 2004                                       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                                                               22

Item 4: Controls and Procedures                                               23


PART II.  OTHER INFORMATION

Item 2:  Unregistered Sales of Equity Securities and Use of Proceeds          24

Item 4:  Submission of Matters to a Vote of Security Holders                  24

Item 6:  Exhibits                                                             25

Signature                                                                     26



<PAGE>

<TABLE>

                          PART I. FINANCIAL INFORMATION
                            THE SERVICEMASTER COMPANY
           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

                                                             Three Months Ended               Six Months Ended
                                                                  June 30,                        June 30,
                                                             2005           2004           2005           2004
                                                         ------------   -----------    ------------  -----------
<S>                                                      <C>            <C>            <C>            <C>
OPERATING REVENUE ....................................   $ 1,174,112    $ 1,088,716    $ 1,956,421    $ 1,845,607

OPERATING COSTS AND EXPENSES:
Cost of services rendered and products sold ..........       745,384        697,706      1,301,707      1,242,762
Selling and administrative expenses ..................       282,504        260,128        481,488        439,438
Amortization expense .................................         1,331          1,511          2,483          2,933
                                                         -----------    -----------    -----------    -----------
Total operating costs and expenses ...................     1,029,219        959,345      1,785,678      1,685,133
                                                         -----------    -----------    -----------    -----------

OPERATING INCOME .....................................       144,893        129,371        170,743        160,474

NON-OPERATING EXPENSE (INCOME):
Interest expense .....................................        14,401         15,007         29,980         29,938
Interest and investment income .......................        (3,226)        (3,036)       (12,600)        (7,606)
Minority interest and other expense, net .............         2,047          2,086          4,093          4,132
                                                         -----------    -----------    -----------    -----------
INCOME FROM CONTINUING OPERATIONS BEFORE
       INCOME TAXES ..................................       131,671        115,314        149,270        134,010
Provision for income taxes............................        51,486         44,626         58,367         51,861
                                                         -----------    -----------    -----------    -----------

INCOME FROM CONTINUING OPERATIONS ....................        80,185         70,688         90,903         82,149

Loss from discontinued operations, net of income taxes          (384)          (292)          (530)          (554)
                                                         -----------    -----------    -----------    -----------
NET INCOME ...........................................   $    79,801    $    70,396    $    90,373    $    81,595
                                                         ===========    ===========    ===========    ===========

PER SHARE:
BASIC EARNINGS PER SHARE:
Income from continuing operations ....................   $      0.27    $      0.24    $      0.31    $      0.28

Discontinued operations ..............................             -              -              -              -
                                                         -----------    -----------    -----------    -----------
Basic earnings per share .............................   $      0.27    $      0.24    $      0.31    $      0.28
                                                         ===========    ===========    ===========    ===========
SHARES ...............................................       291,634        289,887        291,400        290,843


DILUTED EARNINGS PER SHARE:
Income from continuing operations ....................   $      0.27    $      0.24    $      0.31    $      0.28

Discontinued operations ..............................             -              -              -              -
                                                         -----------    -----------    -----------    -----------
Diluted earnings per share ...........................   $      0.27    $      0.24    $      0.30    $      0.28
                                                         ===========    ===========    ===========    ===========
SHARES ...............................................       305,377        302,944        305,254        295,490

</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 June 30,   As of Dec. 31,
ASSETS                                                                  2005             2004
                                                                ------------------   --------------
CURRENT ASSETS:
<S>                                                                 <C>            <C>
Cash and cash equivalents .......................................   $   121,876    $   256,626
Marketable securities ...........................................       109,062        103,681
Receivables, less allowance of $27,768 and $25,183, respectively        459,585        369,026
Inventories .....................................................        77,582         66,657
Prepaid expenses and other assets ...............................        61,546         27,456
Deferred customer acquisition costs .............................        69,192         41,574
Deferred taxes and income taxes receivable ......................        84,157        108,780
Assets of discontinued operations ...............................           973          4,952
                                                                    -----------    -----------
       Total Current Assets .....................................       983,973        978,752
                                                                    -----------    -----------
PROPERTY AND EQUIPMENT:
   At cost ......................................................       422,255        405,655
   Less: accumulated depreciation ...............................      (238,138)      (218,838)
                                                                    -----------    -----------
     Net property and equipment .................................       184,117        186,817
                                                                    -----------    -----------
OTHER  ASSETS:
Goodwill ........................................................     1,589,872      1,568,044
Intangible assets, primarily trade names ........................       220,727        220,780
Notes receivable ................................................        33,536         35,411
Long-term marketable securities .................................       142,266        135,824
Other assets ....................................................        11,933         14,574
                                                                    -----------    -----------
       Total Assets .............................................   $ 3,166,424    $ 3,140,202
                                                                    ===========    ===========
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable ................................................   $   110,750    $    76,053
Accrued liabilities:
   Payroll and related expenses .................................       113,307        113,366
   Self-insured claims and related expenses .....................        93,312         86,554
   Income taxes payable .........................................        22,951        152,841
   Other ........................................................       118,571        111,092
Deferred revenues ...............................................       491,087        443,238
Liabilities of discontinued operations ..........................        18,042         21,536
Current portion of long-term debt ...............................        22,116         23,247
                                                                    -----------    -----------
       Total Current Liabilities ................................       990,136      1,027,927
                                                                    -----------    -----------
LONG-TERM DEBT ..................................................       776,950        781,841

LONG-TERM LIABILITIES:
   Deferred taxes ...............................................       112,075         88,100
   Liabilities of discontinued operations .......................         9,150          9,057
   Other long-term obligations ..................................       156,880        141,742
                                                                    -----------    -----------
       Total Long-Term Liabilities ..............................       278,105        238,899
                                                                    -----------    -----------
MINORITY INTEREST ...............................................       100,000        100,000

COMMITMENTS AND CONTINGENCIES ...................................

SHAREHOLDERS' EQUITY:
Common stock $0.01 par value, authorized 1,000,000 shares; issued
     319,878 and 318,559 shares, respectively ...................         3,199          3,186
Additional paid-in capital ......................................     1,096,955      1,083,057
Retained earnings ...............................................       238,464        212,116
Accumulated other comprehensive income ..........................         8,062         10,804
Restricted stock ................................................       (16,980)       (12,857)
Treasury stock ..................................................      (308,467)      (304,771)
                                                                    -----------    -----------
       Total Shareholders' Equity ...............................     1,021,233        991,535
                                                                    -----------    -----------
       Total Liabilities and Shareholders' Equity ...............    $3,166,424    $ 3,140,202
                                                                    ===========    ===========
</TABLE>

            SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                       4
<PAGE>

<TABLE>

                            THE SERVICEMASTER COMPANY
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                                 (IN THOUSANDS)
                                                                                               Six Months Ended
                                                                                                   June 30,
                                                                                            2005               2004
                                                                                         ----------        ----------
<S>                                                                                      <C>               <C>
CASH AND CASH EQUIVALENTS AT JANUARY 1 ..................................                $256,626          $ 228,161

CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME ..............................................................                  90,373             81,595
     Adjustments to reconcile net income to net cash flows from operating activities:
        Loss from discontinued operations ...............................                     530                554
        Depreciation expense ............................................                  25,029             24,327
        Amortization expense ............................................                   2,483              2,933

        Change in working capital, net of acquisitions:
            Receivables .................................................                 (92,233)           (81,111)
            Inventories and other current assets ........................                 (68,301)           (57,695)
            Accounts payable ............................................                  35,583             25,126
            Deferred revenues ...........................................                  47,349             40,360
            Accrued liabilities .........................................                  32,093             29,200
            Change in tax accounts:
                Deferred income taxes ...................................                  49,224             44,961
                Resolution of income tax audits .........................                (131,562)                 -
        Other, net ......................................................                   6,573              5,446
                                                                                        ---------          ---------
NET CASH (USED FOR) PROVIDED FROM OPERATING ACTIVITIES ..................                  (2,859)           115,696
                                                                                        ---------          ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
      Property additions ................................................                 (22,328)           (24,226)
      Sale of equipment and other assets ................................                   1,138              1,525
      Business acquisitions, net of cash acquired .......................                 (19,125)           (20,875)
      Notes receivable, financial investments and securities ............                 (11,507)            (3,370)
                                                                                        ---------          ---------
NET CASH USED FOR INVESTING ACTIVITIES ..................................                 (51,822)           (46,946)
                                                                                        ---------          ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
      Borrowings of debt ................................................                 318,242                  -
      Payments of debt ..................................................                (329,042)           (17,751)
      Purchase of ServiceMaster stock ...................................                 (16,979)           (41,286)
      Shareholders' dividends ...........................................                 (64,025)           (61,314)
      Other, net ........................................................                  12,064              5,648
                                                                                        ---------          ---------
NET CASH USED FOR FINANCING ACTIVITIES ..................................                 (79,740)          (114,703)
                                                                                        ---------          ---------

NET CASH USED FOR OPERATING ACTIVITIES OF DISCONTINUED OPERATIONS .......                    (329)            (6,012)
                                                                                        ---------          ---------

CASH DECREASE DURING THE PERIOD .........................................                (134,750)           (51,965)
                                                                                        ---------          ---------

CASH AND CASH EQUIVALENTS AT JUNE 30 ....................................               $ 121,876          $ 176,196
                                                                                        =========          =========

</TABLE>






            SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                                       5
<PAGE>




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

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

NOTE 2: The condensed  consolidated  financial  statements have been prepared by
the Company in accordance with accounting  principles  generally accepted in the
United States (GAAP) and pursuant to the rules and regulations of the Securities
and Exchange  Commission.  The Company  recommends that the quarterly  condensed
consolidated  financial  statements be read in conjunction with the consolidated
financial  statements  and the notes thereto  included in the  Company's  latest
Annual  Report to  Shareholders  incorporated  in the Form 10-K  filed  with the
Securities  and Exchange  Commission  for the year ended December 31, 2004 (2004
Annual Report).  The condensed  consolidated  financial  statements  reflect all
adjustments  which are, in the  opinion of  management,  necessary  for the fair
presentation of the financial position, results of operations and cash flows for
the interim  periods.  The results of operations  for any interim period are not
necessarily indicative of the results which might be achieved for a full year.

NOTE 3: The Company has identified the most important  accounting  policies with
respect to its  financial  position  and  results of  operations.  These  relate
primarily to revenue recognition and the deferral of customer acquisition costs.
The following  revenue  recognition  policies  have not changed since  year-end.
Revenues  from  lawn  care,   pest  control,   liquid  and  fumigation   termite
applications,  as well as  heating/air  conditioning  and plumbing  services are
recognized as the services are provided.  Revenues from landscaping services are
recognized as they are earned based upon agreed monthly contract arrangements or
when services are performed for non-contractual arrangements.  Revenues from the
Company's  commercial  installation  contracts,  primarily  relating to heating,
ventilation and air  conditioning  (HVAC),  and electrical are recognized on the
percentage of completion  method in the ratio that total  incurred costs bear to
total  estimated  costs.  The  Company  eradicates  termites  through the use of
baiting systems,  as well as through  non-baiting  methods (e.g.,  fumigation or
liquid  treatments).  Termite  services  using  baiting  systems as well as home
warranty  services  frequently are sold through annual contracts for a one-time,
upfront  payment.  Direct costs of these  contracts  (service  costs for termite
contracts and claim costs for warranty contracts) are expensed as incurred.  The
Company recognizes revenue over the life of these contracts in proportion to the
expected  direct costs.  Franchised  revenue (which in the aggregate  represents
less than four percent of consolidated  revenue) consists principally of monthly
fees based upon the franchisee's customer level revenue.  Monthly fee revenue is
recognized when the related customer level revenue is reported by the franchisee
and  collectibility  is assured.  Franchise  revenue also includes  initial fees
resulting from the sale of a franchise.  These fees are fixed and are recognized
as  revenue  when  collectibility  is  assured  and  all  material  services  or
conditions relating to the sale have been substantially  performed.  Income from
franchised  revenue  represented seven percent and eight percent of consolidated
operating  income before  headquarter  overheads for the three months ended June
30, 2005 and 2004, respectively, and 11 percent of consolidated operating income
before headquarter overheads for the six months ended June 30, 2005 and June 30,
2004. 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 $491  million and $443  million of deferred  revenue at June 30,
2005 and December 31, 2004,  respectively,  which  consist  primarily of upfront
payments  received  for annual  contracts  relating  to home  warranty,  termite
baiting,  pest  control and lawn care  services.  The  revenue  related to these
services is recognized  over the  contractual  period as the direct costs occur,
such as when the services are performed or claims are incurred.

Customer  acquisition costs, which are incremental and direct costs of obtaining
a customer,  are deferred and amortized over the life of the related contract in
proportion to revenue  recognized.  These costs include  sales  commissions  and
direct selling costs which can be shown to have resulted in a successful sale.


                                       6
<PAGE>


TruGreen ChemLawn has significant seasonality in its business. In the winter and
early spring,  this business  sells a series of lawn  applications  to customers
which are rendered  primarily in March through October (the production  season).
This business incurs  incremental  selling expenses at the beginning of the year
that directly  relate to successful  sales for which the revenues are recognized
in  later  quarters.  TruGreen  ChemLawn  also  defers,  on  an  interim  basis,
pre-season  advertising costs and annual repairs and maintenance procedures that
are performed in the first  quarter.  These costs are deferred and recognized in
proportion  to the contract  revenue  over the  production  season,  and are not
deferred beyond the calendar year-end.  In the second quarter of 2005,  TruGreen
ChemLawn  corrected its method of allocating  certain sales and marketing  costs
among interim periods.  This change resulted in more costs being deferred in the
second  quarter,  which  will then be  expensed  over the  remaining  production
season.  Other business segments of the Company also defer, on an interim basis,
advertising  costs  incurred  early in the year.  These costs are  deferred  and
recognized  approximately in proportion to revenue over the balance of the year,
and are not deferred beyond the calendar year-end.

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

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

NOTE 4: The Company  carries  insurance  policies on  insurable  risks at levels
which it believes to be appropriate,  including workers' compensation,  auto and
general  liability  risks.  The Company has  self-insured  retention  limits and
insured layers of excess  insurance  coverage  above those limits.  Accruals for
self-insurance  losses and warranty  claims in the American Home Shield business
are made based on the Company's  claims  experience  and actuarial  projections.
Current  activity  could differ  causing a change in estimates.  The Company has
certain liabilities with respect to existing or potential claims,  lawsuits, and
other proceedings. The Company accrues for these liabilities when it is probable
that future costs will be incurred and such costs can be  reasonably  estimated.
Any resulting  adjustments,  which could be material, are recorded in the period
identified.

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

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


                                       7
<PAGE>

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

<TABLE>

(In thousands)                    As of                                            As of
                                Dec. 31,                                         June 30,
                                  2004           Additions        Amort.           2005
                               -------------    -------------    -----------    ------------
<S>                             <C>                 <C>               <C>        <C>
Goodwill(1)                     $1,568,044          $21,828           $  -       $1,589,872
Trade names(1)                     204,793                -              -          204,793

Other intangible assets             45,788            2,430              -           48,218
Accumulated amortization(2)       (29,801)                -        (2,483)         (32,284)
                               -------------    -------------    -----------    -------------
Net other intangibles               15,987            2,430        (2,483)           15,934
                               -------------    -------------    -----------    -------------
Total                           $1,788,824          $24,258       $(2,483)       $1,810,599
                               =============    =============    =============  =============

</TABLE>

(1)  Not subject to amortization.
(2)  Annual amortization expense of approximately $6 million in 2005 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)                     June 30,           Dec. 31,
                                          2005               2004
                                       -------------     --------------
     TruGreen                             $693,449           $681,954
     Terminix                              654,142            643,567
     American Home Shield(1)                85,526             72,085
     ARS/AMS                                56,171             56,171
     Other Operations(1)                   100,584            114,267
                                       -------------     --------------
     Total                              $1,589,872         $1,568,044
                                       =============     ==============

(1)  In the second  quarter of 2005,  approximately  $13  million of  enterprise
     goodwill  was  reclassified  to the American  Home Shield  segment from the
     Other Operations segment.

NOTE 6: Basic  earnings per share are computed by dividing  income  available to
common stockholders by the weighted-average number of shares outstanding for the
period.  The  weighted-average  common shares for the diluted earnings per share
calculation  include the incremental  effect related to outstanding  options and
stock  appreciation  rights  (SARS) whose market price is in excess of the grant
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  securities  is added back to net income in the
numerator,  while the  diluted  shares in the  denominator  include  the  shares
issuable upon conversion of the securities.  Shares  potentially  issuable under
convertible securities have been considered outstanding for the three months and
six months ended June 30, 2005, as well as the three months ended June 30, 2004.
For the six months  ended  June 30,  2004,  shares  potentially  issuable  under
convertible  securities have not been considered  outstanding as their inclusion
results  in a less  dilutive  computation.  Had  the  inclusion  of  convertible
securities not resulted in a less dilutive  computation for the six months ended
June 30, 2004 incremental  shares  attributable to the assumed conversion of the
securities would have increased shares outstanding by 8.0 million shares and the
after-tax interest expense related to the convertible securities that would have
been added to net income in the numerator would have been $2.4 million.

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

<TABLE>

(In thousands, except per share data)
                                                            Three Months                           Three Months
                                                         Ended June 30, 2005                     Ended June 30, 2004
                                                   --------------------------------       ---------------------------------

CONTINUING OPERATIONS:                              Income       Shares      EPS           Income      Shares       EPS
----------------------                            ----------   ---------  --------       ----------  ---------  ----------
<S>                                                  <C>        <C>         <C>            <C>        <C>           <C>
 Basic earnings per share                            $80,185    291,634     $0.27          $70,688    289,887       $0.24
                                                                          ========                                ========
 Effect of dilutive securities, net of tax:
  Options & SARS                                                  5,743                                 5,057
  Convertible Securities                               1,178      8,000                      1,178      8,000
                                                   ----------   ---------                 ----------  ---------

 Diluted earnings per share                          $81,363    305,377     $0.27           $71,866   302,944      $0.24
                                                   ==========   =========  ========       ==========  =========  ==========


</TABLE>

                                       8
<PAGE>

<TABLE>

(In thousands, except per share data)
                                                                 Six Months                            Six Months
                                                             Ended June 30, 2005                   Ended June 30, 2004
                                                       --------------------------------       ------------------------------
CONTINUING OPERATIONS:                                  Income       Shares      EPS           Income      Shares     EPS
----------------------                                 ----------   ---------  --------       ----------  ---------  -------
<S>                                                      <C>          <C>        <C>           <C>         <C>        <C>
 Basic earnings per share                                $90,903     291,400    $0.31         $82,149     290,843    $0.28
                                                                                =======                              =======
 Effect of dilutive securities, net of tax:
  Options & SARS                                                       5,854                                4,647
  Convertible Securities                                   2,356       8,000                          -         -
                                                       ----------   ---------                 ----------  ---------

 Diluted earnings per share                              $93,259     305,254     $0.31         $82,149    295,490    $0.28
                                                       ==========   =========  ========       ==========  =========  =======
</TABLE>



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

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

<TABLE>

                                                         Three Months Ended                   Six Months Ended
                                                              June 30,                            June 30,
(In thousands, except per share data)                    2005              2004              2005            2004
                                                  ---------------------------------     ----------------------------
<S>                                                      <C>                <C>              <C>             <C>
Net income as reported                                   $79,801            $70,396          $90,373         $81,595

Add back:  Stock-based compensation
  expense included in reported net income,
  net of related tax effects                                 598                290            1,064             539

Deduct:  Stock-based compensation
  expense determined under fair-value method,
  net of related tax effects                             (1,403)            (1,396)          (3,009)         (2,820)
                                                 ---------------    ---------------    -------------    ------------
Proforma net income                                      $78,996            $69,290          $88,428         $79,314
                                                 ===============    ===============    =============    ============
Basic Earnings Per Share:
  As reported                                              $0.27              $0.24            $0.31           $0.28
  Proforma                                                 $0.27              $0.24            $0.30           $0.27

Diluted Earnings Per Share:
  As reported                                              $0.27              $0.24            $0.30           $0.28
  Proforma                                                 $0.26              $0.23            $0.30           $0.27


</TABLE>

In December 2004, the FASB issued SFAS 123 (revised 2004), "Share-Based Payment"
(SFAS 123(R)).  This Statement replaces SFAS 123, and supersedes APB Opinion No.
25. The  Statement  requires  that  compensation  expense be recorded  for newly
issued awards as well as the unvested  portion of previously  issued awards that
remain outstanding as of the effective date of this Statement. The provisions of
this Statement become effective January 1, 2006. The Company currently estimates
that the adoption of this  Statement  would reduce annual  earnings per share by
approximately  $.01 to $.02.  This Statement  permits the restatement of periods
prior to its  adoption.  Upon adopting this  Statement,  the Company  expects to
restate prior periods as if the Statement were in effect for all periods.


                                       9
<PAGE>

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 six
months ended June 30, 2005 and 2004 is presented in the following table:


                                                    (IN THOUSANDS)
                                                 2005            2004
                                              ----------      ----------
CASH PAID FOR OR (RECEIVED FROM):
Interest expense............................  $  30,167       $  29,829
Interest and investment income.............   $ (10,240)      $  (8,446)
Income taxes, net of refunds................  $ 139,777       $   6,296

The increase in cash  received from interest and  investment  income  reflects a
higher level of investment income and gains realized on the investment portfolio
at American  Home  Shield.  Cash paid for income  taxes  increased  in 2005 as a
result of $132  million  of taxes paid this year to the IRS and  various  states
pursuant to the Company's agreement reached in January 2005 with the IRS.

NOTE 9: Total comprehensive income was $79 million and $69 million for the three
months  ended  June 30,  2005 and 2004,  respectively  and $88  million  and $80
million  for the six months  ended June 30, 2005 and 2004,  respectively.  Total
comprehensive income includes primarily net income,  changes in unrealized gains
and losses on marketable securities and foreign currency translation balances.

NOTE 10: The Company has an agreement to provide for the ongoing  revolving sale
of a designated pool of accounts receivable of TruGreen ChemLawn and Terminix to
a  wholly  owned,  bankruptcy-remote  subsidiary,   ServiceMaster  Funding  LLC.
ServiceMaster  Funding LLC has  entered  into an  agreement  to  transfer,  on a
revolving  basis,  an  undivided  percentage  ownership  interest  in a pool  of
accounts receivable to unrelated third party purchasers.  ServiceMaster  Funding
LLC retains an undivided  percentage interest in the pool of accounts receivable
and bad debt losses for the entire  pool are  allocated  first to this  retained
interest.  During the six months  ended  June 30,  2005 and 2004,  there were no
receivables sold to third parties under this agreement. However, the Company may
sell its  receivables in the future,  which would provide an additional  funding
source.  The agreement is a 364-day  facility that is renewable at the option of
the  purchasers.  The Company may sell up to $70 million of its  receivables  to
these  purchasers  in the  future and  therefore  has  immediate  access to cash
proceeds from these sales. The amount of the eligible  receivables varies during
the year based on seasonality of the business and will at times limit the amount
available to the Company.

NOTE 11: Total debt was $799 million at June 30, 2005,  approximately $6 million
below the level at December 31, 2004.  Approximately 62 percent of the Company's
debt matures beyond five years and 52 percent  beyond  fifteen  years.  In April
2005,  approximately  $137 million of the  Company's  public debt  matured.  The
Company funded this debt payment with long-term financing under revolving credit
facilities.

NOTE 12: In the past  several  years,  the  Company  has sold or exited  various
operations  of the  Company.  The  results  of these  business  units  have been
reclassified  as  "Discontinued   Operations"  in  the  accompanying   financial
statements.  The following  table  summarizes the activity during the six months
ended  June  30,  2005  for the  remaining  liabilities  from  the  discontinued
operations. The remaining liabilities primarily represent obligations related to
long-term  self-insurance claims and certain contractual  obligations related to
international pest control operations. The Company continues to believe that the
remaining reserves are adequate.

  (IN THOUSANDS)                     Balance at        Cash       Balance at
                                    December 31,     Payments      June 30,
                                        2004         or Other        2005
                                   ---------------  -----------  --------------
  Remaining liabilities from
    discontinued operations            $30,593        $3,401       $27,192



                                       10
<PAGE>


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

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

<TABLE>


(IN THOUSANDS)                               Three Months        Three Months            Six Months            Six Months
                                            Ended June 30,      Ended June 30,         Ended June 30,        Ended June 30,
                                                 2005                2004                   2005                  2004
--------------------------------------------------------------------------------     ------------------------------------------
Operating Revenue:
<S>                                                 <C>                 <C>                     <C>                   <C>
  TruGreen                                          $477,783            $453,710                $700,765              $678,369
  Terminix                                           305,616             282,318                 553,361               519,114
  American Home Shield                               144,286             133,462                 255,296               236,259
  ARS/AMS                                            203,485             179,697                 362,034               333,681
  Other Operations                                    42,942              39,529                  84,965                78,184
--------------------------------------------------------------------------------     ------------------------------------------
Total Operating Revenue                           $1,174,112          $1,088,716              $1,956,421            $1,845,607
================================================================================     ==========================================

Operating Income (1):
  TruGreen                                           $68,603             $65,897                 $60,995               $62,999
  Terminix                                            57,246              48,483                  88,011                84,737
  American Home Shield                                23,678              23,837                  37,951                33,953
  ARS/AMS                                              5,189               1,613                   1,684               (2,035)
  Other Operations                                   (9,823)            (10,459)                (17,898)              (19,180)
--------------------------------------------------------------------------------     ------------------------------------------
Total Operating Income                              $144,893            $129,371                $170,743              $160,474
================================================================================     ==========================================
</TABLE>

(1)  Presented below is a reconciliation  of segment  operating income to income
     from continuing operations before income taxes.
<TABLE>

(IN THOUSANDS)                               Three Months        Three Months            Six Months            Six Months
                                            Ended June 30,      Ended June 30,         Ended June 30,        Ended June 30,
                                                 2005                2004                   2005                  2004
--------------------------------------------------------------------------------     ------------------------------------------
<S>                                                 <C>                 <C>                    <C>                    <C>
Segment Operating Income                            $144,893            $129,371               $170,743               $160,474
Non-operating expense (income):
  Interest expense                                    14,401              15,007                 29,980                 29,938
  Interest and investment income                      (3,226)             (3,036)               (12,600)                (7,606)
  Minority interest and other
    expense, net                                       2,047               2,086                  4,093                  4,132
--------------------------------------------------------------------------------     ------------------------------------------
Income from Continuing
  Operations before Income Taxes                    $131,671            $115,314               $149,270               $134,010
================================================================================     ==========================================
</TABLE>


                                       11
<PAGE>


The  combined  franchise  operations  of  ServiceMaster  Clean and  Merry  Maids
comprised  approximately  four  percent  and three  percent of the  consolidated
revenue for the three  months  ended June 30, 2005 and 2004,  respectively,  and
four percent of the consolidated  revenue for the six months ended June 30, 2005
and 2004.  These  operations  comprised  approximately  seven  percent and eight
percent of the consolidated  operating income before  headquarter  overheads for
the three months ended June 30, 2005 and 2004,  respectively,  and 11 percent of
the  consolidated  operating  income  before  headquarter  overheads for the six
months ended June 30, 2005 and 2004.

<TABLE>

(IN THOUSANDS)                                                              As of                    As of
                                                                        June 30, 2005            Dec. 31, 2004
--------------------------------------------------------------------------------------------------------------------
Identifiable Assets:
<S>                                                                            <C>                          <C>
  TruGreen                                                                     $1,060,001                   $957,683
  Terminix                                                                        876,768                    843,272
  American Home Shield                                                            517,787                    474,326
  ARS/AMS                                                                         208,348                    191,618
  Other Operations                                                                503,520                    673,303
--------------------------------------------------------------------------------------------------------------------
Total Identifiable Assets                                                      $3,166,424                 $3,140,202
====================================================================================================================


(IN THOUSANDS)                                                              As of                    As of
                                                                        June 30, 2005            June 30, 2004
--------------------------------------------------------------------------------------------------------------------
Capital Employed: (2)
  TruGreen                                                                       $900,395                   $895,246
  Terminix                                                                        629,728                    602,811
  American Home Shield                                                            193,110                    144,082
  ARS/AMS                                                                          89,736                     93,933
  Other Operations                                                                107,330                   (16,301)
--------------------------------------------------------------------------------------------------------------------
Total Capital Employed                                                         $1,920,299                 $1,719,771
====================================================================================================================
</TABLE>

(2)  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.  Presented  below  is a
     reconciliation  of total segment  capital  employed to the most  comparable
     U.S. GAAP measure.

<TABLE>

(IN THOUSANDS)                                                              As of                    As of
                                                                        June 30, 2005            June 30, 2004
--------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>                        <C>
Total Assets                                                                   $3,166,424                 $3,087,960
Less:
    Current liabilities, excluding current portion of
       long-term debt                                                             968,020                    912,007
     Long-term liabilities                                                        278,105                    456,182
--------------------------------------------------------------------------------------------------------------------
Total Capital Employed                                                         $1,920,299                 $1,719,771
====================================================================================================================
</TABLE>



                                       12
<PAGE>


      MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
                                 OF OPERATIONS


RESULTS OF OPERATIONS

SECOND QUARTER 2005 COMPARED TO 2004

ServiceMaster  (the  "Company")  reported  second  quarter 2005 revenue of $1.17
billion,  an eight percent increase  compared to 2004. The growth in revenue was
solid and  well-balanced  throughout  the  enterprise,  and virtually all of the
growth was organic.  Second quarter 2005 diluted earnings per share increased 13
percent  to $.27,  compared  to $.24 in 2004.  Operating  income  for the second
quarter  increased 12 percent to $145 million  compared to $129 million in 2004,
and operating  income  margins  improved to 12.3 percent of revenue in 2005 from
11.9  percent of revenue in 2004.  The  increase in  operating  income  reflects
strong double-digit profit growth at Terminix supported by the beneficial impact
of  transitioning  termite sales to a new bait product,  an increased  volume of
production at TruGreen ChemLawn, lower insurance costs at the headquarters level
due  to  favorable   trending  of  prior  year  claims,   as  well  as  improved
profitability in both the ARS and AMS operations.

The results for the second quarter were affected by two  significant  costs that
are going in opposite directions: (1) Fuel Costs - Enterprise-wide,  the Company
continues  to be  negatively  impacted by  significant  increases in fuel costs.
Although the Company  hedges  approximately  two-thirds of its estimated  annual
fuel usage,  fuel costs even net of the hedges,  increased  almost $4 million in
the  quarter,  and are expected to continue to present a challenge in the second
half of the year. The Company is piloting  routing and  scheduling  software and
GPS  technologies  which would  tighten  routes and reduce future drive time and
fuel consumption.  (2) Safety-related  costs - On the positive side, the Company
continues  to   experience   favorable   results  from  its  efforts  to  reduce
self-insurance  costs,  which include  workers'  compensation,  auto and general
liability claims.  These safety-related costs total almost $120 million annually
and had been  increasing  at  double-digit  rates in recent  years.  The Company
believes that it is succeeding in its efforts to create a strong safety  culture
throughout the  enterprise.  In the first half of 2005,  the Company  achieved a
reduction  in  overall  vehicle  collision  rates  and a sharp  decline  in lost
employee work days. In addition,  the cost of claims  incurred in 2004 and prior
years  continues to trend  favorably  in  comparison  to the original  estimates
prepared by the Company's independent actuaries. In total, self-insurance costs,
including  the  effects of  favorable  prior  year  claims  trending,  were down
approximately  $5  million  during the  quarter,  and the  Company is  targeting
continued progress in the future.

The Company has  re-affirmed  its outlook for the year. The Company  anticipates
that earnings per share growth in the second half of the year will be comparable
to the first half of the year. The Company  expects  revenue growth to be in the
mid- to high-single digit range and earnings per share will grow somewhat faster
than  revenues.  The  Company's  cash  provided from  operating  activities  has
consistently and significantly exceeded net income, and the Company expects this
trend to continue  in 2005 even after  considering  the effects of the  payments
related to the previously  disclosed agreement with the Internal Revenue Service
(IRS).

Cost of services  rendered and products  sold  increased  seven  percent for the
second  quarter and decreased as a percentage of revenue to 63.5 percent in 2005
from 64.1 percent in 2004. This decrease  reflects  favorable  trending of prior
year  self-insurance  claims,  as well as a  change  in the mix of  business  as
Terminix  and American  Home Shield  increased  in size in  relationship  to the
overall business of the Company.  These businesses  generally  operate at higher
gross margin  levels than the rest of the  business,  but also incur  relatively
higher selling and administrative expenses.  Selling and administrative expenses
increased nine percent for the quarter. As a percentage of revenue,  these costs
increased  to 24.1  percent for the  quarter in 2005 from 23.9  percent in 2004,
primarily reflecting the change in business mix described above.

Net  non-operating  expenses for the quarter were $13 million  compared with $14
million in the prior year,  primarily  reflecting a modest  decrease in interest
expense.


                                       13
<PAGE>


SEGMENT REVIEWS FOR THE SECOND QUARTER 2005 COMPARED TO 2004

The following  business  segment reviews should be read in conjunction  with the
required  footnote   disclosures   presented  in  the  Notes  to  the  Condensed
Consolidated Financial Statements.  This disclosure provides a reconciliation of
segment  operating  income to income from  continuing  operations  before income
taxes,  with net  non-operating  expenses  as the  only  reconciling  item.  The
Company's  business  segment  reviews include  discussions of capital  employed,
which 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 Notes to the Condensed Consolidated Financial Statements
also include a reconciliation of segment capital employed to its most comparable
U.S. GAAP measure.

The TruGreen  segment  includes lawn care services  performed under the TruGreen
ChemLawn  brand  name and  landscape  maintenance  services  provided  under the
TruGreen  LandCare  brand name.  The TruGreen  segment  reported  second quarter
revenue of $478 million, five percent above the prior year. The segment reported
a four  percent  increase  in  operating  income for the  quarter to $69 million
compared to $66 million in 2004.

Revenue in the lawn care  operations  increased six percent to $357 million from
$336 million in 2004.  Revenue growth resulted from improved price  realization,
the  recapture  of some of the  first  quarter  production  that was  previously
delayed,  an increase in supplemental  customer  services,  and overall customer
count growth.  As previously  disclosed in the Company's first quarter Form 10-Q
filing,  first quarter lawn care production was adversely impacted by late snows
in several key regions.  The Company  recaptured  approximately  one-half of the
delayed  production  (or $4.5 million) in the second  quarter,  with most of the
balance  now  scheduled  for  the  third  quarter.   Customer  counts  increased
approximately  two percent,  reflecting  the impact of  acquisitions,  partially
offset by a modest  reduction in retention rates.  Year-to-date  unit sales were
comparable  to last year's levels as the  successful  expansion of the Company's
neighborhood  selling  efforts  and  direct  mail  programs  offset a decline in
telemarketing  sales due to the increased impact of "do-not-call"  restrictions.
Second quarter operating income of the lawn care operations increased $5 million
and included the recapture of some of the first quarter production. A correction
in the Company's  method of allocating  certain sales and marketing  costs among
interim  periods  had a $3  million  favorable  impact  in the  second  quarter,
however, the Company also recognized a similar unfavorable amount representing a
higher portion of expected full year incentive compensation costs.

Second  quarter  revenue in the  landscape  maintenance  business  increased two
percent  to $120  million,  compared  to $118  million  in 2004.  Base  contract
maintenance  revenue  increased  slightly  as a higher  level of new sales  were
partially offset by a modest decline in customer retention.  Enhancement revenue
(e.g.,  add-on  services  such as seasonal  flower  plantings,  mulching,  etc.)
increased  three percent for the quarter,  supported by focused  sales  efforts.
Second quarter  operating  losses for the landscape  operations  increased by $3
million as a result of differences in the timing of certain expenses between the
first and second  quarters in 2004, as well as increased fuel and vehicle costs.
The Company continues to anticipate  strong profit  improvement in the landscape
operations  for the second half and for the full year.  Results are  expected to
benefit from  management's  focus on key initiatives,  including:  enhancing the
capabilities,   training  and  methods  of  the  sales  team,  reducing  workers
compensation  and safety claims,  and improving the scheduling and management of
labor costs.

Capital  employed  in the  TruGreen  segment  increased  one  percent  primarily
reflecting  the  impact of  tuck-in  acquisitions,  offset  in part by  improved
working capital management.

The Terminix segment, which includes termite and pest control services, reported
an eight percent increase in second quarter revenue to $306 million, compared to
$282  million in 2004.  Operating  income  increased  18 percent to $57  million
compared to $48 million in 2004.  Strong growth in revenue from initial  termite


                                       14
<PAGE>

applications  ("termite  completions")  reflected  a nine  percent  increase  in
renewable  unit  sales  resulting  from  an  increased  sales  force,   expanded
geographic  presence,  and the  favorable  impact of a new termite  bait product
introduced in 2005,  offset in part by a shift in mix toward lower priced liquid
treatments.  Termite renewal revenue  increased  modestly,  reflecting  improved
pricing,  partially  offset by a slight  decrease in customer  retention.  Total
termite  customer  counts  increased one percent,  reflecting the growth in unit
sales,  offset in part by the decline in the rate of retention.  Solid growth in
second quarter pest control revenue  reflected the impact of acquisitions  and a
slight  increase  in unit  sales,  partially  offset  by a decline  in  customer
retention.  The strong growth in the  segment's  operating  income  reflects the
increased  revenue  levels,  labor  efficiencies  in the liquid  termite  option
resulting  from new  application  techniques,  as well as the lower material and
labor costs  associated  with the new termite bait product.  In addition,  since
more of the total  first  year  costs  associated  with this  bait  product  are
incurred at the time of installation,  less revenue and gross profit is required
to be deferred to future quarters. This timing benefit favorably impacted second
quarter operating income by approximately $5 million. Last year's second quarter
included a $6 million non-recurring,  favorable termite damage claim adjustment.
Capital employed in the Terminix segment increased four percent,  reflecting the
impact of acquisitions.

The American Home Shield  segment,  which provides home  warranties to consumers
that cover heating,  ventilation and air conditioning (HVAC), plumbing and other
home systems and  appliances,  reported an eight percent  increase in revenue to
$144  million  from $133  million in 2004 and  operating  income of $24 million,
comparable to 2004. New warranty  contract  sales,  which are reported as earned
revenue over the subsequent twelve-month contract period, increased nine percent
for the quarter.  Customer  renewals,  which are American Home Shield's  largest
source of revenue,  experienced solid double-digit  growth,  reflecting a larger
base of renewable  customers and an overall  improved  customer  retention rate.
Real estate  sales,  which are American Home Shield's  second  largest  channel,
decreased modestly in the second quarter as a result of increased competition in
certain higher warranty usage states. Consumer sales, which are the smallest but
fastest growing channel,  experienced strong double-digit growth, reflecting the
successful  expansion  of the  targeted  direct  mail  program.  Second  quarter
operating  income was  comparable to last year as  incremental  profits from the
increased  revenue  levels  were  offset  by a  higher  rate of  service  claims
resulting from hotter weather than the unusually mild  conditions that prevailed
throughout  much of the country last year.  As  discussed  in previous  filings,
planned  investments to increase market penetration and further improve customer
retention  also had an  impact.  These  claim and  investment  factors  are also
expected to impact third quarter growth comparisons.  Capital employed increased
34 percent  reflecting volume growth in the business resulting in a higher level
of cash and marketable securities balances.  The calculation of capital employed
for the American Home Shield  segment  includes  approximately  $274 million and
$238 million of cash,  cash  equivalents  and marketable  securities at June 30,
2005 and 2004, respectively.

The ARS/AMS segment provides direct HVAC,  plumbing and electrical  installation
and repair  services  under the brand  names of ARS  Service  Express and Rescue
Rooter  (collectively  "ARS Service  Express"),  as well as American  Mechanical
Services  (AMS) for large  commercial  accounts.  Revenue for the second quarter
increased  13  percent  to $203  million  in 2005  from  $180  million  in 2004.
Operating  income  increased to $5 million  compared to $2 million in 2004.  The
increase in revenue  resulted  from  continued  strong  increases in  commercial
installation  revenue  in the AMS  operations  and  strong  growth in ARS's HVAC
add-on-replacement  sales and residential  construction  revenue.  The growth in
HVAC  replacement  sales was supported by the Company's  efforts to increase the
sales mix of higher priced and more energy efficient units as well as its retail
outlet initiative.  These increases were partially offset by revenue declines in
both HVAC and plumbing  service.  A modest  decline in second  quarter  plumbing
revenue  resulted from continued  declines in retail  service calls,  which more
than offset increases from sewer line repairs and light commercial services. The
improvement in the segment's  second quarter  operating income resulted from the
increased  level of  revenue,  profit  improvement  efforts  at  underperforming
locations,  and a  reduced  level  of  marketing  spending,  offset  in  part by
increased  incentive  compensation  and fuel  costs.  Capital  employed  in this
segment decreased four percent.

The Other  Operations  segment  includes the Company's  ServiceMaster  Clean and
Merry Maids  operations as well as its headquarters  functions.  Revenue in this
segment  increased nine percent to $43 million  compared to $40 million in 2004.
On  a  combined  basis,  the  ServiceMaster  Clean  and  Merry  Maids  franchise
operations  reported  revenue  growth  of 10  percent  and a solid  increase  in
operating  income.


                                       15
<PAGE>

ServiceMaster Clean again reported  double-digit growth in disaster  restoration
services and modestly  improved  momentum in  commercial  cleaning.  Merry Maids
continued to experience  strong  internal  revenue growth in both the branch and
franchise  operations.  The segment as a whole reported a smaller second quarter
operating  loss in  2005,  reflecting  the  effects  of  favorable,  actuarially
determined adjustments to prior year self-insurance reserves, and higher profits
from ServiceMaster  Clean and Merry Maids,  offset by planned increases in other
headquarter  level  costs and  investments.  Capital  employed  in this  segment
increased,  primarily  reflecting the deferred tax assets recorded in the fourth
quarter of 2004 at the  conclusion of the IRS reviews of the  Company's  federal
income taxes through the year 2002.

SIX MONTHS ENDED JUNE 30, 2005 COMPARED TO 2004

The Company  reported revenue of $1.96 billion for the six months ended June 30,
2005, a six percent increase over 2004. For the six months, all of the Company's
business  segments  reported  increases  in revenue,  and  consolidated  organic
revenue growth totaled  approximately five percent. For the six months,  diluted
earnings per share were $.30  compared with $.28 in 2004.  Diluted  earnings per
share from  continuing  operations were $.31, 11 percent above the $.28 reported
in 2004  supported by the strong profit growth  achieved in the second  quarter.
Operating  income increased six percent to $171 million compared to $160 million
in 2004, reflecting the strong profit growth achieved in the second quarter.

Cost of services  rendered and products sold  increased five percent for the six
months and decreased as a percentage of revenue to 66.5 percent in 2005 compared
to 67.3 percent in 2004.  As discussed in the second  quarter  comparison,  this
decrease reflects  favorable  trending of prior year  self-insurance  claims, as
well as a change in the mix of  business.  Selling and  administrative  expenses
increased  ten percent and  increased as a percentage of revenue to 24.6 percent
in 2005 from 23.8 percent in 2004.

Net non-operating  expense decreased $5 million from 2004,  primarily reflecting
higher  investment  income  experienced  on the American Home Shield  investment
portfolio. It is important to note that investment gains are an integral part of
the  business  model at  American  Home  Shield,  and there will  always be some
market-based  variability  in the  amount  of gains  realized  from  quarter  to
quarter.

KEY PERFORMANCE INDICATORS

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

                                                     KEY PERFORMANCE INDICATORS
                                                           As of June 30,

                                                     2005             2004
                                                 ------------     ------------
   TRUGREEN  CHEMLAWN-
      Growth in Full Program Contracts                 2%              8% (a)
      Customer Retention Rate                       66.4%           66.8%

   TERMINIX -
      Growth in Pest Control Customers                 4%              6%
      Pest Control Customer Retention Rate          77.3%           78.6%

      Growth in Termite Customers                      1%             -1%
      Termite Customer Retention Rate               88.0%           88.7%

   AMERICAN HOME SHIELD -
      Growth in Warranty Contracts                    5%               6%
      Customer Retention Rate                      55.9%            54.9%

(a)  Customer  count  growth  in 2004,  excluding  the  impact  of the  Canadian
     acquisition completed in April 2004, was approximately three percent.


                                       16
<PAGE>


SEGMENT REVIEWS FOR THE SIX MONTHS ENDED JUNE 30, 2005 COMPARED TO 2004

As discussed in the second quarter  comparison,  the following  business segment
reviews should be read in  conjunction  with the required  footnote  disclosures
presented in the Notes to the Condensed Consolidated Financial Statements.

For the six months,  the TruGreen  segment  reported a three percent increase in
revenue to $701  million  compared  to $678  million in 2004.  Operating  income
decreased three percent to $61 million compared to $63 million in 2004.  Revenue
in the lawn care  operations  increased  four  percent to $481 million from $461
million in 2004. The increase in revenue  reflects  improved price  realization,
solid growth in supplemental  customer services,  as well as the higher customer
count. The Company continues to successfully expand new sales channels,  helping
to offset  continued sharp declines in  telemarketing.  During the first half of
2005, sales from direct mail efforts increased 10 percent,  while sales from our
neighborhood  programs more than tripled.  Implementation  of best practices and
other program  improvements have enabled the Company to achieve a solid increase
in the average productivity of its neighborhood sales  representatives,  even as
the scope of its  efforts in this area have been  substantially  expanded.  With
respect to overall  pricing,  a more strategic and disciplined  approach,  which
included reduced discounting on new sales and selectively  targeted increases to
the existing customer base, has resulted in a two percent overall improvement in
price  realization,  up from just  under one  percent  last year.  The  customer
retention rate decreased 40 basis points, as continued  improvements in the U.S.
were offset by declines in Canada,  which the Company  believes are attributable
to unique circumstances in that market. Overall,  retention rates have increased
400 basis points since 2001,  and the Company is  targeting,  and  anticipating,
meaningful additional  improvement in future years. To capture that opportunity,
the Company has taken comprehensive steps to improve customer  communication and
problem resolution procedures,  expand quality assurance processes,  and provide
focused incentives at all levels. Additionally,  the previously discussed change
in sales mix is also  expected to contribute  to improved  retention.  Operating
income in the lawn care  operations  decreased $4 million,  reflecting the first
time inclusion of $3 million of seasonal losses in the Canadian  operations that
were acquired in April 2004, as well as higher fuel and fleet-related costs.

Revenue in the landscape  maintenance  operations  increased one percent to $220
million  from $217  million in 2004,  reflecting  a three  percent  increase  in
enhancement revenue and a slight increase in base contract  maintenance revenue.
Customer retention continues to be an area requiring improvement, but it is also
a significant  and achievable  opportunity,  with current rates at least 10 full
percentage points below the Company's long term expectations. Retention is a top
operational priority within the landscape operations,  with intensified focus on
improving customer  communications  and service level consistency.  The level of
the operating loss of the landscape  operations  improved $2 million for the six
months,  reflecting the favorable impact of one-time branch shut-down costs that
were incurred last year and the  increased  volume of higher margin  enhancement
revenue.

The Terminix  segment  reported a seven percent  increase in revenue for the six
months to $553  million  compared to $519 million in 2004 and  operating  income
growth of four percent to $88 million  compared to $85 million in 2004.  For the
six months, a double-digit  increase in termite completion revenue resulted from
a strong  increase  in  renewable  unit sales and,  as  discussed  in the second
quarter  comparison,  the  favorable  impacts  of a  new  termite  bait  product
introduced earlier this year. Modest growth in termite renewal revenue reflected
the impact of improved  pricing,  offset in part by a 70 basis point  decline in
customer  retention.  The  Company  does not  believe  the  decline  in  termite
retention is systemic.  The Company is addressing the issue by  fine-tuning  the
approach to price  increases  and taking  steps to improve  problem  resolution.
Solid growth in pest control  revenue  resulted from the impact of  acquisitions
and an  increase in unit sales,  offset in part by a decline in  retention.  The
Company believes the pest retention  comparisons have been adversely impacted by
the relative  timing of  cancellations  last year,  and management is working to
ensure  that  they are not  indicative  of the start of a new  trend.  Operating
income growth for the six months was supported by the increased  revenue levels,
lower material and labor costs associated with the new termite bait product, and
labor  productivity  gains  in the  liquid  termite  option  resulting  from new
application  techniques,  partially offset by incremental pre-season investments
made in the first  quarter to expand the sales force and  re-organize  the field
operations.


                                       17
<PAGE>

For the six months,  the American Home Shield segment  reported an eight percent
increase  in revenue to $255  million  from $236  million in 2004 and  operating
income growth of 12 percent, to $38 million compared to $34 million in 2004. New
warranty  contract  sales,  which  are  reported  as  earned  revenue  over  the
subsequent  twelve-month  contract  period,  increased eight percent for the six
months.  Double-digit  growth in customer  renewals resulted from an increase in
the base of  customers  available  to renew  and an  overall  improved  customer
retention  rate.  The  improvement  in  retention  reflects a  favorable  mix in
customers  renewing as well as a reduced level of  non-renewal  contracts due to
mortgage  refinancing,.  Real estate sales  declined  modestly for the first six
months, while an increased level of targeted direct mail solicitations  resulted
in strong double-digit sales growth in the consumer sales channel.  The increase
in operating  income for the six months reflects  favorable  trending of service
claims pricing in the first quarter, offset in part by higher claim costs in the
second  quarter  resulting  from an increased  incidence of claims due to hotter
weather.  In addition,  the Company  incurred  planned  investments  to increase
market penetration and customer retention.

The ARS/AMS segment  reported an eight percent  increase in revenues for the six
months to $362 million  compared to $334 million in 2004.  The segment  reported
operating  income of $2  million in 2005  compared  to an  operating  loss of $2
million in 2004.  The  growth in revenue  reflected  a strong  increase  in AMS'
commercial project revenue and double-digit growth in ARS' replacement sales and
residential new construction  revenue,  offset in part by a decline in core HVAC
and plumbing service call revenue.  The increase in operating income for the six
months  primarily  reflects the increased  level of revenue as well as a reduced
level of marketing spending,  offset in part by increased incentive compensation
and fuel costs. At AMS,  installation  and retrofit project revenues and related
backlogs  were both up  significantly,  as the  commercial  construction  sector
continues to slowly, but steadily, recover from a cyclical downturn.

The Other Operations segment reported a nine percent increase in revenues to $85
million  for the six months  compared  with $78  million in 2004.  On a combined
basis, the  ServiceMaster  Clean and Merry Maids franchise  operations  achieved
revenue  growth  of 10  percent  with a strong  increase  in  operating  income.
ServiceMaster  Clean reported  strong growth in disaster  restoration  services.
Merry Maids achieved very strong  internal  revenue  growth and improving  gross
profit  margins in the branch  operations.  For the first six months,  the Other
Operations segment reported a smaller operating loss in 2005, resulting from the
effects  of  favorable,   actuarially   determined  adjustments  to  prior  year
self-insurance  reserves,  and higher profits from ServiceMaster Clean and Merry
Maids,  offset  by  planned  increases  in other  headquarter  level  costs  and
investments.

FINANCIAL POSITION AND LIQUIDITY

CASH FLOWS FROM OPERATING ACTIVITIES
Net cash used for operating  activities was approximately $3 million for the six
months,   compared  to  approximately   $116  million  provided  from  operating
activities  in the prior year.  The  decrease  in net cash flow of $119  million
primarily reflects $132 million of previously disclosed tax payments relating to
the 2005 IRS agreement.  These  payments  represent only one part of a four part
agreement  with the IRS,  which also  included:  tax savings of $25 million that
were realized in 2004; a reduction in required estimated tax payments that would
have  otherwise  been  due in the  second  half of 2005  of $45  million,  and a
deferred tax annuity  totaling $57 million that will be realized  through  2016.
Excluding  the impact of the $132  million  tax  payment to the IRS and  various
states this year, six month cash provided by operating  activities  totaled $129
million,  approximately  $13 million more than the prior year level. This result
primarily  reflects  the  higher  level of  income.  Working  capital  usage was
comparable to last year.

Full year cash provided from operating  activities is expected to remain strong,
reflecting a solid earnings base, businesses that need relatively little working
capital to fund growth in their  operations,  and  significant  annual  deferred
taxes.

The  significant  annual cash tax benefit  primarily  represents a large base of
amortizable intangible assets which exist for income tax reporting purposes, but
not for book purposes. A significant portion of these assets arose in connection
with the Company's 1997 conversion from a limited  partnership to a corporation.
The  amortization  of the tax basis will  result in over $50  million of average
annual  cash tax  benefits  through  2012  for  which  no  corresponding  income
statement benefit is recorded.


                                       18
<PAGE>

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

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

Tuck-in acquisitions for the six months ended June 30, 2005 totaled $24 million,
compared  with $32 million in 2004.  Consideration  consisted of cash  payments,
seller financed notes and Company stock. In the second half of 2005, the Company
expects  to  continue  its  tuck-in  acquisition  program at both  Terminix  and
TruGreen ChemLawn,  with overall  acquisitions for the year at approximately the
same level as 2004.

CASH FLOWS FROM FINANCING ACTIVITIES
Cash  dividends paid to  shareholders  totaled $64 million or $.22 per share for
the six months  ended June 30, 2005.  In July 2005,  the Company  announced  the
declaration  of a cash  dividend of $.11 per share payable on August 31, 2005 to
shareholders  of record on August  15,  2005.  The  timing  and amount of future
dividends and related  increases are at the discretion of the Board of Directors
and will  depend  on,  among  other  things,  the  Company's  capital  structure
objectives and cash requirements.

In July  2000,  the  Board  of  Directors  authorized  $350  million  for  share
repurchases.  There remains  approximately $65 million available for repurchases
under the July 2000  authorization.  The  Company  completed  approximately  $16
million in share repurchases in the six months ended June 30, 2005 at an average
price of $13.64 per share.  The Company  did not  repurchase  shares  during the
second  quarter as cash was used to fund peak seasonal  operating  needs and the
IRS payment.  The Company expects to resume share repurchases in the second half
of  2005,  and  for  the  full  year,  repurchases  are  anticipated  to be at a
comparable  level to 2004.  The actual  level of future share  repurchases  will
depend on various  factors  such as the  Company's  commitment  to  maintain  an
investment grade credit rating and other strategic investment opportunities.

LIQUIDITY
Cash and short and long-term  marketable  securities totaled  approximately $373
million at June 30,  2005,  compared  with $496  million at December  31,  2004.
Approximately $336 million of the 2005 amount is effectively required to support
regulatory  requirements at American Home Shield and for other  purposes.  Total
debt was $799 million at June 30, 2005,  approximately $6 million lower than the
amount at December 31, 2004.

Approximately  62 percent of the Company's debt matures beyond five years and 52
percent  beyond  fifteen  years.  In April 2005,  $137 million of the  Company's
public  debt  matured.  The  Company  funded this debt  payment  with  long-term
financing under the existing revolving credit facilities.

Management  believes that funds  generated from  operating  activities and other
existing  resources  will  continue to be adequate  to satisfy  ongoing  working
capital needs of the Company.  The Company maintains a revolving credit facility
of $500 million.  In May 2005, this agreement was amended to extend the maturity
date to May 2010 and reduce by 50 basis points the interest  rate payable  under
the  facility.  As of June 30, 2005,  the Company had $130 million of borrowings
outstanding  under this  facility and had issued  approximately  $154 million of
letters  of  credit,  resulting  in unused  commitments  of  approximately  $216
million.  The Company also has $550 million of senior  unsecured debt and equity
securities   available  for  issuance  under  an  effective  shelf  registration
statement. In addition, the Company has an arrangement enabling it to sell, on a
revolving basis,  certain  receivables to unrelated third party purchasers.  The
agreement  is a  364-day  facility  that  is  renewable  at  the  option  of the
purchasers.  The Company may sell up to $70 million of its  receivables to these
purchasers  in the future and  therefore  would  have  immediate  access to cash
proceeds from these sales. The amount of the eligible  receivables varies during
the year


                                       19
<PAGE>


based  on  seasonality  of the  business  and  will at times  limit  the  amount
available to the Company. During the six month period ended June 30, 2005, there
were no receivables sold to third parties under this agreement.

There have been no material changes in the Company's financing  agreements since
December  31,  2004,  other than as mentioned  in the  preceding  paragraph.  As
described in the Company's 2004 Annual Report,  the Company is party to a number
of debt  agreements  that  require it to maintain  certain  financial  and other
covenants, including limitations on indebtedness and an interest coverage ratio.
In addition, under certain circumstances, the agreements may limit the Company's
ability  to  pay  dividends  and  repurchase  shares  of  common  stock.   These
limitations are not expected to be a factor in the Company's  dividend and share
repurchase  plans in the near future.  Failure by the Company to maintain  these
covenants could result in the  acceleration of the maturity of the debt. At June
30, 2005, the Company was in compliance with the covenants related to these debt
agreements  and,  based on its  operating  outlook  for the  remainder  of 2005,
expects to be able to maintain  compliance  in the future.  The Company does not
have any debt agreements that contain put rights or provide for  acceleration of
maturity as a result of a change in credit rating.

The Company  maintains  lease  facilities  with banks totaling $68 million which
provide for the acquisition and development of branch properties to be leased by
the Company.  At June 30, 2005, there was approximately $68 million funded under
these  facilities.  Approximately $15 million of these leases have been included
on the  balance  sheet as  assets  with  related  debt as of June  30,  2005 and
December  31,  2004.  The  balance  of the  funded  amount  has been  treated as
operating leases. Approximately $15 million of the available facility expires in
January  2008 and the  remaining  $53 million  expires in  September  2009.  The
Company has guaranteed the residual value of the properties  under the leases up
to 82 percent of the fair market value at the commencement of the lease. At June
30, 2005, the Company's  residual value  guarantee  related to the leased assets
totaled $56 million for which the Company has recorded the estimated  fair value
of this guarantee (approximately $1.0 million) in the Consolidated Statements of
Financial Position.

The  majority  of the  Company's  fleet and some  equipment  are leased  through
operating leases.  The lease terms are non-cancelable for the first twelve month
term, and then are month-to-month, cancelable at the Company's option. There are
residual value  guarantees  (ranging from 70 percent to 87 percent  depending on
the  agreement) on these  vehicles and equipment,  which  historically  have not
resulted in significant net payments to the lessors. At June 30, 2005, there was
approximately $268 million of residual value relating to the Company's fleet and
equipment  leases.  The fair value  guarantee  of the assets under the leases is
expected to fully mitigate the Company's  obligations under the agreements.  The
fair value of this  guarantee  is not  material  to the  Company's  consolidated
financial statements.

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

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

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


                                       20
<PAGE>

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

The increase in accounts  payable from year-end levels reflects peak seasonality
at several of the business  units.  Deferred  revenue  increased  from  year-end
levels,  reflecting the significant amount of customer  prepayments  received in
the first  quarter  (pre-season)  at TruGreen  ChemLawn,  customer  payments for
termite  renewals  and growth in warranty  contracts  written at  American  Home
Shield,  offset in part by lowered deferred revenue balances associated with the
impact of the new termite bait  product.  The  decrease in income taxes  payable
from year-end  levels  reflects the February 2005 federal tax payment related to
the IRS agreement.

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

Total shareholders' equity was $1.0 billion at June 30, 2005 and $992 million at
December  31,  2004.  The increase  reflects  operating  profits 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 from year-end
levels  representing  collections  on  receivables.  The  remaining  liabilities
primarily represent  obligations related to long-term  self-insurance claims and
certain potential contractual  obligations related to international pest control
operations.

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


                                       21
<PAGE>


                    QUANTITATIVE AND QUALITATIVE DISCLOSURES
                                ABOUT MARKET RISK

The economy and its impact on discretionary consumer spending, labor wages, fuel
prices,  self-insurance and 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  percent 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  percent  to a variable  rate based on LIBOR (7.0
percent average rate during the six months ended June 30, 2005).

The Company generally  maintains the majority of its debt at fixed rates.  After
the effect of the interest  rate swap  agreements,  approximately  60 percent of
total  debt at June  30,  2005  was at a  fixed  rate.  With  respect  to  other
obligations,   the  payments  on  the   approximately  $68  million  of  funding
outstanding  under the Company's real estate  operating lease facilities as well
as its fleet and  equipment  operating  leases  (approximately  $268  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 June 30,  2005, a one
rating category improvement in the Company's credit ratings would reduce pre-tax
annual expense by approximately $0.5 million. A one rating category reduction in
the Company's  credit  ratings would increase  pre-tax  expense on an annualized
basis by approximately $1.0 million.

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

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

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



                                       22
<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.




                                       23
<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 June 30, 2005 under its share  repurchase
authorization.  The Company did not make any share repurchases  during the three
months ended June 30, 2005.  Decisions  relating to any future share repurchases
will depend on various  factors  such as the  Company's  commitment  to maintain
investment grade credit ratings and other strategic investment opportunities.

<TABLE>

                                                                                    Total               Approximate
                                                                                   Number              Dollar Value
                                                                                  of Shares           of Shares that
                                                                                Purchased as            May Yet be
                                        Total Number       Average Price      Part of Publicly           Purchased
                                          of Shares          Paid per             Announced              Under the
                                          Purchased            Share                Plan                   Plan
-------------------------------------------------------------------------------------------------------------------------
April 1, 2005 through
<S>                                            <C>               <C>                   <C>             <C>
  April 30, 2005                                -                $ -                   -               $65,000,000

May 1, 2005 through
  May 31, 2005                                  -                $ -                   -               $65,000,000

June 1, 2005 through
  June 30, 2005                                 -                $ -                   -               $65,000,000

                                ---------------------------------------------------------
Total                                           -                $ -                   -
                                =========================================================
</TABLE>

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

(a)  The Company's 2005 Annual Meeting of  Shareholders  ("Annual  Meeting") was
     held on May 6, 2005 in Downers Grove, Illinois.

(b)  The following persons were elected as Class of 2008 directors:
<TABLE>

NAME                           VOTES FOR                     VOTES WITHHELD                BROKER NON-VOTES
----                           ---------                     --------------                ----------------
<S>                            <C>                           <C>
Louis J. Giuliano              248,283,360                   3,489,530                     N/A
Roberto R. Herencia            248,578,830                   3,194,060                     N/A
Betty Jane Hess                248,707,923                   3,064,967                     N/A
Jonathan P. Ward               246,497,625                   5,275,265                     N/A
</TABLE>

     The following person was elected as Class of 2006 director:
<TABLE>

NAME                           VOTES FOR                     VOTES WITHHELD                BROKER NON-VOTES
----                           ---------                     --------------                ----------------
<S>                            <C>                           <C>
Eileen A. Kamerick             248,834,095                   2,938,795                     N/A
</TABLE>

     The following person was elected as Class of 2007 director:
<TABLE>

NAME                           VOTES FOR                     VOTES WITHHELD                BROKER NON-VOTES
----                           ---------                     --------------                ----------------
<S>                            <C>                           <C>
Coleman H. Peterson            248,741,037                   3,031,853                     N/A
</TABLE>



                                       24
<PAGE>

No votes  were  cast for any  other  nominee  for  directors.  The Class of 2006
continuing  in office are: John L. Carl,  Dallen W. Peterson and David  Wessner.
The Class of 2007  continuing in office are: Brian  Griffiths,  Sidney E. Harris
and James D. McLennan.  As reported on the Company's  current report on Form 8-K
filed with the Securities  and Exchange  Commission on August 2, 2005, the Board
of Directors elected J. Patrick Spainhour to the Class of 2006 on July 27, 2005.

(c)  The  shareholders  also voted on two proposals at the Annual  Meeting.  The
     following table shows the vote tabulation for the shares represented at the
     meeting:
<TABLE>


PROPOSAL                     VOTES FOR            VOTES AGAINST       VOTES ABSTAINED        BROKER NON-VOTES
--------                     ---------            -------------       ---------------        ----------------
<S>                          <C>                  <C>                 <C>                    <C>
Proposal to amend            245,557,738          5,146,714           1,068,438              N/A
  the Company's
  Amended and
  Restated Certificate
  of Incorporation

Ratification of              245,355,689          5,521,480           895,721                N/A
  Deloitte & Touche
  as independent
  auditor

</TABLE>

ITEM 6: EXHIBITS

EXHIBIT NO.    DESCRIPTION OF EXHIBIT
-----------    ----------------------
4.1            Amendment  No. 1 dated as of May 6, 2005 to  $500,000,000  Credit
               Agreement  dated as of May 19,  2004 among the The  ServiceMaster
               Company,  the  lenders,  JPMorgan  Chase Bank,  N.A.  and Bank of
               America,   N.A.  as   syndication   agents,   SunTrust   Bank  as
               administrative  agent,  and U.S.  Bank National  Association  and
               Wachovia Bank, N.A. as documentation  agents,  is incorporated by
               reference to Exhibit 4.1 to the Company's  current report on Form
               8-K dated May 12, 2005

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

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

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

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



                                       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:  August 9, 2005


                          THE SERVICEMASTER COMPANY
                          (Registrant)

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

                          Ernest J. Mrozek
                          President and Chief Financial Officer








                                       26
<PAGE>