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, 2004

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

                        For the transition period from_____ to_____

                         Commission file number 1-14762

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

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

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

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


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

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

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock: 290,861,000 shares of common stock on August 2, 2004.




<PAGE>









                                TABLE OF CONTENTS

                                                                            Page
                                                                             NO.

THE SERVICEMASTER COMPANY (Registrant) -

PART I.  FINANCIAL INFORMATION

Item 1: Financial Statements (Unaudited)

Condensed Consolidated Statements of Operations for the three and
   six months ended June 30, 2004 and June 30, 2003                            3

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

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

Notes to Condensed Consolidated Financial Statements                           6

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

Item 3:  Quantitative and Qualitative Disclosures About
    Market Risk                                                               22

Item 4: Controls and Procedures                                               23


PART II.  OTHER INFORMATION

Item 2:  Changes in Securities, Use of Proceeds and Issuer
   Purchases of Equity Securities                                             24

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

Item 6:  Exhibits and Reports on Form 8-K                                     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,
                                                             2004           2003           2004           2003
                                                        -------------  -------------  -------------  -------------
<S>                                                      <C>            <C>            <C>            <C>
OPERATING REVENUE ....................................   $ 1,088,716    $ 1,031,470    $ 1,845,607    $ 1,743,813

OPERATING COSTS AND EXPENSES:
Cost of services rendered and products sold ..........       697,706        657,883      1,242,762      1,174,237
Selling and administrative expenses ..................       260,128        247,049        439,438        416,257
Amortization expense .................................         1,511          1,722          2,933          3,362
                                                         -----------    -----------    -----------    -----------
Total operating costs and expenses ...................       959,345        906,654      1,685,133      1,593,856
                                                         -----------    -----------    -----------    -----------

OPERATING INCOME .....................................       129,371        124,816        160,474        149,957

NON-OPERATING EXPENSE (INCOME):
Interest expense .....................................        15,007         16,655         29,938         32,938
Interest and investment income .......................        (3,036)        (3,125)        (7,606)        (4,344)
Minority interest and other expense, net .............         2,086          2,046          4,132          4,118
                                                         -----------    -----------    -----------    -----------

INCOME FROM CONTINUING OPERATIONS BEFORE
       INCOME TAXES ..................................       115,314        109,240        134,010        117,245
Provision for income taxes............................        44,626         42,911         51,861         46,073
                                                         -----------    -----------    -----------    -----------

INCOME FROM CONTINUING OPERATIONS ....................        70,688         66,329         82,149         71,172

Loss from discontinued operations, net of income taxes          (292)          (779)          (554)          (947)
                                                         -----------    -----------    -----------    -----------
NET INCOME ...........................................   $    70,396    $    65,550    $    81,595    $    70,225
                                                         ===========    ===========    ===========    ===========

PER SHARE:
BASIC EARNINGS PER SHARE:
Income from continuing operations ....................   $      0.24    $      0.22    $      0.28    $      0.24

Discontinued operations ..............................             -              -              -              -
                                                         -----------    -----------    -----------    -----------
Basic earnings per share .............................   $      0.24    $      0.22    $      0.28    $      0.24
                                                         ===========    ===========    ===========    ===========
SHARES ...............................................       289,887        296,819        290,843        297,307


DILUTED EARNINGS PER SHARE:
Income from continuing operations ....................   $      0.24    $      0.22    $      0.28    $      0.24

Discontinued operations ..............................             -              -              -              -
                                                         -----------    -----------    -----------    -----------
Diluted earnings per share ...........................   $      0.24    $      0.22    $      0.28    $      0.23
                                                         ===========    ===========    ===========    ===========
SHARES ...............................................       302,944        308,947        295,490        301,188



                                    SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

</TABLE>


                                       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                                                                                 2004                 2003
                                                                                  -------------        -------------
CURRENT ASSETS:
<S>                                                                                <C>                  <C>
Cash and cash equivalents ......................................................   $   176,196          $   228,161
Marketable securities ..........................................................        87,293               90,540
Receivables, less allowance of $29,266 and $26,220, respectively ...............       420,568              333,834
Inventories ....................................................................        71,507               70,163
Prepaid expenses and other assets ..............................................        74,860               33,408
Deferred customer acquisition costs ............................................        59,239               41,806
Deferred taxes and income taxes receivable .....................................        92,206               87,589
Assets of discontinued operations ..............................................         4,894                5,273
                                                                                   -----------          -----------
       Total Current Assets ....................................................       986,763              890,774
                                                                                   -----------          -----------
PROPERTY AND EQUIPMENT:
   At cost .....................................................................       406,417              387,569
   Less: accumulated depreciation ..............................................      (221,638)            (208,054)
                                                                                   -----------          -----------
     Net property and equipment ................................................       184,779              179,515
                                                                                   -----------          -----------

OTHER  ASSETS:
Goodwill .......................................................................     1,545,466            1,516,206
Intangible assets, primarily trade names .......................................       219,782              216,453
Notes receivable ...............................................................        40,701               46,441
Long-term marketable securities ................................................        97,560               92,562
Other assets ...................................................................        12,909               14,475
                                                                                   -----------          -----------
       Total Assets ............................................................   $ 3,087,960          $ 2,956,426
                                                                                   ===========          ===========

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable ...............................................................   $   111,895          $    86,963
Accrued liabilities:
   Payroll and related expenses ................................................        99,502               89,427
   Self-insured claims and related expenses ....................................        84,842               73,320
   Income taxes payable ........................................................        22,567                    -
   Other .......................................................................       114,523              100,454
Deferred revenues ..............................................................       467,184              419,915
Liabilities of discontinued operations .........................................        11,494               14,380
Current portion of long-term debt ..............................................        29,346               33,781
                                                                                   -----------          -----------
       Total Current Liabilities ...............................................       941,353              818,240
                                                                                   -----------          -----------

LONG-TERM DEBT .................................................................       786,431              785,490

LONG-TERM LIABILITIES:
     Deferred taxes ............................................................       302,215              276,000
     Liabilities of discontinued operations ....................................        31,064               34,396
     Other long-term obligations ...............................................       122,903              125,474
                                                                                   -----------          -----------
        Total Long-Term Liabilities ............................................       456,182              435,870
                                                                                   -----------          -----------

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

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
Common stock $0.01 par value, authorized 1,000,000 shares; issued
     317,700 and 317,315 shares, respectively ..................................         3,177                3,173
Additional paid-in capital .....................................................     1,065,324            1,061,640
Retained earnings ..............................................................        26,646                6,365
Accumulated other comprehensive income .........................................         6,539                7,932
Restricted stock ...............................................................        (9,583)              (4,368)
Treasury stock .................................................................      (288,109)            (258,225)
                                                                                   -----------          -----------
       Total Shareholders' Equity ..............................................       803,994              816,517
                                                                                   -----------          -----------
       Total Liabilities and Shareholders' Equity ..............................   $ 3,087,960          $ 2,956,426
                                                                                   ===========          ===========

                                          SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



</TABLE>

                                       4
<PAGE>


<TABLE>


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


                                                                                               Six Months Ended
                                                                                                   June 30,
                                                                                            2004            2003
                                                                                         ----------     -----------
<S>                                                                                       <C>            <C>
CASH AND CASH EQUIVALENTS AT JANUARY 1 ..................................                 $228,161       $ 227,177


CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME ..........................................................................      81,595           70,225
     Adjustments to reconcile net income to net cash flows from operating activities:
        Loss from discontinued operations ...........................................         554              947
        Depreciation expense ........................................................      24,327           24,782
        Amortization expense ........................................................       2,933            3,362
        Deferred income tax expense .................................................      44,961           39,738

         Change in working capital, net of acquisitions:
            Receivables .............................................................     (81,111)         (64,553)
            Inventories and other current assets ....................................     (57,695)         (47,130)
            Accounts payable ........................................................      25,126           (2,271)
            Deferred revenues .......................................................      40,360           38,154
            Accrued liabilities .....................................................      29,200           (4,428)
            Other, net ..............................................................       5,446            1,554
                                                                                        ---------        ---------
NET CASH PROVIDED FROM OPERATING ACTIVITIES .........................................     115,696           60,380
                                                                                        ---------        ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Property additions ............................................................     (24,226)         (21,142)
      Sale of equipment and other assets ............................................       1,525            7,702
      Business acquisitions, net of cash acquired ...................................     (20,875)         (16,630)
      Notes receivable, financial investments and securities ........................      (3,370)         (20,173)
                                                                                        ---------        ---------
NET CASH USED FOR INVESTING ACTIVITIES ..............................................     (46,946)         (50,243)
                                                                                        ---------        ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
      Net payments of debt ..........................................................     (17,751)         (15,256)
      Purchase of ServiceMaster stock ...............................................     (41,286)         (48,975)
      Shareholders' dividends .......................................................     (61,314)         (62,815)
      Other, net ....................................................................       5,648            6,399
                                                                                        ---------        ---------
NET CASH USED FOR FINANCING ACTIVITIES ..............................................    (114,703)        (120,647)
                                                                                        ---------        ---------


CASH USED FOR DISCONTINUED OPERATIONS ...............................................      (6,012)         (15,123)
                                                                                        ---------        ---------

CASH DECREASE DURING THE PERIOD .....................................................     (51,965)        (125,633)
                                                                                        ---------        ---------
CASH AND CASH EQUIVALENTS AT JUNE 30 ................................................   $ 176,196        $ 101,544
                                                                                        =========        =========


                                           SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>

                                       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  and the  Annual  Report to the  Securities  and
Exchange  Commission  on Form 10-K for the year ended  December  31,  2003 (2003
Annual Report).  The condensed  consolidated  financial  statements  reflect all
adjustments,  which are, in the opinion of  management,  necessary  for the fair
presentation of the financial position, results of operations and cash flows for
the interim  periods.  The results of operations  for any interim period are not
necessarily indicative of the results which might be achieved for a full year.

NOTE 3: The Company has identified the most important  accounting  policies with
respect to its  financial  position  and  results of  operations.  These  relate
primarily to revenue recognition and the deferral of customer acquisition costs.
The following  revenue  recognition  policies  have not changed since  year-end.
Revenues  from  lawn  care,   pest  control,   liquid  and  fumigation   termite
applications,  as well as  heating/air  conditioning  and plumbing  services are
recognized as the services are provided.  Revenues from landscaping services are
recognized as they are earned based upon agreed monthly contract arrangements or
when services are performed for non-contractual arrangements.  Revenues from the
Company's  commercial  installation  contracts,  primarily  relating to heating,
ventilation and air  conditioning  (HVAC),  and electrical are recognized on the
percentage of completion  method in the ratio that total  incurred costs bear to
total  estimated  costs.  The  Company  eradicates  termites  through the use of
baiting systems,  as well as through  non-baiting  methods (e.g.,  fumigation or
liquid  treatment).  Termite  services  using  baiting  systems  as well as home
warranty  services  typically are sold through annual  contracts for a one-time,
upfront  payment.  Direct costs of these  contracts  (service  costs for termite
contracts and claim costs for warranty contracts) are expensed as incurred.  The
Company recognizes revenue over the life of these contracts in proportion to the
expected  direct  costs.  Revenue  from trade  name  licensing  arrangements  is
recognized when earned.  Franchised  revenues (which in the aggregate  represent
approximately  three percent of  consolidated  revenue)  consist  principally of
monthly fee revenue, which is recognized when the related customer level revenue
is reported by the franchisee and  collectibility is assured.  Franchise revenue
also includes  initial fees resulting  from the sale of a franchise.  These fees
are fixed and are recognized as revenue when  collectibility  is assured and all
material  services or  conditions  relating to the sale have been  substantially
performed.  Income  from  franchised  revenue  represented  nine  percent and 13
percent of consolidated operating income for the three month periods and the six
month periods ended June 30, 2004 and 2003,  respectively.  The portion of total
franchise  fee  income  related  to  initial  fees  received  from the sale of a
franchise were immaterial to the Company's consolidated financial statements for
all periods.

The Company had $467  million and $420  million of deferred  revenue at June 30,
2004 and December 31, 2003,  respectively,  which consist  primarily of payments
received for annual contracts relating to home warranty,  termite baiting,  pest
control  and lawn care  services.  The  revenue  related  to these  services  is
recognized over the contractual  period as the direct costs occur,  such as when
the services are performed or claims are incurred.

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

TruGreen ChemLawn has significant seasonality to 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 Company incurs and
defers  incremental  selling expenses at the beginning of the year that directly
relate to  successful  sales for which the revenues  will be recognized in later
quarters. This business


                                       6
<PAGE>


also defers, on an interim basis,  pre-season advertising costs and the costs of
annual  repairs  and  maintenance  procedures  that are  performed  in the first
quarter. These costs are deferred and recognized  approximately in proportion to
the contract revenue over the production season, and are not deferred beyond the
calendar year-end.

As noted  above,  TruGreen's  pre-season  advertising  costs  are  deferred  and
recognized  approximately  in  proportion  to  the  contract  revenue  over  the
production  season.  Terminix and ARS also defer  advertising costs in the first
quarter and recognize the expense over the year  approximately  in proportion to
their revenue.  These costs are not deferred beyond the calendar  year-end.  The
cost of  direct-response  advertising at Terminix is  capitalized  and amortized
over its expected period of future benefits.  This  direct-response  advertising
consists primarily of direct-mail promotions,  for which the cost is capitalized
and amortized over the one-year customer contract life.

The preparation of the financial  statements requires management to make certain
estimates and assumptions  required under GAAP which may differ  materially from
the  actual  results.  Disclosures  in the  2003  Annual  Report  presented  the
significant  areas that require the use of management's  estimates and discussed
how management formed its judgments.  The areas discussed included the allowance
for receivables,  accruals for self-insured retention limits related to medical,
workers  compensation,  auto and general liability insurance,  accruals for home
warranty claims,  the possible outcome of outstanding  litigation,  accruals for
income tax  liabilities  as well as  deferred  tax  accounts,  useful  lives for
depreciation  and  amortization  expense,  and the  valuation  of  tangible  and
intangible  assets.  In 2004,  there have been no  changes in these  significant
areas that  require  estimates  or in the  methodologies  which  underlie  these
associated  estimates.  In the second quarter of 2004, there was a change in the
estimated  allocation of annual  fertilizer and weed control costs to first half
applications,   which  are  relatively  more  costly.  This  change  accelerated
recognition of  approximately $6 million of expense into the second quarter that
will result in a corresponding benefit in later quarters of 2004.

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

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

In the event that actual  results  differ from the  estimates  discussed in this
note, the Company would reflect those changes,  which could be material,  in the
period that the difference is identified.

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

In April 2004,  TruGreen  ChemLawn  acquired the assets of  Greenspace  Services
Limited,  Canada's largest  professional  lawn care service company.  Intangible
assets  recorded  were less than $15  million.  The  preliminary  allocation  of
purchase price is subject to change later this year as additional information is
obtained.

                                       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,
                                  2003        Additions      Amort.           2004
                              ------------   ------------  -----------    -------------
<S>                           <C>            <C>           <C>            <C>
Goodwill(1)                   $ 1,516,206    $    29,260   $         -    $ 1,545,466
Trade names(1)                    204,793              -             -        204,793

Other intangible assets            35,432          6,262             -         41,694
Accumulated amortization(2)       (23,772)             -        (2,933)       (26,705)
                              ------------   ------------  ------------   ------------
Net other intangibles              11,660          6,262        (2,933)        14,989
                              ------------   ------------  ------------   ------------
Total                         $ 1,732,659    $    35,522   $    (2,933)   $ 1,765,248
                              ===========    ===========   ============   ============

(1)  Not subject to amortization.

(2)  Annual amortization expense of approximately $6 million in 2004 is expected
     to decline over the next five years.
</TABLE>

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

(In thousands)           June 30,           Dec. 31,
                           2004               2003
                      -----------         ----------
TruGreen               $  672,638         $  652,534
Terminix                  631,374            622,351
American Home Shield       72,085             72,085
ARS/AMS                    56,171             56,171
Other Operations          113,198            113,065
                       ----------         ----------
Total                  $1,545,466         $1,516,206
                       ==========         ==========


NOTE 6: Basic  earnings  per share is computed by dividing  income  available to
common stockholders by the weighted-average number of shares outstanding for the
period.  The  weighted-average  common shares for the diluted earnings per share
calculation includes the incremental effect related to outstanding options whose
market price is in excess of the exercise  price.  Shares  potentially  issuable
under  convertible  securities have been considered  outstanding for purposes of
the diluted earnings per share  calculations.  In computing diluted earnings per
share, the after-tax interest expense related to convertible debentures is added
back to net income in the numerator, while the diluted shares in the denominator
include  the  shares  issuable  upon   conversion  of  the  debentures.   Shares
potentially   issuable  under   convertible   securities  have  been  considered
outstanding for the three months ended June 30, 2004 and 2003. However,  for the
six months  ended June 30,  2004 and 2003,  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  and  2003,  incremental  shares  attributable  to  the  assumed
conversion of the  debentures  would have  increased  shares  outstanding by 8.0
million shares and 8.2 million shares, respectively,  and the after-tax interest
expense related to the convertible  debentures that would have been added to net
income in the numerator would have been $2.4 million for both periods.

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


(In thousands, except per share data)                     Three Months                          Three Months
                                                      Ended June 30, 2004                   Ended June 30, 2003
                                                --------------------------------       ------------------------------
CONTINUING OPERATIONS:                           Income       Shares      EPS           Income      Shares     EPS
----------------------                          ----------   ---------  --------       ----------  ---------  -------
<S>                                             <C>          <C>          <C>           <C>         <C>        <C>
 Basic earnings per share                       $70,688      289,887      $0.24         $66,329     296,819    $0.22
                                                                        ========                              =======
 Effect of dilutive securities, net of tax:
  Options                                                      5,057                                  3,928
  Convertible Securities                          1,178        8,000                      1,195       8,200
                                                ----------   ---------                 ----------  ---------
 Diluted earnings per share                     $71,866      302,944      $0.24         $67,524     308,947    $0.22
                                                ==========   =========  ========       ==========  =========  =======
</TABLE>



                                       8
<PAGE>



<TABLE>



(In thousands, except per share data)                       Six Months                            Six Months
                                                       Ended June 30, 2004                   Ended June 30, 2003
                                                 --------------------------------       ------------------------------
CONTINUING OPERATIONS:                            Income       Shares      EPS           Income      Shares     EPS
----------------------                           ----------   ---------  --------       ----------  ---------  -------
<S>                                              <C>           <C>        <C>           <C>          <C>        <C>
 Basic earnings per share                        $82,149       290,843    $0.28         $71,172      297,307    $0.24
                                                                         ========                              =======
 Effect of dilutive securities, net of tax:
  Options                                                        4,647                                 3,881
                                                 ----------   ---------                 ----------  ---------
 Diluted earnings per share
                                                 $82,149       295,490    $0.28         $71,172      301,188    $0.24
                                                 ==========   =========  ========       ==========  =========  =======

</TABLE>

NOTE 7: The Company is accounting  for employee  stock  options as  compensation
expense in accordance with SFAS 123, "Accounting for Stock-Based  Compensation."
SFAS 148 "Accounting  for Stock-Based  Compensation - Transition and Disclosure,
an  amendment  of FASB  Statement  No.  123",  provides  alternative  methods of
transitioning  to the  fair-value  based method of accounting for employee stock
options as compensation  expense.  The Company is using the "prospective method"
of SFAS 148 and is  expensing  the  fair-value  of new  employee  option  grants
awarded subsequent to 2002.

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

<TABLE>


                                                     Three Months Ended                   Six Months Ended
                                                          June 30,                            June 30,
(In thousands, except per share data)              2004               2003              2004            2003
                                              ----------------------------------    -----------------------------
<S>                                             <C>                 <C>              <C>             <C>
Net income as reported                          $ 70,396            $ 65,550         $ 81,595        $ 70,225

Add back:  Stock-based compensation
  expense included in reported net income,
  net of related tax effects                         290                 313              539             477

Deduct:  Stock-based compensation
  expense determined under fair-value method,
  net of related tax effects                      (1,396)             (1,884)          (2,820)         (3,761)
                                                --------            --------         --------        --------

Proforma net income                             $ 69,290            $ 63,979         $ 79,314        $ 66,941
                                                ========            ========         ========        ========


Basic Earnings Per Share:
  As reported                                      $0.24               $0.22            $0.28           $0.24
  Proforma                                         $0.24               $0.22            $0.27           $0.23

Diluted Earnings Per Share:
  As reported                                      $0.24               $0.22            $0.28           $0.23
  Proforma                                         $0.23               $0.21            $0.27           $0.22

</TABLE>


In March  2004,  the  Financial  Accounting  Standards  Board  (FASB)  issued an
Exposure Draft,  "Share-Based  Payment,  an Amendment of FASB Statements No. 123
and 95". In its current  form,  this Exposure  Draft would require  companies to
record stock options and share grants at fair value and recognize  this value as
compensation expense over their vesting period. The Exposure Draft would require
companies to record compensation  expense for newly issued awards as well as the
unvested portion of previously  issued awards that remain  outstanding as of the
date  of  the  adoption  of  the  Exposure  Draft.  ServiceMaster  has  recorded
compensation  expense  relating to the vesting of awards  granted  subsequent to
2002. If adopted in its current form,  the Exposure Draft would be effective for
fiscal years  beginning  after  December 15,  2004.  ServiceMaster  is currently
assessing the potential impact of this Exposure Draft.

NOTE 8: In the Condensed Consolidated Statements of Cash Flows, the caption Cash
and  Cash  Equivalents   includes   investments  in  short-term,   highly-liquid
securities having a maturity of three months or less.  Supplemental  information
relating  to the  Condensed  Consolidated  Statements  of Cash Flows for the six
months ended June 30, 2004 and 2003 is presented in the following table:


                                       9
<PAGE>





                                                          (IN THOUSANDS)
                                                     2004              2003
                                                ------------       ------------
CASH PAID FOR OR (RECEIVED FROM):
Interest expense..............................  $    29,829         $    30,799
Interest and investment income................  $    (8,446)        $    (3,850)
Income taxes..................................  $     6,296         $     5,617

The increase in cash  received from interest and  investment  income  reflects a
higher level of gains  realized on the  investment  portfolio  at American  Home
Shield.

NOTE 9: Total comprehensive income was $69 million and $72 million for the three
months  ended  June 30,  2004 and 2003,  respectively  and $80  million  and $75
million  for the six months  ended June 30, 2004 and 2003,  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  which provides for the ongoing  revolving
sale of a designated  pool of accounts  receivable of TruGreen and Terminix to a
wholly  owned,   bankruptcy-remote   subsidiary,   ServiceMaster   Funding  LLC.
ServiceMaster  Funding LLC has  entered  into an  agreement  to  transfer,  on a
revolving  basis,  an  undivided  percentage  ownership  interest  in a pool  of
accounts receivable to unrelated third party purchasers.  ServiceMaster  Funding
LLC retains an undivided  percentage interest in the pool of accounts receivable
and bad debt losses for the entire  pool are  allocated  first to this  retained
interest.  During the six months  ended  June 30,  2004 and 2003,  there were no
receivables sold to third parties under this agreement. However, the Company may
sell its  receivables in the future,  which would provide an additional  funding
source.  The agreement is a 364-day  facility that is renewable at the option of
the  purchasers.  The Company may sell up to $65 million of its  receivables  to
these  purchasers  in the  future and  therefore  has  immediate  access to cash
proceeds from these sales. The amount of the eligible  receivables varies during
the year based on seasonality of the business and will at times limit the amount
available to the Company.

NOTE 11: Total debt was $816 million at June 30, 2004,  slightly below the prior
year end level.  Approximately  65 percent of the Company's  debt matures beyond
five years and 35 percent beyond  fifteen years.  The Company's next public debt
maturity of  approximately  $138 million is in April 2005.  The Company has both
the intent and ability to pay this debt with other long term  financing,  and it
is  classified  as long-term  debt in the  Consolidated  Statements of Financial
Position.

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

In October 2001, the Company's Board of Directors approved a series of strategic
actions, which were the culmination of an extensive portfolio review process. As
part of this portfolio review, the Company sold or exited certain  non-strategic
or  under-performing   businesses  in  2001  and  2002.  The  results  of  these
discontinued 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,
2004 for the remaining liabilities from the discontinued operations. The Company
believes that the remaining reserves continue to be adequate and reasonable.





                                       10
<PAGE>






(IN THOUSANDS)                 Balance at                  Balance at
                              December 31,      Cash        June 30,
                                  2003        Payments        2004
                               -----------   -----------   -----------
Remaining liabilities from
  discontinued operations
     LandCare Construction      $ 7,152       $ 2,015       $ 5,137
     LandCare utility line
        clearing business         9,011         1,705         7,306
     Certified Systems, Inc.     11,024         1,436         9,588
     Management Services            283            56           227
     International businesses    12,017         1,006        11,011
     Other                        9,289             -         9,289


NOTE 13: In the  ordinary  course,  the Company is subject to review by domestic
and foreign taxing authorities,  including the Internal Revenue Service ("IRS").
From  1986  through  1997 most  operations  of the  Company  were  conducted  in
partnership form, free of federal corporate income tax. During that period,  the
Company  was not  reviewed  by the IRS.  In 1997,  the  Company  converted  from
partnership to corporate  form. In 2003, the IRS commenced an examination of the
Company's  consolidated  income tax returns for 2002, 2001 and 2000. The Company
expects  the  IRS'  examination  to be in its  final  stages  in late  2004  and
completed  early in 2005. As with any review of this nature,  the outcome of the
IRS examination is not known at this time.

NOTE 14:  The  business  of the  Company is  conducted  through  five  operating
segments:   TruGreen,   Terminix,   American  Home  Shield,  ARS/AMS  and  Other
Operations.  In accordance with SFAS 131, the Company's  reportable segments are
strategic  business units that offer different  services.  The TruGreen  segment
provides  residential and commercial lawn care and landscaping  services through
the TruGreen  ChemLawn and TruGreen  LandCare  companies.  The Terminix  segment
provides  termite  and pest  control  services  to  residential  and  commercial
customers.  The  American  Home  Shield  segment  provides  home  warranties  to
consumers that cover HVAC, plumbing and other home systems and appliances.  This
segment also  includes  home  inspection  services  provided by  AmeriSpec.  The
ARS/AMS  segment  provides HVAC and plumbing  installation  and repair  services
provided under the ARS Service Express,  American Mechanical Services and Rescue
Rooter brand names.  The Other  Operations  segment  includes the  franchise and
company-owned  operations  of  ServiceMaster  Clean,  Furniture  Medic and Merry
Maids, which provide disaster restoration,  cleaning,  furniture repair and maid
services. The segment also includes the Company's headquarters operations, which
provide various technology, marketing, finance and other support services to the
business units. Segment information is presented in the following table.





                                       11
<PAGE>



<TABLE>


(IN THOUSANDS)                               Three Months       Three Months            Six Months            Six Months
                                            Ended June 30,     Ended June 30,         Ended June 30,        Ended June 30,
                                                 2004               2003                   2004                  2003
--------------------------------------------------------------------------------  --------------------------------------------
Operating Revenue:
<S>                                         <C>                <C>                   <C>                    <C>
  TruGreen                                  $   453,710        $   434,290           $   678,369            $   638,837
  Terminix                                      282,318            260,588               519,114                486,494
  American Home Shield                          133,462            126,149               236,259                220,373
  ARS/AMS                                       179,697            172,977               333,681                324,410
  Other Operations                               39,529             37,466                78,184                 73,699
--------------------------------------------------------------------------------  --------------------------------------------
Total Operating Revenue                     $ 1,088,716        $ 1,031,470           $ 1,845,607            $ 1,743,813
================================================================================  ============================================

Operating Income:
  TruGreen                                  $    65,897        $    67,959           $    62,999            $    59,409
  Terminix                                       48,483             41,897                84,737                 75,425
  American Home Shield                           23,837             23,162                33,953                 31,321
  ARS/AMS                                         1,613              3,838                (2,035)                 2,668
  Other Operations                              (10,459)           (12,040)              (19,180)               (18,866)
--------------------------------------------------------------------------------  --------------------------------------------
Total Operating Income                      $   129,371        $   124,816           $   160,474            $   149,957
================================================================================  ============================================
</TABLE>
<TABLE>


(IN THOUSANDS)                                                           As of               As of
                                                                     June 30, 2004       Dec. 31, 2003
--------------------------------------------------------------------------------------------------------
Identifiable Assets:
<S>                                                                   <C>                  <C>
  TruGreen                                                            $1,031,470           $  911,958
  Terminix                                                               842,813              822,407
  American Home Shield                                                   450,087              422,765
  ARS/AMS                                                                197,443              185,528
  Other Operations (and discontinued operations)                         566,147              613,768
--------------------------------------------------------------------------------------------------------
Total Identifiable Assets                                             $3,087,960           $2,956,426
========================================================================================================

</TABLE>
<TABLE>



(IN THOUSANDS)                                                              As of            As of
                                                                     June 30, 2004       June 30, 2003
--------------------------------------------------------------------------------------------------------
Capital Employed: (1)
<S>                                                                   <C>                 <C>
  TruGreen                                                            $   895,246         $ 1,063,659
  Terminix                                                                602,811             577,985
  American Home Shield                                                    144,082             119,337
  ARS/AMS                                                                  93,933             387,016
  Other Operations (and discontinued operations)                          (16,301)            (26,746)
--------------------------------------------------------------------------------------------------------
Total Capital Employed                                                $ 1,719,771         $ 2,121,251
========================================================================================================
</TABLE>


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






                                       12
<PAGE>




      MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
                                 OF OPERATIONS


RESULTS OF OPERATIONS

SECOND QUARTER 2004 COMPARED TO SECOND QUARTER 2003

CONSOLIDATED OVERVIEW

ServiceMaster  (the  "Company")  reported  second  quarter 2004 revenue of $1.09
billion,  six percent above 2003,  with all of the business  segments  achieving
growth in revenue.  Approximately  five  percent of the revenue  growth was from
internal  sources.  Second  quarter  2004  diluted  earnings  per share was $.24
compared to $.22 in 2003. Operating income for the second quarter increased four
percent to $129  million  compared  to $125  million in 2003.  The  increase  in
operating  income  reflects  double-digit  growth at  Terminix  supported  by an
improved termite swarm season this year and improved profitability in TruGreen's
landscape operations. This growth was partially offset by reduced profits at ARS
due to higher marketing, insurance and fuel costs and reduced project margins at
AMS due to depressed  conditions in the  commercial  construction  industry.  In
addition,  second quarter operating income was adversely impacted by an increase
in materials  expense in the lawn care  operations of TruGreen  resulting from a
change in the estimated  allocation of annual  fertilizer and weed control costs
to first half  applications,  which are  relatively  more  costly.  This  change
accelerated  recognition  of  approximately  $6 million more of expense into the
second quarter that will result in a corresponding  benefit in later quarters of
2004.

The  Company has  re-affirmed  its  outlook  for the year.  The Company  expects
revenue  growth to be in the  mid-single  digits and earnings per share  growing
somewhat faster than revenues.  The Company projects that earnings per share for
the last six months of the year should be  comparable  to last year,  reflecting
continued  solid  growth from  operating  activities  offset by a lower level of
gains from the American Home Shield investment  portfolio and a higher effective
tax rate.  Economic conditions and consumer confidence continue to be favorable,
although the Company's projected results for the year continue to be tempered by
large  increases in key costs such as variable  compensation  (returning to more
normal levels),  insurance,  and fuel ("factor  costs") as well as the Company's
commitment  to make  appropriate  investments  in the  business  to sustain  its
growth.

Overall,  the Company  believes  it is well poised to continue to achieve  solid
growth in income from operating activities in the second half of the year, after
absorbing  the net effects of  disproportionate  increases in key factor  costs,
continuing  investments  to  sustain  growth,  and  a few  non-comparable  items
recorded  in 2003.  There  are three  key  factor  costs  that the  Company  has
previously  discussed and that it believes will continue to increase much faster
than  general  inflation in the second half of 2004;  (1) variable  compensation
expense,  which is being earned at more normal levels in 2004, but is up sharply
over the modest amounts accrued in 2003, (2) umbrella insurance premiums,  which
increased  significantly  in 2004 when a multi-year  contract  expired,  and (3)
higher fuel costs for the Company's  fleet of over 24,000  vehicles,  one of the
largest in the U.S. The Company estimates that on a combined basis,  these three
costs will increase approximately $.05 per share in the second half of the year,
consistent  with the first half of the year increase.  Partially  offsetting the
effect of these cost items,  second half results should benefit by approximately
$.03 per share from  non-recurring  items recorded in the fourth quarter of 2003
at Terminix  and  American  Home Shield  related to the  recognition  of certain
contract renewal  revenues.  Overall,  the Company expects growth in income from
operating  activities  in the second  half of the year,  after  considering  the
factor costs, investments and non-recurring items discussed above. However, this
growth is  projected  to be offset at the  earnings per share level by a reduced
amount of  investment  gains at American  Home Shield (due to softer  prevailing
market conditions) and a higher consolidated effective tax rate.

Cost of services rendered and products sold increased six percent for the second
quarter and  increased as a  percentage  of revenue to 64.1 percent in 2004 from
63.8  percent  in 2003.  This  increase  primarily  reflects  the  impact of the
aforementioned  increased  chemical  expense  in the  lawn  care  operations  of
TruGreen.  Selling and  administrative  expenses  increased five percent for the
quarter.  As a percentage of revenue,  these costs decreased to 23.9 percent for
the quarter in 2004 from 24.0 percent in 2003.



                                       13
<PAGE>


Net non-operating expense decreased $1.5 million from 2003, primarily reflecting
savings resulting from interest rate swap agreements  entered into at the end of
2003 and early  2004.  Higher  investment  income from  securities  gains in the
American Home Shield investment portfolio were offset by a decline in investment
income in an  employee  deferred  compensation  trust.  Related to the  deferred
compensation trust, there was a corresponding  reduction in compensation expense
within operating income.

SEGMENT REVIEW

The TruGreen segment includes lawn care operations  performed under the TruGreen
ChemLawn  brand  name and  landscape  maintenance  services  provided  under the
TruGreen  LandCare  brand name.  The  TruGreen  segment  reported a four percent
increase in second quarter  revenue to $454 million  compared to $434 million in
2003. The segment's  operating income was $66 million compared to $68 million in
2003.

Revenue in the lawn care  operations  grew six percent over 2003. The comparison
to last  year is  impacted  by the  timing of lawn  care  production,  with more
favorable  weather  conditions  early this year  resulting in a greater level of
production  being  completed in the first  quarter.  An eight percent  growth in
customer counts was supported by continued  significant  improvement in customer
retention and  acquisitions,  partially offset by a modest decline in new sales.
In April,  TruGreen ChemLawn acquired the assets of Greenspace  Services Limited
("Greenspace"),   Canada's  largest  professional  lawn  care  service  company.
Excluding the effects of the Greenspace  acquisition,  customer counts increased
three percent.  The gains in customer retention were geographically  broad based
and resulted  from  concerted  management  focus  including  the impact of using
better materials for more visible results,  improving customer communication and
problem resolution procedures,  focused incentive compensation structures at all
levels, and favorable weather conditions.  The lawn care operations continued to
make very meaningful progress in diversifying their sales channels; placing less
reliance  on  telemarketing  and more  emphasis  on  direct  mail,  neighborhood
selling,  and other efforts. As a result of the enactment of the National Do Not
Call Registry last fall,  the Company's  telemarketing  sales for the six months
have declined over 10 percent,  consistent with management's expectations.  This
loss has been mostly offset by increases in direct mail and  neighborhood  sales
efforts.  Overall,  year-to-date sales were down less than four percent. The new
sales channels are more costly than telemarketing, but they are also expected to
produce  customers with higher retention rates.  Second quarter operating income
of the lawn care operations decreased $4 million and included the aforementioned
$6 million  increase in  material  expense,  offset in part by profits  from the
Greenspace acquisition.

Second quarter revenue in the landscape maintenance business was consistent with
2003. Base contract  maintenance  revenues were flat as increases from new sales
were offset by lower  customer  retention.  Enhancement  revenues  (e.g.  add-on
services  such as seasonal  flower  plantings)  continued  to  experience  solid
growth, reflecting focused sales efforts and an improving economy. This business
achieved modest operating profits in the quarter, a significant improvement over
the operating  losses  incurred last year.  This  reflects  controlled  overhead
spending and a stronger mix of higher margin enhancement revenues.  Key areas of
management focus include  strengthening the sales team and the maintenance base,
continuing to increase enhancement revenues, and improving operating consistency
through better process  disciplines,  especially in labor  management and in the
pricing and bidding of new work.

Capital  employed in the TruGreen  segment  decreased 16 percent  reflecting the
impact of the impairment charge recorded in the third quarter of 2003, offset in
part by  acquisitions.  Capital  employed  is a non-U.S.  GAAP  measure  that is
defined as the  segment's  total  assets  less  liabilities,  exclusive  of debt
balances.  The Company  believes  this  information  is useful to  investors  in
helping them compute return on capital measures and therefore better  understand
the performance of the Company's business segments.

The Terminix segment, which includes termite and pest control services, reported
an eight percent increase in second quarter revenue to $282 million, compared to
$261 million in 2003 and  operating  income  growth of 16 percent to $48 million
compared  to $42  million  in 2003.  Strong  growth in termite  renewal  revenue
reflected  improved  pricing,  slightly  offset by a modest decline in customers
available  to renew  coming out of last year's  weather-plagued  termite  swarm.
Terminix also reported strong growth in revenue from termite completions,  which
resulted from a strong increase in unit sales and improved price realization. As
previously  disclosed,  with the improved efficacy of liquid termite treatments,
the Company is providing consumers with the choice of receiving termite services
through baiting systems or liquid treatments. With this enhanced

                                       14
<PAGE>



termite offering, the Company is expecting, and has experienced,  a shift in the
mix of its termite customer base from baiting systems to liquid treatments. This
change in mix is generally  proceeding in line with  management's  expectations,
but at a slightly slower pace. By offering  consumers a choice in treatments and
by  tightening  controls  over  price  discounting,  Terminix  has been  able to
increase the average price realized for each of the two treatment  alternatives,
thus  offsetting the adverse,  short-term  revenue and profit impacts of the mix
shift.  Solid growth in pest control  revenue was supported by continued  strong
improvements in retention.  The conversion from monthly to quarterly  service is
progressing  well and  management is focused on realizing  the  resulting  labor
efficiencies and improvements in customer satisfaction.  The growth in operating
income  reflected  good cost  controls and  favorable  leveraging  of the strong
revenue  growth.  In both the  second  quarter  of 2004 and 2003,  the  Terminix
operations  experienced favorable trending in damage claim costs associated with
its acquired  Sears  termite  customer  base  resulting  in a  comparable  level
(approximately  $6 million)  of reduced  expense in both  periods.

In the third quarter,  the Company anticipates termite completion revenues to be
down as a result of the deferred effects of the mix shift from bait to liquid. A
portion  of bait  completion  sales  revenue  is  required  to be  deferred  and
recognized in subsequent  quarters as periodic  inspections  of the bait systems
occur. In 2004, Terminix had less bait sales during the swarm season,  resulting
in less deferred  revenue to be recognized in quarters  subsequent to the swarm.
This revenue  reduction,  as well as increased  factor costs,  will impair third
quarter  profit  comparisons.  However,  the Company  believes  that Terminix is
making good overall progress and expects it to achieve solid full year growth in
revenues and profits.  Capital employed in the Terminix  segment  increased four
percent to $603 million, reflecting the impact of acquisitions and growth in the
business.

The American  Home Shield (AHS)  segment,  which  provides  home  warranties  to
consumers that cover heating,  ventilation and air conditioning (HVAC), plumbing
and other home  systems  and  appliances,  reported a six  percent  increase  in
revenue to $133 million from $126  million in 2003 and  operating  income of $24
million compared to $23 million in 2003.  Contract sales, which are reflected as
earned revenues over the subsequent  twelve month contract period,  increased 10
percent   for  the   second   quarter.   Strong   new   sales   growth   in  the
direct-to-consumer   channel  was  supported  by  an  increase  in  direct  mail
solicitations,  which were delayed  last year.  The real estate  channel  showed
improved  momentum  with a solid  growth in sales for the second  quarter.  AHS'
pilot program to expand sales in under-penetrated  markets,  launched at the end
of the  first  quarter  in two  major  cities,  has  performed  well and will be
expanded in the third  quarter.  Management  is focused on  expanding  the sales
force in these markets,  and  replicating  high  performing  account  executives
through increased up-front training and marketing support. Renewal revenues also
increased  despite a modest  decline in retention  rates.  Part of  management's
strategic efforts to increase customer  satisfaction and retention  includes the
implementation  of pilot programs in two states  designed to improve the clarity
of coverage  and ease of use of the  product.  As had been  anticipated,  second
quarter operating income grew less rapidly than revenue as the favorable effects
of revenue growth were partially  offset by a lower level of favorable  trending
in prior year contract cost activity than was realized in the second  quarter of
2003, and as a result of current  expenditures in the previously  discussed real
estate market penetration and customer retention  initiatives.  The Company also
anticipates  declines in AHS'  margins in the second half of 2004 as a result of
the aforementioned strategic investments.

Capital employed  increased 21 percent  reflecting volume growth in the business
resulting  in a higher level of cash and  marketable  securities  balances.  The
calculation of capital employed for the AHS segment includes  approximately $238
million and $196 million of cash, cash equivalents and marketable  securities at
June 30, 2004 and 2003, respectively.

The ARS/AMS segment  provides direct HVAC and plumbing  installation  and repair
services under the ARS Service Express,  Rescue Rooter, and American  Mechanical
Services (for large  commercial  accounts)  brand names.  Second quarter segment
revenue  of $180  million  increased  four  percent.  Excluding  the  effects of
discontinued  branches,   revenue  grew  seven  percent.  The  segment  reported
operating  income of $2 million  compared with operating income of $4 million in
2003. All three major  categories of service (HVAC,  plumbing and  construction)
achieved  revenue  growth in the second  quarter,  an  improvement  over  recent
unfavorable trends. HVAC revenue increased modestly, reflecting continued growth
in   add-on-replacement   work  and  a  more   favorable   mix  of   higher-end,
high-efficiency  units.  Partially offsetting this growth was a reduced level of
core service calls, due in part to cooler seasonal  temperatures in key parts of
the country. Plumbing revenue also increased modestly, reflecting strong


                                       15
<PAGE>




increases in sewer line repair and commercial  initiatives,  partially offset by
continued softness in core residential service calls.  Residential  construction
and commercial  project  revenues  reported strong  increases in revenue for the
quarter.  The  decrease  in  the  segment's   profitability  reflects  increased
marketing,  fuel and insurance costs at ARS, as well as lower margins at AMS due
to cyclically  depressed industry conditions in commercial real estate.  Capital
employed  decreased 76 percent  reflecting the impact of the  impairment  charge
recorded in the third quarter of 2003.

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  six percent to $40 million  compared to $37 million in 2003,
primarily reflecting continued strong growth in disaster restoration services at
ServiceMaster Clean and improved internal growth at Merry Maids. The Merry Maids
branches have shown  improving  momentum  with a steady  increase in the revenue
growth rate for the last several  months,  with July internal  growth  exceeding
eight  percent.  The reduction in the segment's  operating  loss for the quarter
reflects an increase in profits in the combined  franchise  operations and lower
overhead spending,  which more than offset increased  variable  compensation and
insurance-related  costs at the  headquarters  level.  Capital  employed in this
segment increased 39% primarily reflecting the Company's increase in cash levels
for the twelve months ended June 30, 2004.


RESULTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO JUNE 30, 2003

CONSOLIDATED REVIEW

The Company  reported revenue of $1.85 billion for the six months ended June 30,
2004, a six percent increase over 2003. For the six months, diluted earnings per
share was $.28  compared  with $.23 in 2003.  Diluted  earnings  per share  from
continuing  operations  was $.28,  17 percent  above the $.24  reported in 2003.
Operating  income  increased  seven  percent to $160  million  compared  to $150
million in 2003.  For the six months,  all of the  Company's  business  segments
reported  increases  in revenue  with  meaningful  improvements  in growth  rate
trends. Substantially all of the six percent reported revenue growth was derived
from internal  sources as the impact of acquisitions was offset by a decrease in
revenue  related to  operations  shut-down in 2003.  Most segments also reported
solid increases in profits for the six month period,  led by solid  double-digit
increases  in  Terminix  and the lawn  care  operations  of  TruGreen.  The cost
controls and the focus on improved efficiencies that were evident throughout the
enterprise during the second half of last year remained firmly in place, helping
the  Company to offset  large  increases  in certain  key costs such as variable
compensation, insurance and fuel.

Cost of services  rendered and products  sold  increased six percent for the six
months and as a  percentage  of revenue was 67.3 in both 2004 and 2003.  Selling
and administrative  expenses increased six percent and decreased as a percentage
of revenue to 23.8 percent in 2004 from 23.9 percent in 2003.

Net  non-operating  expense  decreased $6 million from 2003,  reflecting  higher
investment  income from securities gains in the American Home Shield  investment
portfolio,  as well as the favorable  impact from interest rate swap  agreements
entered into at the end of 2003 and early 2004.




                                       16
<PAGE>


KEY PERFORMANCE INDICATORS

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

<TABLE>


                                                                    KEY PERFORMANCE INDICATORS
                                                                            As of June 30,

                                                                     2004                  2003
                                                                  ----------             --------
         <S>                                                        <C>                   <C>
         TRUGREEN CHEMLAWN-
            Growth in Full Program Contracts                           8%                    2%
            Customer Retention Rate                                 66.8%                 64.1%

         TERMINIX -
            Growth in Pest Control Customers                           6%                    1%
            Pest Control Customer Retention Rate                    79.3%                 75.8%

            Growth in Termite Customers                               -1%                   -2%
            Termite Customer Retention Rate                         88.7%                 88.6%

         AMERICAN HOME SHIELD -
            Growth in Warranty Contracts                               6%                    9%
            Customer Retention Rate                                 54.9%               55.1% *

         * Restated to conform with the 2004 calculation.

</TABLE>


SEGMENT REVIEW

For the six months,  the  TruGreen  segment  reported a six percent  increase in
revenue to $678  million  compared  to $639  million in 2003.  Operating  income
increased six percent to $63 million compared to $59 million in 2003.

Revenue  in the lawn  care  operations  increased  nine  percent  over  2003 and
operating income grew 11 percent, or $7 million,  for the six months. The strong
revenue growth reflects increased  production levels and higher customer counts,
supported  by improved  retention  rates and  acquisitions,  and more  favorable
weather  conditions  during  the  first  quarter,  partially  offset by a modest
decrease in new sales. As discussed in the second quarter  comparison,  TruGreen
ChemLawn  acquired the assets of Greenspace in April and for the six months this
acquisition  represented  three  percent of the revenue  growth of the lawn care
operations.  Customer  counts  increased eight percent over last year reflecting
the impacts of continued improvement in customer retention,  acquisitions, and a
higher  base of  customers  to start  the  year,  partially  offset  by a modest
decrease in new sales. The Company  continues to diversify its sales channels to
place less  reliance on  telemarketing,  while more  emphasis is being placed on
direct mail,  neighborhood  selling and other  efforts.  The customer  retention
rates  included  in the Key  Performance  Indicators  reflect a strong 270 basis
point improvement in TruGreen  ChemLawn's  retention.  The increase in operating
income  for  the  six  months  reflects  higher  revenues  and  labor  and  cost
efficiencies  partially  offset by  higher  marketing  costs  and the  change in
estimate for allocating  interim material costs that was discussed in the second
quarter comparison.

Revenue in the landscape  maintenance  business was  consistent  with prior year
levels  reflecting  stronger  enhancement sales volume and a comparable level of
base contract maintenance revenue,  offset by higher snow removal revenue in the
first quarter of 2003. Operating income of the landscape maintenance  operations
declined by $3 million  primarily  reflecting a reduction in higher  margin snow
removal volume, higher insurance and labor-related costs as well as $1.6 million
of branch consolidation costs incurred in the first six months of 2004.

The Terminix  segment  reported a seven percent  increase in revenue for the six
months to $519  million  compared to $486 million in 2003 and  operating  income
growth of 12 percent to $85 million compared to $75 million in 2003. The revenue
increase was supported by improved pricing on termite renewal contracts. Termite
completion  revenue grew,  reflecting a solid increase in volume  following last
year's weak termite swarm season and improved price  realization,  offset by the
mix shift from the higher priced

                                       17
<PAGE>



bait  product to lower  priced  liquid  treatments.  Unit  sales  growth in pest
control has been  challenging,  however there  continues to be very  significant
improvement in the pest control  retention rate. The 350 basis point improvement
in pest control retention reflects the impacts of continued management focus and
incentive  programs,  as well as an improving  economy.  The growth in operating
income was driven by improved  efficiency from an improved  termite swarm season
compared to last year.

For the six months the American  Home Shield  segment  reported a seven  percent
increase  in revenue to $236  million  from $220  million in 2003 and  operating
income growth of eight percent,  to $34 million compared to $31 million in 2003.
Contract sales, which are reflected as earned revenue over the subsequent twelve
month contract period,  increased nine percent for the six months.  Sales in the
direct-to-consumer  channel showed strong growth and were favorably  impacted by
the timing of sales as direct  mail  solicitations  last year were  delayed.  In
addition,  the Company  continues to expand its  marketing  efforts with premier
mortgage lenders and financial  institutions.  American Home Shield  experienced
more moderate growth in its real estate and renewal channels, with the growth in
renewal sales being supported by an increase in renewable  customers,  partially
offset by less favorable  retention  rates.  The growth in operating  income was
consistent with the revenue growth rate. Current year contract costs continue to
trend  favorably,  with per unit  cost  decreases  partially  offsetting  volume
growth.

The ARS/AMS  segment  reported a three percent  increase in revenues for the six
months to $334 million.  Excluding the effects of discontinued branches, revenue
growth was six percent.  The segment  reported an  operating  loss of $2 million
compared  to  operating  income of $3  million  in 2003.  The  growth in revenue
reflected  strong  increases in  residential  new  construction  and  commercial
project revenue,  offset by declines in HVAC service  revenue.  Plumbing revenue
increased less than one percent for the six month period. Within ARS, meaningful
progress has been made on specific initiatives to improve brand  differentiation
(through such measures as on-time arrival  guarantee),  expand sewer line repair
revenue, and increase the average sales ticket prices on replacement HVAC sales.
As noted in the second quarter comparison, this business achieved revenue growth
in all three major  categories of service during the second  quarter,  reversing
the unfavorable  trends  experienced  over the prior several  quarters.  At AMS,
project  bidding  activity is increasing and contract  pricing has shown initial
signs of improvement.  The segment's decline in profitability for the six months
was a result of higher sales, advertising and insurance related costs at ARS, as
well as lower margins at AMS due to depressed industry  conditions in commercial
real estate.  Additionally,  profitability  was negatively  impacted by a modest
revenue mix shift to the relatively lower margin construction business.

The Other Operations  segment reported a six percent increase in revenues to $78
million  for the six months  compared  with $74  million in 2003.  The  combined
ServiceMaster Clean and Merry Maids franchise operations reported revenue growth
of eight percent and a solid increase in operating income.  ServiceMaster  Clean
continued  to  experience  strong  increases  in domestic  disaster  restoration
services  as well as solid  growth  in its  international  operations.  At Merry
Maids,  a better  economy  and  improved  sales  processes  have driven a steady
increase in internal revenue growth in both the branch and franchise operations.
The segment's  operating loss increased  slightly over the prior year reflecting
increased  profits in the combined  franchise  operations,  partially  offset by
increased  insurance  costs as well as a higher  level of variable  compensation
expense at the headquarters level.

FINANCIAL POSITION AND LIQUIDITY

CASH FLOWS FROM OPERATING ACTIVITIES
Net cash  provided by  operating  activities  totaled  $116  million for the six
months,  approximately  $55 million more than last year's level. The majority of
the  increase was realized in the first  quarter and  reflects  reduced  working
capital  usage and an increased  level of profits.  The  improvement  in working
capital  reflects  a lower  rate of cash  outflows  in early  2004  relating  to
incentive  compensation  earned in 2003,  combined  with an  increased  level of
non-cash  accruals  for 2004  incentives,  reflecting  a return  to more  normal
incentive rates.  Additionally,  the Company experienced  favorable impacts from
the timing and magnitude of other payments, partially offset by earlier spending
on certain full year marketing and  advertising  initiatives.  For the full year
2004, the Company  expects cash from operating  activities to increase at a rate
consistent  with  earnings  growth and to continue to  substantially  exceed net
income.


                                       18
<PAGE>


The Company  receives a  significant  annual cash benefit from  deferred  income
taxes. Much of this benefit is due to a large base of tax deductible  intangible
assets which exist for income tax reporting  purposes but not for book purposes,
a  significant  portion of which arose in  connection  with the  Company's  1997
conversion from a limited partnership to a corporation.  In the ordinary course,
the Company is subject to review by domestic  and  foreign  taxing  authorities,
including  the Internal  Revenue  Service  ("IRS").  From 1986 through 1997 most
operations of the Company were  conducted in partnership  form,  free of federal
corporate  income tax.  During that period,  the Company was not reviewed by the
IRS. In 1997 the Company  converted from partnership to corporate form. In 2003,
the IRS  commenced  an  examination  of the  Company's  consolidated  income tax
returns for 2002, 2001 and 2000. The Company expects the IRS'  examination to be
in its final stages in late 2004 and completed in early 2005. As with any review
of this nature, the outcome of the IRS examination is not known at this time.

CASH FLOWS FROM INVESTING ACTIVITIES
Capital  expenditures,  which include  recurring  capital needs and  information
technology  projects,  were above prior year  levels.  The  Company  anticipates
approximately  $50 million of capital  expenditures in 2004  reflecting  systems
enhancements  and  other  initiatives.  The  Company  has  no  material  capital
commitments at this time.

Tuck-in acquisitions for the six months ended June 30, 2004 totaled $32 million,
compared with $21 million in 2003.  Consideration consisted of cash payments and
seller financed notes. The increase in acquisitions reflects TruGreen ChemLawn's
purchase of Greenspace as well as the resumption of tuck-in acquisition activity
at Terminix.  The Company continues to expect  acquisitions for the full year to
increase  significantly  over last year's  level,  utilizing  approximately  $50
million in cash and note financing.

CASH FLOWS FROM FINANCING ACTIVITIES
Cash  dividends paid to  shareholders  totaled $61 million or $.21 per share for
the six months  ended June 30,  2004.  In July 2004,  the  Company  paid a third
quarter cash dividend of $.11 per share, a 4.8 percent increase in the quarterly
dividend amount compared to the $.105 per share paid in the second quarter.  The
Company records its dividend liability on the record date.

The ServiceMaster  Company and its Board of Directors review dividend policy and
other capital  structure  objectives on a regular basis. As part of this review,
it was determined that  prevailing  corporate best practice in the United States
is to have dividends declared in the same quarter that they are paid. To achieve
this  result,  it will be necessary to slightly  modify the  Company's  historic
pattern of dividend declaration and payment dates. The Company plans to continue
to pay its  dividends  quarterly,  with the payment  schedule  for each  quarter
pushed back one month, to the end of November,  February,  May and August.  This
change would become  effective  for the fourth  quarter 2004  dividend  payment,
which was previously  expected to be paid in October,  and would now be declared
in October and paid in November.

In 2003, the Company  recorded its 33rd consecutive year of annual growth in its
dividend payment.  As a result of the $.11 per share dividend paid in July 2004,
the Company is on track to continue this consecutive  growth trend for 2004. The
timing and amount of future  dividend  increases  are at the  discretion  of the
Board of Directors and will depend on, among other things, the Company's capital
structure objectives and cash requirements.

In July  2000,  the  Board  of  Directors  authorized  $350  million  for  share
repurchases.  For the six months  ended June 30, 2004,  the Company  repurchased
approximately  $41  million  of its  shares  with  almost  all of that  activity
occurring  in the  first  quarter.  There  remains  approximately  $104  million
available  for  repurchases  under the July 2000  authorization.  The  Company's
current  expectation is that full year 2004  repurchases  will  approximate last
year's level.  The actual level of repurchases will be based on operating trends
and  business  acquisition  opportunities,  and  will  be  consistent  with  the
Company's strategy to retain its investment grade status.

LIQUIDITY
Cash and short and long-term  marketable  securities totaled  approximately $361
million  at June 30,  2004,  with  approximately  $276  million  of that  amount
required to support  regulatory  requirements  at  American  Home Shield and for
other purposes. Total debt was $816 million at June 30, 2004, slightly below the
prior year end


                                       19
<PAGE>


amount and the lowest level since March of 1997. Approximately 65 percent of the
Company's  debt matures  beyond five years and 35 percent  beyond fifteen years.
The  Company's  next public debt  maturity of  approximately  $138 million is in
April  2005.  The  Company has both the intent and ability to pay this debt with
other long term financing.

Management  believes that funds  generated from  operating  activities and other
existing  resources  will  continue to be adequate  to satisfy  ongoing  working
capital  needs of the Company.  During the second  quarter of 2004,  the Company
replaced  its  previous  $490  million  credit  facility  with  a new  five-year
revolving  credit facility for $500 million expiring in May 2009. As of June 30,
2004,  the Company had issued  approximately  $154  million of letters of credit
under this facility and had unused  commitments of  approximately  $346 million.
The Company also has $550 million of senior unsecured debt and equity securities
available  for issuance  under an effective  shelf  registration  statement.  In
addition,  the Company has an  arrangement  enabling it to sell,  on a revolving
basis,  certain  receivables to unrelated  third party  purchasers.  At June 30,
2004, there were no receivables outstanding that had been sold to third parties.
The  agreement  is a 364-day  facility  that is  renewable  at the option of the
purchasers.  The Company may sell up to $65 million of its  receivables to these
purchasers in the future and  therefore  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.

As described in the Company's latest Annual Report to Shareholders,  the Company
is party to a number of debt  agreements  that  require it to  maintain  certain
financial  and  other  covenants,  including  limitations  on  indebtedness  and
interest  coverage  ratio.  In  addition,   under  certain  circumstances,   the
agreements  may limit the  Company's  ability to pay  dividends  and  repurchase
shares of common stock. These limitations are not expected to be a factor in the
Company's future dividend and share repurchase plans.  Failure by the Company to
maintain these covenants could result in the acceleration of the maturity of the
debt. At June 30, 2004, the Company was in compliance with the covenants related
to these debt agreements and based on its operating outlook for the remainder of
2004, expects to be able to maintain compliance in the future.

The Company maintains  operating lease facilities with banks with  approximately
$95  million  of  total  availability  which  provide  for the  acquisition  and
development of branch properties to be leased by the Company. There are residual
value  guarantees of these  properties for up to 82 percent of their fair market
value. At June 30, 2004, there was  approximately $73 million funded under these
facilities.  Approximately $20 million of these leases have been included on the
balance  sheet as assets with  related debt as of June 30, 2004 and December 31,
2003. Of the $95 million available,  $80 million expires in October 2004 and $15
million  expires in January 2008. The Company  intends to refinance the existing
facility  which  expires in October  2004. If the Company does not refinance the
facility  it  may  be  required  to  purchase  the  leased  assets  which  total
approximately $53 million.

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, 2004, there was
approximately $248 million of residual value relating to the Company's fleet and
equipment leases.

The  Company's  2003  Annual  Report   included   disclosure  of  the  Company's
contractual  obligations  and  commitments  as of December 31, 2003. The Company
continues to make the contractually  required  payments and therefore,  the 2004
obligations  and  commitments  as listed in the December 31, 2003 Annual  Report
have been reduced by the required payments. The Company's Board of Directors has
authorized commitments for telecommunication  services. These agreements,  which
are in the process of being  finalized,  total  approximately  $30 million to be
paid over the next three years.

FINANCIAL POSITION - CONTINUING OPERATIONS
Receivables  increased from year-end levels,  reflecting general business growth
and increased  seasonal  activity.  Prepaid  expenses and other assets increased
from year end  primarily  reflecting  preseason  advertising  costs  and  annual
repairs and  maintenance  procedures  that are performed in the first quarter at
TruGreen  ChemLawn and  advertising  at  Terminix.  These costs are deferred and
recognized  over the production  season


                                       20
<PAGE>


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.  The lawn care
operations incur incremental  selling expenses at the beginning of the year that
directly  relate to successful  sales in which the revenue will be recognized in
later  quarters.  These costs are deferred and  recognized  over the  production
season and are not deferred beyond the calendar year-end. Property and equipment
increased  slightly from year-end  levels,  reflecting  general business growth.
Income taxes  payable at June 30, 2004  reflects the  Company's  2004  estimated
federal tax payment  expected to be made in the third quarter.  Deferred revenue
increased from year-end  levels,  reflecting the impact from the seasonal volume
of termite  baiting sales and strong growth in customer  prepayments at TruGreen
ChemLawn.  The Company does not have any material  capital  commitments  at this
time.

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

Total shareholders' equity was $804 million at June 30, 2004 and $817 million at
December 31,  2003.  The decrease  primarily  reflects  earnings in the business
offset by cash dividend payments and share repurchases.

Dividends  paid in 2003 on the  Company's  common  stock  were  not  taxable  to
shareholders  as dividend  income for federal  income tax purposes,  but instead
were  treated as a  non-taxable  return of  capital.  Under  federal  tax rules,
dividends are  considered  taxable only when paid out of current or  accumulated
earnings  and  profits as defined  under  federal  tax laws.  As a result of its
December  1997  reincorporation,  the Company  only began  generating  corporate
earnings and profits for tax purposes in 1998. Since 1998,  earnings and profits
for tax  purposes  have been  reduced  by  dividend  payments,  amortization  of
intangible  assets for tax reporting,  deductions  relating to business closures
and the timing of certain other tax-related items. The Company currently expects
that  approximately  70 percent of its 2004  dividends  on common  stock will be
taxable  as  dividend  income  for  federal  income tax  purposes.  The  Company
currently  expects that the taxable  portion of its dividend income will grow to
be fully taxable by the year 2007.

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


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


                                       21
<PAGE>





                    QUANTITATIVE AND QUALITATIVE DISCLOSURES
                                ABOUT MARKET RISK

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

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

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

The Company generally  maintains the majority of its debt at fixed rates.  After
the effect of the interest swap  agreements,  approximately  78 percent of total
debt at June 30, 2004 was at a fixed rate.  With  respect to other  obligations,
the payments on the approximately  $73 million of funding  outstanding under the
Company's  real  estate  operating  lease  facilities  as well as its  fleet and
equipment  operating leases  (approximately  $248 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,  2004, a one
rating category  improvement in the Company's credit ratings would reduce annual
pre-tax expense by approximately  $0.8 million.  A one rating category reduction
in the Company's  credit ratings would increase pre-tax expense on an annualized
basis by approximately $0.9 million.

The following table summarizes  information  about the Company's fixed rate debt
as of December 31,  2003,  including  the  principal  cash  payments and related
weighted-average  interest rates by expected  maturity dates.  The fair-value of
the  Company's  fixed rate debt was  approximately  $862 million at December 31,
2003.

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

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



                                       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: CHANGES IN  SECURITIES,  USE OF PROCEEDS AND ISSUER  PURCHASES OF EQUITY
        SECURITIES

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, 2004 under its share  repurchase
authorization. Decisions relating to any future share repurchases will depend on
various factors such as the Company's  commitment to maintain  investment  grade
credit ratings and other strategic investment opportunities.

<TABLE>

                                                                                    Total               Approximate
                                                                                   Number              Dollar Value
                                                                                  of Shares           of Shares that
                                                                                Purchased as            May Yet be
                                        Total Number       Average Price      Part of Publicly           Purchased
                                          of Shares          Paid per             Announced              Under the
                                        Purchased (a)          Share                Plan                   Plan
---------------------------------------------------------------------------------------------------------------------
<S>                                            <C>             <C>                     <C>              <C>
April 1, 2004 through
  April 30, 2004                                 -                $ -                    -              $ 104,000,000

May 1, 2004 through
  May 31, 2004                                 530            $ 11.85                  530              $ 104,000,000

June 1, 2004 through
  June 30, 2004                                  -                $ -                    -              $ 104,000,000

                                  ---------------------------------------------------------
Total                                          530            $ 11.85                  530
                                  =========================================================

</TABLE>


(a) Does not include 2,321 shares acquired from employees in connection with the
settlement of income tax and related  withholding  obligations  arising from the
exercise of stock options or vesting of restricted stock grants.

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

(a)  The Company's 2004 Annual Meeting of  Shareholders  ("Annual  Meeting") was
     held on April 30, 2004 in Downers Grove, Illinois.

(b)  The following persons were elected as Class of 2007 directors:

<TABLE>


NAME                            VOTES FOR              VOTES WITHHELD           BROKER NON-VOTES
----------------               -----------             --------------           ----------------
<S>                            <C>                       <C>                           <C>
Brian Griffiths                236,437,014               13,077,337                    N/A
Sidney E. Harris               240,437,841                9,076,510                    N/A
James D. McLennan              240,303,451                9,210,900                    N/A

</TABLE>


No votes  were  cast for any  other  nominee  for  directors.  The Class of 2005
continuing in office are: Paul W. Berezny, Jr., Roberto R. Herencia,  Betty Jane
Scheihing and Jonathan P. Ward. The Class of 2006 continuing in office are: John
L. Carl, Herbert P. Hess, Dallen W. Peterson and David K. Wessner.

Subsequent  to the Annual  Meeting,  Herbert P. Hess  retired  from the Board of
Directors and the Board of Directors elected Coleman H. Peterson to the Class of
2005.

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



                                       24
<PAGE>

<TABLE>

                                                     Votes              Votes            Votes            Broker
Proposal                                              For              Against         Abstained         Non-Votes
--------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>                <C>               <C>              <C>
Ratification of Deloitte & Touche's
  selection as independent auditor                  242,865,722         5,486,433        1,162,135               N/A
Approval of the ServiceMaster 2004
  Employee Stock Purchase Plan                      185,065,463         9,473,614        3,651,130        51,324,144
Shareholder proposal relating to
  Rights Plan                                       122,904,731        71,864,739        3,420,728        51,324,153

</TABLE>


ITEM 6(A): EXHIBITS

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

4.1            $500,000,000  Credit Agreement among the  ServiceMaster  Company,
               the  lenders,  JPMorgan  Chase Bank and Bank of America  N.A.  as
               syndication  agents,  SunTrust Bank as administrative  agent, and
               U.S. Bank and Wachovia Bank N.A. as documentation agents dated as
               of May 19, 2004

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


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

A report on Form 8-K was furnished on April 28, 2004.  The purpose of the report
was to provide under Item 12, the press  release  issued by the Company on April
28, 2004 announcing the financial results for the first quarter of 2004.





                                       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, 2004


                  THE SERVICEMASTER COMPANY
                  (Registrant)

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

                  Ernest J. Mrozek
                  President and Chief Financial Officer





                                       26
<PAGE>