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 1934For
 the quarterly period ended September 30, 2007TRANSITION
 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 ofincorporation or organization)
(IRS Employer Identification No.)  860 Ridge Lake Boulevard, Memphis,
 Tennessee  38120(Address of principal executive
 offices)
(Zip
 Code) 901-597-1400
(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 o No x Indicate by check mark whether the Registrant is a
large accelerated filer, an accelerated filer, or a non-accelerated filer. See
definition of accelerated filer and large accelerated filer in Exchange Act
Rule 12b-2. Large accelerated filer o
Accelerated filer o
Non-accelerated filer x Indicate by check mark whether the registrant is a
shell company (as defined in Exchange Act Rule 12b-2). Yes o No x Indicate the number of shares outstanding of each of
the issuers classes of common stock: 1,000 shares of common stock on November
14, 2007. The
ServiceMaster Company is not required to file this Quarterly Report on Form
10-Q with the Securities and Exchange Commission, and is doing so on a
voluntary basis.    TABLE OF
CONTENTS

Page
No.THE
 SERVICEMASTER COMPANY (Registrant) -Part
 I. Financial InformationItem 1:
 Financial Statements (Unaudited)Condensed
 Consolidated Statements of Operations for the period July 25, 2007 to
 September 30, 2007 (Successor), the period July 1, 2007 to July 24, 2007
 (Predecessor) and for the three months ended September 30, 2006 (Predecessor)

3Condensed
 Consolidated Statements of Operations for the period July 25, 2007 to
 September 30, 2007 (Successor), the period January 1, 2007 to July 24, 2007
 (Predecessor) and for the nine months ended September 30, 2006 (Predecessor)

4Condensed
 Consolidated Statements of Financial Position as of September 30, 2007
 (Successor) and December 31, 2006 (Predecessor)

5Condensed
 Consolidated Statements of Cash Flows for the period July 25, 2007 to
 September 30, 2007 (Successor), the period January 1, 2007 to July 24, 2007
 (Predecessor) and for the nine months ended September 30, 2006 (Predecessor)

6Notes
 to Condensed Consolidated Financial Statements

7Item
 2: Management Discussion and Analysis of Financial Condition and Results of
 Operations

25Item
 3: Quantitative and Qualitative Disclosures About Market Risk

47Item
 4: Controls and Procedures

48Part
 II. Other InformationItem
 1: Legal Proceedings

49Item
 1A: Risk Factors

49Item
 2: Unregistered Sales of Equity Securities and Use of Proceeds

49Item
 6: Exhibits

50Signature

512

PART
I. FINANCIAL INFORMATION
THE SERVICEMASTER COMPANY
Condensed Consolidated Statements of Operations (Unaudited)(In thousands)

Successor


Predecessor

PredecessorJuly 25, 2007
 toSept. 30, 2007


July 1, 2007
 toJuly 24, 2007

Three 
 months endedSept. 30, 2006Operating Revenue


$
703,069




$
255,332



$
971,436Operating Costs and Expenses:Cost of services rendered and products sold
 (a)



417,069





165,075




599,102Selling and administrative expenses
 (a)



173,855





69,343




258,235Amortization expense



57,115





742




3,116Restructuring charges



8,211





1,601




855Merger related
expenses



458





36,097




Total operating costs and expenses



656,708





272,858




861,308Operating Income (Loss)



46,361





(17,526
)



110,128Non-operating Expense (Income):Interest expense



78,266





3,502




16,081Interest and net
 investment income



(3,890
)




(2,440
)



(7,136
)Minority interest and other expense, net



102





11




2,066Income
(loss) from Continuing Operations 
 before Income Taxes



(28,117
)




(18,599
)



99,117Provision
 (benefit) for income taxes



(10,817
)




(2,567
)



37,619Income
(loss) from Continuing Operations



(17,300
)




(16,032
)



61,498Income (loss) from discontinued
operations, net
 of income taxes



(69
)




(47
)



6,472Net Income (Loss)


$
(17,369
)



$
(16,079
)


$
67,970(a)
Exclusive of amortization expense of intangibles, which is included
 in amortization expense.See Notes to Condensed Consolidated Financial
Statements
3
THE SERVICEMASTER
COMPANY
Condensed Consolidated Statements of Operations (Unaudited)(In thousands)

Successor


Predecessor

PredecessorJuly 25, 2007
 to
 Sept. 30, 2007


Jan. 1, 2007
 to
 July 24, 2007

Nine
 months ended
 Sept. 30, 2006Operating Revenue


$
703,069




$
1,977,803



$
2,658,447Operating Costs and Expenses:Cost of services rendered and products sold
 (a)



417,069





1,227,491




1,645,634Selling and administrative expenses
 (a)



173,855





549,525




717,111Amortization expense



57,115





6,448




8,526Restructuring charges



8,211





16,919




10,693Merger related
expenses



458





41,431




Total operating costs and expenses



656,708





1,841,814




2,381,964Operating Income



46,361





135,989




276,483Non-operating Expense (Income):Interest expense



78,266





31,681




46,604Interest and net
 investment income



(3,890
)




(28,624
)



(18,685
)Minority interest and other expense, net



102





3,532




6,189Income (loss) from Continuing Operations before Income Taxes



(28,117
)




129,400




242,375Provision (benefit)
 for income taxes



(10,817
)




48,500




93,920Income (loss)
from Continuing Operations



(17,300
)




80,900




148,455Income (loss) from discontinued
operations, net
 of income taxes



(69
)




201




(17,652
)Net Income (Loss)


$
(17,369
)



$
81,101



$
130,803(a)
Exclusive of amortization expense of intangibles, which is included
 in amortization expense.See Notes to Condensed Consolidated Financial
Statements

4

THE SERVICEMASTER COMPANY
Condensed Consolidated Statements of Financial Position
(Unaudited)(In thousands,
except per share data)

Successor


PredecessorAs of September 30
 2007


As of December 31,
 2006AssetsCurrent Assets:Cash and cash
equivalents


$
211,407




$
123,675Marketable securities



104,124





109,992Receivables, less allowance of
$30,468 and $26,759, respectively



455,507





407,409Inventories



77,534





69,107Prepaid expenses and other
assets



31,489





25,868Deferred customer acquisition
costs



13,806





37,427Deferred taxes



22,759





37,400Assets of discontinued
operations



354





2,343Total Current Assets



916,980





813,221Property and
Equipment:At cost



208,186





413,810Less: accumulated
depreciation



(8,221
)




(236,602
)Net property
and equipment



199,965





177,208Other Assets:Goodwill



3,052,737





1,648,258Intangible assets, primarily
trade names, service marks and
 trademarks, net



3,273,661





249,217Notes receivable



27,254





29,488Long-term marketable
securities



163,822





187,201Debt issuance costs



93,270





16,978Other assets



35,427





12,870Total Assets


$
7,763,116




$
3,134,441Liabilities and
Shareholders EquityCurrent
Liabilities:Accounts payable


$
119,468




$
114,533Accrued liabilities:Payroll and
related expenses



151,938





98,425Self-insured
claims and related expenses



96,580





89,398Income taxes
payable









33,726Other



137,331





111,974Deferred revenues



392,787





442,393Liabilities of discontinued
operations



4,223





7,644Current portion of long-term
debt



20,239





21,549Total Current
Liabilities



922,566





919,642Long-Term Debt



4,118,481





685,851Long-Term
Liabilities:Deferred
taxes



1,123,704





168,000Liabilities of
discontinued operations



7,709





7,541Other long-term
obligations, primarily self-insured claims



179,473





164,549Total Long-Term
Liabilities



1,310,886





340,090Minority
Interest









100,000Commitments and
ContingenciesShareholders
Equity:Common stock $0.01 par value,
authorized 1,000 shares; issued 1,000
 shares (Successor)









Common stock $0.01 par value,
authorized 1,000,000,000 shares; issued
 326,168,000 shares (Predecessor)









3,262Additional paid-in
capital



1,431,100





1,172,206Retained earnings
(losses)



(17,369
)




319,459Accumulated other comprehensive
income (loss)



(2,548
)




10,118Treasury stock









(416,187
)Total Shareholders
Equity



1,411,183





1,088,858Total Liabilities and
Shareholders Equity


$
7,763,116




$
3,134,441See Notes to Condensed Consolidated Financial
Statements

5

THE SERVICEMASTER COMPANY 
Condensed Consolidated Statements of Cash Flows (Unaudited)(In thousands)

Successor


Predecessor

PredecessorPeriod from
 July 25, 2007 to
 September 30, 2007


Period from
 January 1, 2007
 to July 24, 2007

Nine months
 ended
 September 30,
 2006Cash and Cash Equivalents,
beginning of period


$
237,565




$
123,675



$
114,508Cash Flows from Operating
Activities from Continuing
 Operations:Net Income
(Loss)



(17,369
)




81,101




130,803Adjustments to reconcile net
income (loss) to net cash provided from
 (used for) operating activities:(Income) loss from discontinued
operations



69





(201
)



17,652Depreciation expense



9,491





28,170




34,981Amortization expense



57,115





6,448




8,526Amortization of debt issuance
costs



7,921





1,261




1,710Option and restricted stock
expense









3,415




8,367Restructuring charges



8,211





16,919




10,693Cash payments related to
restructuring charges



(7,239
)




(8,236
)



(8,732
)Merger related
expenses



458





41,431




Change in working capital, net
of acquisitions:Receivables



(4,250
)




(47,717
)



(103,363
)Inventories and other current
assets



1,226





(59,275
)



(24,250
)Accounts payable



(13,394
)




17,407




13,163Deferred revenue



(10,874
)




54,082




4,701Accrued liabilities



13,821





39,191




(13,261
)Change in tax
accounts:Current and deferred income
taxes



(13,972
)




31,394




78,099Resolution of income tax
audits














(4,907
)Other, net



824





2,958




2,155Net Cash Provided from
Operating Activities from
 Continuing Operations



32,038





208,348




156,337Cash Flows from Investing
Activities from Continuing
 Operations:Property additions



(7,846
)




(26,933
)



(38,107
)Sale of equipment and other
assets



639





2,449




1,389Acquisition of The ServiceMaster
Company



(4,890,648
)




(4,030
)



Business acquisitions, net of
cash acquired



(3,985
)




(25,460
)



(134,465
)Notes receivable, financial
investments and securities



(35,452
)




38,127




(13,529
)Net Cash Used for Investing
Activities from Continuing Operations



(4,937,292
)




(15,847
)



(184,712
)Cash Flows from Financing
Activities from Continuing
 Operations:Borrowings of debt









415,411




1,038,151Payments of debt



(250,349
)




(459,718
)



(836,965
)Borrowings under senior secured
term loan facility



2,650,000










Borrowings under senior
unsecured interim loan facility



1,150,000










Cash equity
contributions



1,431,100










Debt issuance costs
paid



(100,813
)









Purchase of treasury
stock














(86,053
)Shareholders
dividends









(70,077
)



(98,809
)Proceeds from employee share
plans









36,069




23,327Net Cash Provided from (Used
for) Financing
 Activities from Continuing Operations



4,879,938





(78,315
)



39,651Cash Flows from Discontinued
Operations:Cash used for operating
activities



(842
)




(296
)



(13,415
)Cash provided from (used for)
investing activities:Proceeds from sale of
businesses














113,562Other investing
activities














(1,971
)Net Cash Provided from (Used
for) Discontinued
 Operations



(842
)




(296
)



98,176Cash Increase (Decrease)
During the Period



(26,158
)




113,890




109,452Cash and Cash Equivalents,
End of Period


$
211,407




$
237,565



$
223,960See Notes to Condensed Consolidated Financial
Statements

6

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

Note 1: The condensed consolidated financial
statements include the accounts of The ServiceMaster Company and its
subsidiaries, collectively referred to as the Company or ServiceMaster.

Note 2: The condensed consolidated financial
statements have been prepared by the Company in accordance with generally
accepted accounting principles 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 on Form 10-K filed with the Securities and Exchange Commission for
the year ended December 31, 2006 (2006 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
presented. All intercompany transactions and balances have been eliminated in
consolidation. 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: On March 18, 2007, ServiceMaster
entered into an Agreement and Plan of Merger (the Merger Agreement) with
ServiceMaster Global Holdings, Inc. (formerly CDRSVM Topco, Inc.) (Holdings)
and CDRSVM Acquisition Co., Inc., an indirect wholly owned subsidiary of
Holdings (Acquisition Co.). The Merger Agreement provided that, upon the
terms and subject to the conditions set forth in the Merger Agreement, Acquisition
Co. would merge with and into ServiceMaster, with ServiceMaster as the
surviving corporation (the Merger).

On July 24,
2007 (the Closing Date), the Merger was completed, and each issued and
outstanding share of ServiceMaster common stock, other than shares held by
ServiceMaster or Holdings or its subsidiaries and shares held by stockholders
who validly perfected their appraisal rights under Delaware law, was converted
into the right to receive $15.625 in cash (the Merger Consideration). Each
share of ServiceMaster common stock owned by ServiceMaster, Holdings or
Acquisition Co. or any of their respective direct or indirect wholly-owned
subsidiaries was cancelled and retired, and no consideration was paid in
exchange for it.

Upon the
completion of the Merger, all of the outstanding capital stock of Holdings, the
ultimate parent company of ServiceMaster, was owned by Clayton, Dubilier &
Rice Fund VII, L.P., Clayton, Dubilier & Rice Fund VII (Co-Investment),
L.P., CDR SVM Co-Investor L.P., CD&R Parallel Fund VII, L.P., BAS Capital
Funding Corporation, Banc of America Capital Investors V, L.P., Citigroup
Capital Partners II 2007 Citigroup Investment, L.P., Citigroup Capital Partners
II Employee Master Fund, L.P., Citigroup Capital Partners II Onshore, L.P.,
Citigroup Capital Partners II Cayman Holdings, L.P., CPE Co-Investment
(ServiceMaster) LLC and J.P. Morgan Ventures Corporation, collectively, the
Equity Sponsors.

Equity
contributions totaling $1,431.1 million from the Equity Sponsors, together with
(i) borrowings under a new $1,150 million senior unsecured interim loan
facility, (ii) borrowings under a new $2,650 million senior secured term loan
facility, and (iii) cash on hand at ServiceMaster, were used, among other
things, to finance the aggregate Merger Consideration, to make payments in
satisfaction of other equity-based interests in ServiceMaster under the Merger
Agreement, to settle existing interest rate swaps, to redeem or provide for the
repayment of certain of the Companys existing indebtedness and to pay related
transaction fees and expenses. In addition, letters of credit issued under a
new $150 million pre-funded letter of credit facility (together with the senior
secured term loan facility, the Term Facilities) were used to replace and/or
secure letters of credit previously issued under a ServiceMaster credit
facility that was terminated as of the Closing Date. On the Closing Date, the
Company also entered into, but did not draw under, a new $500 million senior
secured revolving credit facility.

7

In connection
with the Acquisition, the Merger and the related transactions (the
Transactions), ServiceMaster refinanced certain of its existing indebtedness,
including ServiceMasters $179.0 million, 7.875% notes due August 15, 2009 (the
2009 Notes). On the Closing Date, the 2009 Notes were called for redemption
and they were redeemed on August 29, 2007. Additionally, the Company utilized a
portion of the proceeds from the Term Facilities to repay at maturity
ServiceMasters $49.2 million, 6.95% notes due August 15, 2007 (the 2007
Notes).

See Note 14
for a description of the Companys indebtedness.

Upon
consummation of the Merger, ServiceMaster delisted its shares of common stock
from the New York Stock Exchange (the NYSE) and deregistered under Section 12
of the Securities Exchange Act of 1934. The last day of trading of The
ServiceMaster Company common stock on the NYSE was July 24, 2007.

Although The
ServiceMaster Company continued as the same legal entity after the Merger, the
accompanying consolidated financial statements are presented for two periods:
Predecessor and Successor, which relate to the period preceeding the Merger and
the period succeeding the Merger, respectively. The Company refers to the
operations of The ServiceMaster Company for both the Predecessor and Successor
periods. The condensed consolidated statements of financial position as of
September 30, 2007 and the condensed consolidated statements of operations and
cash flows for the period July 25, 2007 to September 30, 2007 reflect the
financial position and operations of the Successor. The condensed consolidated
statements of financial position as of December 31, 2006, the condensed
consolidated statements of operations for the period July 1, 2007 to July 24,
2007, the period January 1, 2007 to July 24, 2007 and the three and nine months
ended September 30, 2006 and the condensed consolidated statements cash flows
for the nine months ended September 30, 2006 reflect the operations of the
Predecessor.

As a result of
the consummation of the Merger, the condensed consolidated financial statements
for the period after July 24, 2007 are presented on a different basis than that
for periods before July 25, 2007, as a result of the application of purchase accounting
as of July 25, 2007 and, therefore, are not comparable to prior periods. The
purchase price of the Company has been preliminarily allocated to the assets
and liabilities acquired based on their estimated fair market value at July 24,
2007. The excess of the purchase price over the net tangible and identifiable
intangible assets acquired was recorded as goodwill.

The Company
incurred certain costs related to the Merger that are presented as Merger
related expenses in the Condensed Consolidated Statements of Operations and
are recorded in the Other Operations and Headquarters business segment. During
the Predecessor period from July 1, 2007 through July 24, 2007, the Company
recorded Merger related costs of $36.1 million ($29.0 million, after-tax). During
the Predecessor period from January 1, 2007 to July 24, 2007, the Company
recorded Merger related costs of $41.4 million ($33.8 million, after-tax). In
the Successor period from July 25, 2007 to September 30, 2007, the Company
recorded Merger related costs of $0.5 million ($0.4 million, after-tax). The
Merger related costs include investment banking, accounting, legal and other
costs associated with the Merger.

Note 4: We have accounted for the Merger in
accordance with Statement of Financial Accounting Standards (SFAS) No. 141,
Business Combinations, which requires the cost of the Transactions to be
allocated to the assets and liabilities of the Company based on fair value. The
Merger and the allocation of the purchase price have been recorded as of July
25, 2007. The sources and uses of funds in connection with the Transactions are
summarized below (in millions):

8

SourcesEquity Sponsors
contribution

$
1,431Senior unsecured interim loan
facility


1,150Senior secured term loan
facility


2,650Total sources

$
5,231UsesPurchase price

$
4,758Transaction fees and other
expenses


132Acquisition of
ServiceMaster


4,890Debt issuance costs


101Refinancing of existing
indebtedness


240Total uses

$
5,231Independent
third-party appraisers were engaged to assist management and perform valuations
of certain tangible and intangible assets acquired and liabilities assumed. The
excess of the purchase price over the net tangible and intangible assets
acquired was recorded as goodwill. As of September 30, 2007, the Company has
recorded purchase accounting adjustments to increase the carrying value of
property, to establish intangible assets for trade names, service marks and
trademarks (trade names), customer relationships, franchise agreements,
backlog and lease commitments, among other things, as well as to reduce to fair
value deferred revenue and deferred customer acquisition costs.

Allocation of
the purchase price for the Merger of the Company was based on estimates of the
fair value of net assets acquired. The purchase price allocation is subject to
finalization of the assessment of the fair value of property and equipment,
intangible assets, operating leases, transaction costs and deferred income
taxes. Revisions to the preliminary purchase price allocation will be made as
additional information becomes available and such revisions could be material.
The Company expects to finalize the allocation of the purchase price during the
fourth quarter of 2007.

9

The purchase
price has been allocated on a preliminary basis as follows:

(In millions)Purchase consideration

$
4,890Debt premium payment


11Net assets acquired (historical
basis)


(1,262
)Purchase price in excess of
historical
 assets

$
3,639Identifiable intangible
assets:Trade names

$
2,484Customer relationships


653Franchise agreements


88Backlog


68Subcontractor and realtor
network


10Favorable lease
commitments


10Software


17Total identifiable intangible
assets


3,330Eliminate historical basis of
identifiable
 intangible assets


(249
)Net adjustment to identifiable
intangible
 assets


3,081Goodwill


1,374Current assets (deferred customer
 acquisition costs)


(68
)Current liabilities (primarily
deferred
 revenue adjustment)


99Fixed assets


25Fair value adjustment to
existing debt


99Historical debt issuance fees
written off


(16
)Deferred taxes


(958
)Other


3Allocation of purchase price in
excess of
 historical assets

$
3,639Goodwill and
most trade names are indefinite-lived intangible assets. As a result, goodwill
and indefinite-lived trade names will not be amortized but will be evaluated
for impairment at least annually.

The following
table summarizes the estimated useful lives of the finite lived intangible
assets and the amortization expense recorded in the Successor period July 25,
2007 to September 30, 2007:

(In thousands)

Estimated
 useful life

Amortization Expense in the
 Successor Period
 July 25, 2007 to
 September 30, 2007Trade
names(1)

5 to 10 years


$
548Customer relationships

1 to 8 years (2)



27,917Franchise agreements

23 to 25 years (2)



2,182Backlog

6 months



25,263Sub-contractor and realtor
network

7 to 10 years



308Favorable lease
commitments

5 years



447Software

7 years



450$
57,115

(1)
Approximately $2,468 million
 of trade names have indefinite lives and $16 million of trade names have the
 finite lives presented above.(2)
Customer relationships and
 franchise agreements are amortized in proportion to the amount and timing of
 cash flows expected to be received over the anticipated period of the
 customer relationship or duration of the franchise agreement.The following
pro forma results of operations assume that the Transactions had occurred at
the beginning of the respective periods and are adjusted for the impact of
certain acquisition related items, such as:

10

additional
amortization of identified intangible assets, increased interest expense on
acquisition debt, and the related income tax effects. Merger related charges
are not included as they would have been incurred prior to the Transaction
closing. This unaudited pro forma information should not be relied upon as
necessarily being indicative of the historical results that would have been
obtained if the Transactions had actually occurred on that date, or of the
results that may be obtained in the future.

(In thousands)


Three Months
 Ended Sept. 30,
 2007

Three Months
 Ended Sept. 30,
 2006

Nine Months
 Ended Sept. 30,
 2007

Nine MonthsEnded Sept. 30,2006Operating revenue


$
951,550


$
936,508


$
2,631,938


$
2,581,901Operating income



20,046



17,194



44,156



40,261Interest expense, net



112,399



102,288



296,312



290,196Loss from continuing
operations



(53,928
)


(49,786
)


(143,826
)


(152,678
)Note 5: The 2007 results include restructuring
charges related to the Companys consolidation of its corporate headquarters
into its operations support center in Memphis, Tennessee and the closing of its
corporate headquarters in Downers Grove, Illinois. The transition to Memphis
was substantially completed in November 2007. As previously disclosed, the
Company expects to incur incremental costs, including employee retention,
severance, recruiting and related costs, in connection with the corporate
headquarters consolidation plan in the range of $30 to $35 million through the
end of 2007. Almost all such costs will be cash expenditures. In accordance
with GAAP, these costs are being expensed throughout the transition period.
These charges totaled $1.6 million pretax ($1.0 million after-tax) for the
Predecessor period July 1, 2007 to July 24, 2007, $16.9 million pretax ($10.5
million after-tax) for the Predecessor period January 1, 2007 to July 24, 2007
and $5.4 million pretax ($3.4 million after-tax) for the Successor period July
25, 2007 to September 30, 2007. The 2007 results also include restructuring
charges related to organizational changes made within the TruGreen LandCare
operations, primarily related to costs to exit leases and severance. These
charges totaled $2.8 million pretax ($1.8 million after-tax) for the Successor
period July 25, 2007 to September 30, 2007. The Company expects the charges
related to the TruGreen LandCare operations to total approximately $7 million
pretax, with the balance to be recognized in the fourth quarter of 2007. There
were no such charges incurred in the Predecessor periods.

The Company
has change in control severance agreements with certain of its officers. These
agreements generally provide, among other things, for severance pay and other
benefits to the officer if, within two years following a change in control of
ServiceMaster, the officers employment is terminated by the Company other than
for cause or is terminated by the officer for good reason. The completion of
the Merger constitutes a change of control for purposes of these agreements.
The financial results through September 30, 2007 include severance and
retention costs for certain officers in the Companys Downers Grove, Illinois
office whose employment has been or will be terminated due to the consolidation
of the corporate headquarters into the Memphis, Tennessee operations support
center. The consummation of the Merger resulted in additional severance costs
and other benefits that were due under the change in control severance
agreements for these officers. These additional costs, as well as change in
control severance costs and other benefits due to certain terminated officers
of the Companys Memphis, Tennessee operations support center totaled $34
million pretax. This $34 million is not included in the statements of
operations of the Predecessor or Successor, rather it is reflected as a cost of
the acquisition as presented in Note 3. These costs are incremental to the
costs described in the preceding paragraph. Approximately $8 million was paid
in the third quarter of 2007 and the remaining amount will be paid during the
fourth quarter of 2007 and the first quarter of 2008.

The 2006
restructuring charges related to Project Accelerate, an internal, multi-phase
restructuring project designed to improve the effectiveness and efficiency of
all functional support areas. These charges totaled $0.9 million pretax ($0.5
million after-tax) for the three months ended September 30, 2006 and

11

$10.7 million
pretax ($6.5 million after-tax) for the nine months ended September 30, 2006.
All the restructuring costs associated with Project Accelerate were recognized
and paid in 2006.

The pretax
charges discussed above are reported in the Restructuring charges line in the
Condensed Consolidated Statements of Operations. The charges related to the
organizational changes within the TruGreen LandCare operations are recorded in
the TruGreen LandCare business segment and the charges related to the
headquarters consolidation and Project Accelerate are recorded in the Other
Operations and Headquarters business segment.

Note 6: 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, or since the first nine months of 2006.

Revenues from
lawn care and pest control services, as well as liquid and fumigation termite
applications are recognized as the services are provided. Revenues from
landscaping services are recognized as they are earned based upon monthly
contract arrangements or when services are performed for non-contractual
arrangements. The Company eradicates termites through the use of baiting
systems, as well as through non-baiting methods (e.g., fumigation or liquid
treatments). Termite services using baiting systems, termite inspection and
protection contracts, as well as home warranty services, are frequently 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. Those costs
bear a direct relationship to the fulfillment of the Companys obligations
under the contracts and are representative of the relative value provided to
the customer (the proportional performance method). Home warranty contract
revenue is recognized based on the expected emergence of total claim costs. The
Company regularly reviews its estimates of direct costs for its termite bait
and home warranty contracts and adjusts the estimates when appropriate.
Revenues from the Companys commercial disaster response and reconstruction
projects are recognized using the percentage of completion method in the ratio
that total incurred costs bear to total estimated costs. Revenues from trade
name licensing arrangements are recognized when earned. The Company has
franchise agreements in its TruGreen LawnCare, Terminix, ServiceMaster Clean,
Merry Maids, AmeriSpec and Furniture Medic businesses. Franchise revenue (which
in the aggregate represents approximately four percent of consolidated revenue)
consists principally of monthly fees based upon the franchisees customer level
revenue. Monthly fee revenue is recognized when the related customer level
revenue is reported by the franchisee and collectibility is assured. Franchise
revenue also includes initial fees resulting from the sale of franchises. 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. Franchise fee profits comprised 15 percent, seven
percent and 10 percent of the consolidated operating income, before
headquarters overhead, restructuring charges and Merger related expenses and purchase accounting for
the Predecessor period, July 1, 2007 to July 24, 2007, the Successor period
July 25, 2007 to September 30, 2007 and the Predecessor three month period
ended September 30, 2006, respectively. Franchise fee profits comprised 12 percent,
seven percent and 10 percent of the consolidated operating income, before
headquarters overhead, restructuring charges and Merger related expenses and purchase accounting for
the Predecessor period, January 1, 2007 to July 24, 2007, the Successor period
July 25, 2007 to September 30, 2007 and the Predecessor nine month period ended
September 30, 2006, respectively. The portion of total franchise fee income
related to initial fees received from the sale of franchises was immaterial to
the Companys consolidated financial statements for all periods.

The Company
had $393 million and $442 million of deferred revenue at September 30, 2007 and
December 31, 2006, respectively. The deferred revenue balance as of September
30, 2007 includes a $95 million reduction related to recording deferred revenue
at fair value in connection with applying purchase accounting. Deferred revenue
consists 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

12

is recognized
over the contractual period as the direct costs are incurred, 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. Deferred
customer acquisition costs were reduced to fair value in connection with
applying purchase accounting.

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

The cost of
direct-response advertising at Terminix and TruGreen LawnCare, consisting
primarily of direct-mail promotions, is capitalized and amortized over its
expected period of future benefits.

The
preparation of the consolidated financial statements requires management to
make certain estimates and assumptions required under GAAP which may differ
from the actual results. Disclosures in the 2006 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 revenue
recognition; the allowance for uncollectible receivables; accruals for
self-insured retention limits related to medical, workers compensation, auto
and general liability insurance claims; accruals for home warranty and termite damage
claims; the possible outcome of outstanding litigation; accruals for income tax
liabilities as well as deferred tax accounts; the deferral and amortization of
customer acquisition costs; work-in-process balances related to commercial
disaster response and reconstruction projects; useful lives for depreciation
and amortization expense; and the valuation of tangible and intangible assets.
As part of applying purchase accounting related to the Merger, the Company has
established useful lives for depreciable and amortizable assets and assigned
fair values to its tangible and intangible assets. In 2007, there have been no
changes in the significant areas that require estimates or in the underlying
methodologies used in determining the amounts of these associated estimates,
except for the impacts of applying purchase accounting.

The receivable balance at
September 30, 2007 includes approximately $46 million of InStar receivables
(including approximately $17 million of work-in-process that has not yet been
billed). InStars receivables include hurricane disaster recovery work
performed in New Orleans, southern Florida and other hurricane-affected areas
in late 2005 and 2006. The Company has accounts receivable from customers that
were insured by a family of insurance companies in Florida that are insolvent,
and whose claims are now being administered by the Florida Insurance Guaranty
Association (FIGA). The net receivable balance due from FIGA insured
customers is not material to the Companys consolidated financial statements.
The Company expects that collection of certain of InStars receivables,
potentially including certain of those administered by FIGA, will be
significantly delayed and require or involve litigation. While InStar has a
history of recovering amounts related to its disaster recovery projects, the
current circumstances increase the uncertainties in estimating the amounts
recoverable on certain projects. The consolidated allowance for doubtful
accounts at September 30, 2007 included approximately $9 million related to
InStars accounts receivable. Such allowance reflects managements best
estimate of the amounts that will not be collected. If the estimated amounts
recoverable on the projects change from

13

the amounts
currently recorded, these differences will be recognized as income or loss when
the change in estimate is made. Such changes, if any, are not expected to be
material to the Companys consolidated financial statements.

Note 7: 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 both
self-insured retention limits and layers of excess insurance coverage above such
self-insured retention limits that is insured by third parties. The Company is
required to pay all claims that fall below the retention limits. As of
September 30, 2007 and 2006, the Company had total accrued self-insured claims
of $162 million and $172 million, respectively. During the Predecessor period
January 1, 2007 to July 24, 2007, the Successor period July 25, 2007 to
September 30, 2007 and the Predecessor nine month period ended September 30,
2006, the Company recorded provisions for claims totaling $29 million, $8
million, and $44 million, respectively, and the Company paid claims totaling
$33 million, $8 million, and $45 million, respectively. The Company uses
historical claims experience and an independent, national actuarial firm to
establish both the current year accrual and the underlying provision for future
losses. The actuarially determined provision and related accrual include
consideration of both known claims, as well as incurred but not reported
claims. The Company adjusts its estimate of accrued self-insured claims when
required to reflect changes based on factors such as changes in health care
costs, accident frequency and claim severity.

Accruals for
warranty claims in the American Home Shield business are made based on the
Companys claims experience and independent actuarial projections. Termite
damage claim accruals are recorded based on both the historical rates of claims
incurred within a contract year and the cost per claim. Current activity could
differ causing a change in estimates. The Company has certain liabilities with
respect to existing or potential claims, lawsuits, and other proceedings. The
Company accrues for these liabilities when it is probable that future costs
will be incurred and such costs can be reasonably estimated. Any resulting
adjustments, which could be material, are recorded in the period the
adjustments are identified.

Note 8: In
accordance with SFAS No. 142, Goodwill and Other Intangible Assets, goodwill
and intangible assets that are not amortized are subject to assessment for
impairment by applying a fair-value based test on an annual basis or more
frequently if circumstances indicate a potential impairment. Such circumstances
could include actual earnings being significantly below managements estimates.
The Companys annual assessment date is October 1.

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

Predecessor(In thousands)

As of
  December 31,
  2006

Additions (1)

Amorti-
  zation

As of
  July 24,
  2007Non-amortizable
  Assets:Goodwill


$
1,648,258



$
26,775


$


$
1,675,033Trade names
  & other



215,493











215,493Amortizable
  Assets:Other
  intangible assets



80,098




5,935






86,033Accumulated
  amortization(1)



(46,374
)







(6,448
)

(52,822
)Net other
  intangibles



33,724




5,935



(6,448
)

33,211Total


$
1,897,475



$
32,710


$
(6,448
)
$
1,923,737(1)
During the first quarter of
  2007, the Company completed the purchase price allocation for the acquisition
  of InStar, and goodwill related to this acquisition increased by
  approximately $1.1 million, primarily based upon the receipt of additional
  information regarding the fair values of certain pre-acquisition
  contingencies. The remaining increase in goodwill and intangible assets
  primarily relates to tuck-in acquisitions completed by Terminix and TruGreen
  LawnCare from January 1, 2007 through July 24, 2007.14

Successor(In thousands)

As of
  July 25,
  2007 (1)

Additions (2)

Amorti-
  zation

As of
  Sept. 30,
  2007Non-amortizable
  Assets:Goodwill

$
3,049,597


$
3,140


$


$
3,052,737Trade names
  & other


2,470,200










2,470,200Amortizable
  Assets:Other
  intangible assets


859,477



1,099






860,576Accumulated
  amortization










(57,115
)

(57,115
)Net other
  intangibles


859,477



1,099



(57,115
)

803,461Total

$
6,379,274


$
4,239


$
(57,115
)
$
6,326,398(1)
Acquisition of ServiceMaster.(2)
Primarily relates to
  tuck-in acquisitions completed by Terminix and TruGreen LawnCare from July
  25, 2007 through September 30, 2007.The estimated amortization expense of intangible assets through 2011
has been updated to reflect the Transactions. Since the allocation of the
purchase price is preliminary and subject to finalization of independent
appraisals and evaluation of additional information, the estimated annual
amortization expense will continue to be updated as the appraisals are
finalized and the additional information is evaluated. Based on preliminary
valuation data and amounts recorded at September 30, 2007, total estimated
amortization expense of all acquisition-related intangible assets during the
period July 25, 2007 through December 31, 2007 and for fiscal years 2008
through 2011 follows (in thousands):

July 25, 2007 through December 31, 2007

$
131,0532008


174,4752009


158,1082010


130,5212011


80,945The table below presents goodwill balances by segment:

Successor

Predecessor(In thousands)

As of
  September 30,
  2007

As of
  December 31,
  2006TruGreen LawnCare


$
1,139,455



$
740,249TruGreen LandCare



48,170




Terminix



1,317,216




705,870American Home Shield



349,646




86,918Other Operations & Headquarters



198,250




115,221Total


$
3,052,737



$
1,648,258Note 9: Prior to the Merger, the Company had
minority investors in Terminix. On June 4, 2007, these minority equity
interests were converted into eight million shares of ServiceMaster common
stock and the minority interest balance in the Condensed Consolidated
Statements of Financial position was reduced to zero. As a result of the Merger
the eight million shares of ServiceMaster common stock that were issued were
converted into the right to receive $15.625 in cash per the Merger
Consideration.

Note 10: Prior to the Merger, the Company maintained a shareholder
approved
incentive plan that allowed for the issuance of equity-based compensation
awards, including stock options, stock appreciation rights, share grants,
restricted stock awards and restricted stock unit awards (Share Plan). For
purposes of this

15

Note 10, the Companys stock options and stock appreciation rights are
collectively called option(s). The Share Plan was terminated upon the
consummation of the Merger.

Total pretax option expense for the Predecessor period July 1, 2007 to
July 24, 2007 and the Predecessor three month period ended September 30, 2006
was approximately $0.2 million and $1.8 million, respectively, and the income
tax benefits recognized for these awards were approximately $0.1 million and
$0.7 million, respectively. For the Predecessor period January 1, 2007 to July
24, 2007 and the Predecessor nine month period ended September 30, 2006, total
pretax option expense was approximately $1.7 million and $5.1 million,
respectively, and the income tax benefits recognized for these awards were
approximately $0.7 million and $2.0 million, respectively.

Total pretax restricted stock compensation expense for the Predecessor
period July 1, 2007 to July 24, 2007 and the Predecessor three month period
ended September 30, 2006 was approximately $0.2 million and $1.1 million,
respectively, and the income tax benefits recognized for these awards was
approximately $0.1 million and $0.4 million, respectively. For the Predecessor
period January 1, 2007 to July 24, 2007 and the Predecessor nine month period
ended September 30, 2006, total pretax restricted stock expense was
approximately $1.7 million and $3.3 million, respectively, and the income tax
benefits recognized for these awards were approximately $0.7 million and $1.3
million, respectively.

The Company did not issue stock options, stock appreciation rights,
share grants, restricted stock awards or restricted stock unit awards during
the Predecessor period January 1, 2007 to July 24, 2007. Due to provisions in
the Share Plan that allowed for the cash settlement of equity awards upon a
change in control of the Company, the Company recorded a charge of $46 million
pretax for the reclassification of the awards from equity awards to liability
awards. Additionally, the Merger resulted in the accelerated vesting of previously
unvested equity awards, for which the Company recorded a charge of $12 million
pretax. These charges were not included in the statements of
operations of the Predecessor or Successor, rather they were reflected as a
cost of the acquisition.

Note 11: 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 Predecessor period January 1, 2007 to July 24,
2007, the Successor period July 25, 2007 to September 30, 2007, and the
Predecessor nine months ended September 30, 2006 is presented in the following
table:

Successor

Predecessor

Predecessor(In
  thousands)
  Cash paid for or (received from):

July 25, 2007
  to
  Sept. 30, 2007

Jan. 1, 2007
  to
  July 24, 2007

Nine months
  Ended
  Sept. 30, 2006Interest
  expense


$
50,198



$
27,387



$
54,673Interest
  and investment income



(4,102
)



(27,628
)



(19,486
)Income
  taxes, net of refunds (1)



2,978




17,363




26,644(1)
Income tax payments for the Predecessor nine months ended September 30, 2006
include payments of $5 million relating to the resolution of the 2003 and 2004
audits.

Cash received
from interest and investment income primarily reflects investment income and
gains realized on the investment portfolio at American Home Shield.

Note 12: Total comprehensive income (loss) was
$83 million for the Predecessor period January 1, 2007 to July 24, 2007, ($20)
million for the Successor period July 25, 2007 to September 30, 2007 and $130
million for the Predecessor nine months ended September 30, 2006. Total
comprehensive income primarily includes net income, changes in unrealized gains
and losses on marketable securities and foreign currency translation balances.

Note 13: The Company has an agreement to
provide for the ongoing revolving sale of a designated pool of accounts
receivable of TruGreen LawnCare and Terminix to a wholly-owned,
bankruptcy-remote

16

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 Predecessor period January 1, 2007
to July 24, 2007, the Successor period July 25, 2007 to September 30, 2007 and
the Predecessor nine months ended September 30, 2006, 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 alternative funding source.
The agreement is a 364-day facility that is renewable annually at the option of
ServiceMaster Funding LLC, with a final termination date of July 17, 2012. The
Company may sell up to $70 million of its receivables to these purchasers 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 14: Total debt was $4,139 million at
September 30, 2007. Long-term debt at September 30, 2007 and December 31, 2006
is summarized in the following table:

Successor


Predecessor(In
  thousands)

September 30,
  2007


December 31,
  2006Senior
  secured term loan facility maturing in 2014


$
2,643,375




$
Senior
  unsecured interim loan facility maturing in 2008



1,150,000





6.95% senior
  notes maturing in 2007









49,2257.88% senior
  notes maturing in 2009









179,0007.10% senior
  notes maturing in 2018



59,291
(1)




79,4737.45% senior
  notes maturing in 2027



141,841
(1)




195,0007.25% senior
  notes maturing in 2038



58,005
(1)




82,650Other



86,208





122,052Less current
  portion



(20,239
)




(21,549
)Total
  long-term debt


$
4,118,481




$
685,851(1)
The decrease from the
  balance at December 31, 2006 reflects fair value adjustments related to
  purchase accounting, which increases the effective interest rate from the
  coupon rates shown above. Additionally, interest expense includes the
  amortization of capitalized debt issuances costs related to the Merger.In connection
with the completion of the Transactions, the Company (i) entered into a new
$2,650 million senior secured term loan facility (the Senior Term Loan
Facility), (ii) entered into a new $1,150 million senior unsecured interim
loan facility, (iii) entered into a new $500 million senior secured revolving
credit facility, and (iv) entered into a new synthetic letter of credit
facility in an aggregate principal amount of $150 million. Additionally, the
Company repaid certain of its existing indebtedness, including the 2009 Notes.
The 2009 Notes were called for redemption on the Closing Date and were redeemed
on August 29, 2007. Additionally, the Company utilized a portion of the
proceeds from the Term Facilities described below to repay at maturity the 2007
Notes. The debt issuance costs related to the Merger have been capitalized and
these costs are being amortized to interest expense over the term of the
underlying debt. The debt issue costs at December 31, 2006 of approximately $17
million have been reclassified out of long-term debt to provide consistency
with the 2007 presentation.

(a) Term Facilities

On the Closing
Date, in connection with the completion of the Merger, Acquisition Co. entered
into the Term Facilities. The rights and obligations of Acquisition Co. under
the Term Facilities were assumed by ServiceMaster on the Closing Date of the
Merger.

The Term
Facilities consist of (1) the Senior Term Loan Facility providing for term
loans in an aggregate principal amount of $2,650 million, and (2) a pre-funded
synthetic letter of credit facility in an aggregate principal amount of $150
million. As of September 30, 2007, the Company had issued approximately

17

$141 million
of letters of credit, resulting in unused commitments under the synthetic
letter of credit facility of approximately $9 million.

The Term
Facilities will mature on July 24, 2014. The interest rates applicable to the
loans under the Term Facilities are based on a fluctuating rate of interest
measured by reference to either, at ServiceMasters option, (i) an adjusted
London inter-bank offered rate (adjusted for maximum reserves), plus a
borrowing margin (as of September 30, 2007  2.75%), or (ii) an alternate base
rate, plus a borrowing margin (as of September 30, 2007  1.75%). The borrowing
margin, in each case, will be adjusted from time to time based on the
Consolidated Secured Leverage Ratio (as defined in the Term Facilities
agreement) for the previous fiscal quarter.

In August
2007, the Company entered into three, 3-year interest rate swap agreements,
effective September 4, 2007. The total notional amount of the agreements was
$530 million. Under the terms of the agreements, the Company will pay a
weighted average fixed rate of interest of approximately 5.05% on the $530
million notional amount and the Company will receive a floating rate of
interest (based on the one month LIBOR) on the notional amount. Therefore, the
effective interest rate for $530 million of the term loans is fixed at
approximately 7.80%, including the borrowing margin described above. In
accordance with SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, the Companys interest rate swap agreements are classified
as cash flow hedges and, as such, the hedging instruments are recorded on the
balance sheet as either an asset or liability at fair value, with the effective
portion of the changes in fair value attributable to the hedged risks recorded
in other comprehensive income.

(b) Interim Loan Facility

On the Closing
Date, in connection with the completion of the Merger, Acquisition Co. entered
into a $1.15 billion senior unsecured interim loan credit agreement, dated July
24, 2007 (the Interim Loan Facility). The rights and obligations of
Acquisition Co. under the Interim Loan Facility were assumed by ServiceMaster
on the Closing Date of the Merger.

The Interim
Loan Facility will mature on July 24, 2008. On the maturity date (or at the
election of the Company following the completion of a standard high yield road
show after which no senior notes to refinance in whole or part the Interim Loan
Facility loans were issued) outstanding amounts under the Interim Loan Facility
shall be converted into 10.75%/11.50% senior toggle notes due 2015 (Permanent
Notes). The Permanent Notes would be issued pursuant to a refinancing
indenture. In connection with the issuance of Permanent Notes, ServiceMaster
would enter into a registration rights agreement to be dated the date of the
issuance of the Permanent Notes, pursuant to which ServiceMaster will be
required to file a shelf registration statement (or, at ServiceMasters option,
an exchange offer registration statement) with respect to the Permanent Notes.

ServiceMaster
may, at its option prior to the start of any interest period (three month
interest period for loans under the Interim Loan Facility and six month
interest period for Permanent Notes) through July 2011, elect to pay interest
on the Interim Loan Facility entirely in cash (Cash Interest), entirely by
increasing the principal amount of the outstanding loans (PIK Interest), or
50% as Cash Interest and 50% as PIK Interest. Interest for the first interest
period was paid entirely as Cash Interest in October 2007. The Company has
elected to pay the interest for the second interest period due in January 2008
entirely as Cash Interest.

The interest
rates applicable to the loans under the Interim Loan Facility are based on a
fluctuating rate of interest measured by reference to an adjusted London
inter-bank offered rate (adjusted for maximum reserves), plus a borrowing
margin (as of September 30, 2007  4.50%) and, in the case of PIK Interest, an
additional PIK margin of 0.75%. If the borrowings under the Interim Loan
Facility are not repaid in whole within the six-month period following the
Closing Date, the borrowing margin will increase by 0.50% per annum at the end
of such six-month period and shall increase by an additional 0.50% per annum at
the end of each three-month period thereafter until, but excluding, the maturity
date, provided,

18

however, that
such interest rate shall not exceed 10.75% in the case of Cash Interest or
11.50% in the case of PIK Interest.

(c) Revolving Credit Facility

On the Closing
Date, in connection with the completion of the Merger, ServiceMaster entered
into a credit agreement, dated July 24, 2007 (the Revolving Credit Facility).
The Revolving Credit Facility provides for senior secured revolving loans and
stand-by and other letters of credit of up to a maximum aggregate principal amount
of $500 million. The Revolving Credit Facility limits outstanding letters of
credit to $75 million. There were no amounts outstanding under the Revolving
Credit Facility on September 30, 2007.

The final
maturity date of the Revolving Credit Facility is July 24, 2013. The interest
rates applicable to the loans under the Revolving Credit Facility will be based
on a fluctuating rate of interest measured by reference to either, at the
borrowers option, (1) an adjusted London inter-bank offered rate (adjusted for
maximum reserves), plus a borrowing margin (as of September 30, 2007  2.75%),
or (2) an alternate base rate, plus a borrowing margin (as of September 30,
2007  1.75%). The borrowing margin, in each case, will be adjusted from time
to time based on the Consolidated Secured Leverage Ratio (as defined in the
Revolving Credit Agreement) for the previous fiscal quarter.

The agreements
governing the Term Facilities, the Interim Loan Facility and the Revolving
Credit Facility contain certain covenants that, among other things, limit or
restrict the incurrence of additional indebtedness, liens, sales of assets,
certain payments (including dividends) and transactions with affiliates,
subject to certain exceptions. The Company was in compliance with the covenants
under these agreements at September 30, 2007.

Note 15: The financial statement caption
discontinued operations includes American Residential Services (ARS) and
American Mechanical Services (AMS). The ARS/AMS operations provided heating,
ventilation, air conditioning (HVAC), plumbing and electrical installation and
repair. In the first quarter of 2006, the Company recorded a $25 million
after-tax provision for expected losses on the disposition of certain ARS/AMS
properties. In the third quarter of 2006, the Company completed the sales of
ARS and AMS. As part of the ARS and AMS sale agreements, the Company continues
to be obligated to third parties with respect to operating leases for which the
Company has been released as being the primary obligor, as well as certain real
estate leased and operated by the buyers. The Companys obligations under these
agreements may be limited in terms of time and or amount, and in some cases,
the Company may have recourse against the buyers for any potential future payments
made by the Company. At the present time, the Company does not believe it is
probable that the buyers will default on their obligations subject to
guarantee. The fair value of the Companys obligations related to these
guarantees is not significant and no liability has been recorded.

In addition, the Company has
guarantees on certain bonds issued by the divested companies, primarily
performance and license type bonds. The maximum payments the Company could be
required to make if the buyers are unable to fulfill their obligations is
approximately $20 million at September 30, 2007. Approximately 60 percent of
the bonds expire during 2007, with the remaining bonds expiring primarily
through 2008. The Company believes that if it were to incur a loss on any
individual bond guarantee, the likelihood of which the Company believes is
remote, such loss would not have a material effect on the Companys business,
financial condition or results of operations.

19

The operating
results and financial position of discontinued operations are as follows:

Successor


Predecessor

Predecessor(In thousands)

July 25, 2007
  to
  Sept. 30, 2007


July 1, 2007
  to
  July 24, 2007

Three months
  Ended
  Sept. 30, 2006Operating revenue


$





$




$
141,396Operating income
(loss)


$
(111
)



$
(76
)


$
12,007Provision (benefit) for income
taxes



(42
)




(29
)



4,794(Loss) on sale, net of
tax














(741
)Income (loss) from discontinued
operations


$
(69
)



$
(47
)


$
6,472Successor


Predecessor

Predecessor(In
  thousands)

July 25, 2007
  to
  Sept. 30, 2007


January 1, 2007
  to
  July 24, 2007

Nine months
  Ended
  Sept. 30, 2006Operating
  revenue


$





$




$
518,830Operating
  income (loss)


$
(111
)



$
326



$
13,396Impairment
  charge














(42,000
)Pretax
  income (loss)



(111
)




326




(28,604
)Provision
  (benefit) for income taxes



(42
)




125




(11,693
)(Loss)
  on sale, net of tax














(741
)Income
  (loss) from discontinued operations


$
(69
)



$
201



$
(17,652
)Successor


Predecessor(In
  thousands)

As of
  September 30, 2007


As of
  December 31, 2006Current
  assets


$
354




$
2,343Total
  assets


$
354




$
2,343Current
  liabilities


$
4,223




$
7,644Long-term
  liabilities



7,709





7,541Total
  liabilities


$
11,932




$
15,18520

The following
tables summarize the activity for the Predecessor period, January 1, 2007 to
July 24, 2007 and the Successor period, July 25, 2007 to September 30, 2007 for
the remaining liabilities from discontinued operations. The remaining
obligations primarily relate to long-term self-insurance claims. The Company
believes that the remaining reserves continue to be adequate and reasonable.

Predecessor(In thousands)

Balance at
  December 31,
  2006

Cash
  Payments
  or Other

Balance at
  July 24,
  2007Liabilities from
ARS/AMS


$
4,301



$
1,976



$
2,325Liabilities from other
discontinued
  operations



10,884




546




10,338Total liabilities from
discontinued
  operations


$
15,185



$
2,522



$
12,663Successor(In thousands)

Balance at
  July 25,
  2007

Cash
  Payments
  or Other

Balance at
  Sept. 30,
  2007Liabilities
  from ARS/AMS


$
2,325



$
262



$
2,063Liabilities
  from other discontinued operations



10,338




469




9,869Total
  liabilities from discontinued operations


$
12,663



$
731



$
11,932Note
16: The Company
adopted the provisions of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes (FIN 48), on January 1, 2007. As a result of the
adoption of FIN 48, the Company recorded a $0.8 million increase in the
liability for certain tax items and a corresponding reduction to the January 1,
2007 balance of retained earnings. As of September 30, 2007, the Company has
$18.8 million of tax items primarily reflected in state tax returns that have not
been recognized for financial reporting (unrecognized tax benefits). If
recognized, the benefit of $13.1 million, net of federal and state tax effects,
would be recorded as a purchase accounting adjustment to goodwill.

It is expected that the
amount of unrecognized tax benefits will change in the next twelve months. As a
result of the closing of certain state audits and the expiration of statutes of
limitation on certain state tax returns, the Company recognized approximately
$7.0 million ($4.5 million, net of federal and state tax effects) of its
unrecognized tax benefits during the Predecessor period January 1, 2007 to July
24, 2007.

The Company files
consolidated and separate income tax returns in the United States federal
jurisdiction and in many state and foreign jurisdictions. The Company has been
audited by the United States Internal Revenue Service (IRS) through 2005 and is
no longer subject to state and local or foreign income tax examinations by tax
authorities for years before 2001.

In the ordinary course, the Company is subject to review by domestic
and foreign taxing authorities, including the IRS. As previously disclosed, the
U.S. federal tax returns filed by the Company through the 2005 return have been
reviewed by the IRS. The Company paid $5 million primarily in the first quarter
of 2006 relating to the resolution of the 2003 and 2004 audits. In the fourth
quarter of 2006, the IRS completed the audit of the Companys tax return for
2005, with no adjustments or additional payments. The IRS commenced
examinations of the Companys U.S. federal income tax returns for 2006 and 2007
in the first quarter of 2006 and 2007, respectively, which are anticipated to
be completed by the end of 2007 and 2008, respectively. At this time, the
outcome of these audits is not known and no significant adjustments have been
proposed by the IRS pertaining to these audit periods. Various state tax
authorities

21

are in the
process of auditing state income tax returns of various subsidiaries. Several
state audits are at the appeals level. If state authorities were to prevail
with their assessments, the Company does not anticipate that these adjustments
would have a material impact on the Companys financial position or results of
operations.

The Companys policy is to recognize potential interest and penalties
related to its tax positions within the tax provision. During the Predecessor
period July 1, 2007 to July 24, 2007, the Predecessor period January 1, 2007 to
July 24, 2007 and the Successor period July 25, 2007 to September 30, 2007 the
Company recognized interest income of approximately $10 thousand, $0.8 million
and $10 thousand, respectively, through the tax provision, primarily as a
result of the expiration of the statute of limitations on certain tax
positions. As of September 30, 2007, the Company had accrued for the payment of
interest and penalties of approximately $3.1 million ($1.9 million, net of federal
and state tax effects).

Note 17: The business of the Company is
conducted through five reportable segments: TruGreen LawnCare, TruGreen
LandCare, Terminix, American Home Shield and Other Operations and Headquarters.
The TruGreen LawnCare segment provides residential and commercial lawn care
services. The TruGreen LandCare segment provides landscape maintenance services
primarily to commercial customers. 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 heating,
ventilation and air conditioning, plumbing and other home systems and
appliances. The Other Operations and Headquarters segment includes InStar
Services Group, a direct provider of commercial disaster response and
reconstruction services as well as the franchised and Company-owned operations
of ServiceMaster Clean, AmeriSpec, Furniture Medic and Merry Maids, which
provide primarily residential disaster restoration, commercial cleaning, carpet
and upholstery cleaning, home inspection services, furniture repair and maid
services. The Other Operations and Headquarters segment also includes the
Companys headquarters operations, which provide various technology, marketing,
human resources, finance, legal and other support services to the business
units. Segment information is presented in the following tables.

Successor


Predecessor

Predecessor(In thousands)

July 25, 2007
  to
  Sept. 30, 2007


July 1, 2007
  to
  July 24, 2007

Three
  months ended
  Sept. 30, 2006Operating Revenue:TruGreen
LawnCare


$
273,485




$
88,927



$
342,375TruGreen
LandCare



76,325





26,914




116,383Terminix



201,087





72,200




269,213American Home
Shield



99,389





50,134




164,405Other
Operations and
  Headquarters



52,783





17,157




79,060Total Operating
Revenue


$
703,069




$
255,332



$
971,436Operating Income
(Loss):TruGreen
LawnCare


$
48,027




$
14,436



$
67,033TruGreen
LandCare (1)



(4,434
)




(146
)



(1,138
)Terminix



21,661





2,101




31,512American Home
Shield



(4,327
)




8,283




20,506Other
Operations and
  Headquarters (1)



(14,566
)




(42,200
)



(7,785
)Total Operating Income (Loss)
(1),(2)


$
46,361




$
(17,526
)


$
110,128(1)
Total Operating Income
  (Loss) includes restructuring and Merger related expenses of $8.7 million for
  the Successor period July 25, 2007 to September 30, 2007 and $37.7 million
  for the Predecessor period July 1, 2007 to July 24, 2007, and the Predecessor
  period three months ended September 30, 2006 includes restructuring charges
  of $0.9 million.22

These restructuring charges
  and Merger related expenses are included in the operating income (loss) of
  the Other Operations and Headquarter segment, with the exception of $2.8
  million of restructuring costs for the Successor period July 25, 2007 to
  September 30, 2007 that are included in the TruGreen LandCare segment.(2)
Presented below is a
  reconciliation of total segment operating income (loss) to income (loss) from
  continuing operations before income taxes.Successor


Predecessor

Predecessor(In thousands)

July 25, 2007
  to
  Sept. 30, 2007


July 1, 2007
  to
  July 24, 2007

Three
  months ended
  Sept. 30, 2006Segment Operating Income
(Loss)


$
46,361




$
(17,526
)


$
110,128Non-operating expense
(income):Interest
expense



78,266





3,502




16,081Interest and
investment income,
  net



(3,890
)




(2,440
)



(7,136
)Minority
interest and other
  expense, net



102





11




2,066Income (Loss)
from Continuing
  Operations before Income Taxes


$
(28,117
)



$
(18,599
)


$
99,117Successor


Predecessor

Predecessor(In thousands)

July 25, 2007
  to
  Sept. 30, 2007


Jan. 1, 2007
  to
  July 24, 2007

Nine
  months ended
  Sept. 30, 2006Operating Revenue:TruGreen
LawnCare


$
273,485




$
597,147



$
837,069TruGreen
LandCare



76,325





242,154




334,236Terminix



201,087





645,700




830,487American Home
Shield



99,389





331,361




440,801Other
Operations and
  Headquarters



52,783





161,441




215,854Total Operating
Revenue


$
703,069




$
1,977,803



$
2,658,447Operating Income
(Loss):TruGreen
LawnCare


$
48,027




$
75,656



$
128,008TruGreen
LandCare (1)



(4,434
)




(2,206
)



(5,545
)Terminix



21,661





109,461




124,728American Home
Shield



(4,327
)




35,582




54,104Other
Operations and Headquarters(1)



(14,566
)




(82,504
)



(24,812
)Total Operating Income(1), (2)


$
46,361




$
135,989



$
276,483(1)
Total
  Operating Income (Loss) includes restructuring and Merger related expenses of
  $8.7 million for the Successor period July 25, 2007 to September 30, 2007 and
  $58.4 million for the Predecessor period January 1, 2007 to July 24, 2007,
  and the Predecessor period nine months ended September 30, 2006 includes
  restructuring charges of $10.7 million. These restructuring charges and
  Merger related expenses are included in the operating income (loss) of the
  Other Operations and Headquarter segment, with the exception of $2.8 million
  of restructuring costs for the Successor period July 25, 2007 to September
  30, 2007 that are included in the TruGreen LandCare segment.23

(2)
Presented
 below is a reconciliation of total segment operating income to income (loss)
 from continuing operations before income taxes.Successor


Predecessor

PredecessorJuly 25, 2007


January 1, 2007

Nineto


to

months ended(In thousands)

Sept. 30, 2007


July 24, 2007

Sept. 30, 2006Segment Operating Income
(Loss)


$
46,361




$
135,989



$
276,483Non-operating expense
(income):Interest expense



78,266





31,681




46,604Interest and investment income,
 net



(3,890
)




(28,624
)



(18,685
)Minority interest and other
 expense, net



102





3,532




6,189Income (Loss) from Continuing
 Operations before Income Taxes


$
(28,117
)



$
129,400



$
242,375Successor

PredecessorAs of

As of(In thousands)

September 30, 2007

December 31, 2006Identifiable Assets:TruGreen
LawnCare


$
2,269,932



$
932,584TruGreen
LandCare



180,395




93,575Terminix



2,641,423




909,984American Home
Shield



1,137,018




593,293Other Operations &
 Headquarters



1,533,994




602,662Discontinued
Operations



354




2,343Total Identifiable Assets


$
7,763,116



$
3,134,441Note 18: In the ordinary course of conducting
its business activities, the Company becomes involved in judicial,
administrative and regulatory proceedings involving both private parties and
governmental authorities. These proceedings include general and commercial
liability and employment actions as well as a small number of
environmental proceedings.

The Company
and/or its subsidiaries are currently defendants in various wage and
hour putative class/collective actions that allege violations of certain
wage and hour laws which have allegedly resulted in the underpayment
of certain current and/or former employees. These matters generally are
in the early, largely pre-discovery stages of arbitration and/or
litigation and are being defended by the Company. The Company has
established reserves for these actions that it believes are adequate
based on existing facts and circumstances. The Company does not expect
that the outcome of any of these proceedings will have a material adverse
effect on its financial position, annual results of operations or liquidity.
However, as with any pending litigation, the ultimate results cannot be known
at this time and thus no assurances as to their outcomes can be given.

Note
19: In connection
with the Transactions, the Company paid the Equity Sponsors and certain
affiliates thereof approximately $80 million in fees and expenses for financial
and transaction structuring advice and analysis as well as assistance with due
diligence investigations and debt financing negotiations. This amount has been
included in the total purchase price of the Merger. Also in connection with the
Transactions, the Company entered into a consulting agreement with Clayton,
Dubilier & Rice, Inc. (CD&R) under which CD&R will provide the
Company with on-going consulting and management advisory services in exchange
for an annual management fee of $2 million. This fee is payable quarterly. The
Company recorded management fees of $0.4 million for the Successor period July 25, 2007 to September 30, 2007. The consulting
agreement also provides that CD&R may receive future fees in connection
with certain subsequent financing and acquisition or disposition transactions.

24

MANAGEMENT DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MERGER AGREEMENT

On March 18, 2007,
ServiceMaster entered into an Agreement and Plan of Merger (the Merger
Agreement) with ServiceMaster Global Holdings, Inc. (formerly CDRSVM Topco,
Inc.) (Holdings) and CDRSVM Acquisition Co., Inc., an indirect wholly owned
subsidiary of Holdings (Acquisition Co.). The Merger Agreement provided that,
upon the terms and subject to the conditions set forth in the Merger Agreement,
Acquisition Co. would merge with and into ServiceMaster, with ServiceMaster as
the surviving corporation (the Merger).

On July 24, 2007 (the
Closing Date), the Merger was completed, and each issued and outstanding
share of ServiceMaster common stock, other than shares held by ServiceMaster or
Holdings or its subsidiaries and shares held by stockholders who validly
perfected their appraisal rights under Delaware law, was converted into the
right to receive $15.625 in cash (the Merger Consideration). Each share of
ServiceMaster common stock owned by ServiceMaster, Holdings or Acquisition Co.
or any of their respective direct or indirect wholly-owned subsidiaries was
cancelled and retired, and no consideration was paid in exchange for it.

Upon the completion of the
Merger, all of the outstanding capital stock of Holdings, the ultimate parent
company of ServiceMaster, was owned by Clayton, Dubilier & Rice Fund VII,
L.P., Clayton, Dubilier & Rice Fund VII (Co-Investment), L.P., CDR SVM
Co-Investor L.P., CD&R Parallel Fund VII, L.P., BAS Capital Funding
Corporation, Banc of America Capital Investors V, L.P., Citigroup Capital
Partners II 2007 Citigroup Investment, L.P., Citigroup Capital Partners II
Employee Master Fund, L.P., Citigroup Capital Partners II Onshore, L.P.,
Citigroup Capital Partners II Cayman Holdings, L.P., CPE Co-Investment
(ServiceMaster) LLC and J.P. Morgan Ventures Corporation, collectively, the
Equity Sponsors.

Equity contributions
totaling $1,431.1 million from the Equity Sponsors, together with
(i) borrowings under a new $1,150 million senior unsecured interim loan
facility (Interim Loan Facility), (ii) borrowings under a new $2,650 million
senior secured term loan facility, and (iii) cash on hand at
ServiceMaster, were used, among other things, to finance the aggregate Merger
Consideration, to make payments in satisfaction of other equity-based interests
in ServiceMaster under the Merger Agreement, to settle existing interest rate
swaps, to redeem or provide for the repayment of certain of the Companys
existing indebtedness and to pay related transaction fees and expenses. In
addition, letters of credit issued under a new $150 million pre-funded letter
of credit facility (together with the senior secured term loan facility, the Term
Facilities) were used to replace and/or secure letters of credit previously
issued under a ServiceMaster credit facility that was terminated as of the
Closing Date. On the Closing Date, the Company also entered into, but did not
draw under, a new $500 million senior secured revolving credit facility.

In connection with the
Merger and the related transactions (the Transactions), ServiceMaster
refinanced certain of its existing indebtedness, including ServiceMasters
$179.0 million, 7.875% notes due August 15, 2009 (the 2009 Notes). On the
Closing Date, the 2009 Notes were called for redemption and they were redeemed
on August 29, 2007. Additionally, the Company utilized a portion of the
proceeds from the Term Facilities to repay at maturity ServiceMasters $49.2
million, 6.95% notes due August 15, 2007 (the 2007 Notes).

Although the ServiceMaster
Company continued as the same legal entity after the Merger, the accompanying
consolidated financial statements are presented for two periods: Predecessor and
Successor, which relate to the period preceeding the Merger and the period
succeeding the Merger, respectively. The Company refers to the operations of
the ServiceMaster Company for both the Predecessor and Successor periods. The
condensed consolidated statements of financial position as of

25

September 30, 2007 and the
condensed consolidated statements of operations and cash flows for the period
July 25, 2007 to September 30, 2007 reflect the operations of the Successor.
The condensed consolidated statements of financial position as of December 31,
2006 and the condensed consolidated statements of operations for the period
July 1, 2007 to July 24, 2007, the period January 1, 2007 to July 24, 2007 and
the three and nine months ended September 30, 2006 and the condensed
consolidated statements cash flows for the nine months ended September 30, 2006
reflect the operations of the Predecessor.

In accordance with generally
accepted accounting principles in the United States (GAAP), we have separated
our historical financial results for the Predecessor and Successor periods. The
separate presentation is required under GAAP when there is a change in
accounting basis, which occurred when purchase accounting was applied to the
acquisition of the Predecessor. Purchase accounting requires that the
historical carrying value of the assets acquired and liabilities assumed be
adjusted to fair value, which may yield results that are not comparable on a
period-to-period basis due to the different, and sometimes higher, cost basis
associated with the allocation of the purchase price.

In evaluating our results of
operations and financial performance and related trends therein, our management
has used combined results for the three and nine months ended September 30,
2007 as single measurement periods in making comparisons to corresponding prior
year periods. We believe that, without combining the 2007 results, the
comparisons between the three and nine months ended September 30, 2006 and
either the Successors results for the period July 25, 2007 to September 30,
2007 or the Predecessors results for the periods July 1, 2007 to July 24, 2007
and January 1, 2007 to July 24, 2007 are less useful to users of our financial
information in understanding our operating and cash flow performance.

The combined presentation for
the three and nine months ended September 30, 2007 simply represents the
mathematical addition of the pre-Merger results of operations of the
Predecessor for the period July 1, 2007 to July 24, 2007 and the results of
operations of the Successor for the period July 25, 2007 to September 30, 2007
and the pre-Merger results of operations of the Predecessor for the period
January 1, 2007 to July 24, 2007 and the results of operations for the
Successor for the period July 25, 2007 to September 30, 2007. We believe the
combined presentation provides relevant information for investors. These
combined results, however are not intended to represent what our operating
results would have been had the Transactions occurred at the beginning of the
three or nine month periods beginning July 1, 2007 and January 1, 2007,
respectively. A reconciliation showing the mathematical combination of our
operating results for such periods follows.

26

RESULTS OF OPERATIONS

COMBINED THREE MONTHS ENDED SEPTEMBER 30,
2007 COMPARED WITH THREE MONTHS ENDED SEPTEMBER 30, 2006

The following table
illustrates our operating activity for the combined three months ended
September 30, 2007 and the three months ended September 30, 2006.

(In thousands)

Successor
 Period
 July 25, 2007
 to
 Sept. 30, 2007


Predecessor
 Period
 July 1, 2007
 to
 July 24, 2007

Non-GAAP
 Combined (1)
 Three Months
 Ended
 Sept. 30, 2007

Predecessor
 Three Months
 Ended
 Sept. 30, 2006Operating Revenue


$
703,069




$
255,332



$
958,401



$
971,436Operating Costs and Expenses:Cost of services rendered and products sold



417,069





165,075




582,144




599,102Selling and administrative expenses



173,855





69,343




243,198




258,235Amortization expense



57,115





742




57,857




3,116Restructuring charges



8,211





1,601




9,812




855Merger related
expenses



458





36,097




36,555




Total operating costs and expenses



656,708





272,858




929,566




861,308Operating Income (Loss)



46,361





(17,526
)



28,835




110,128Non-operating Expense (Income):Interest expense



78,266





3,502




81,768




16,081Interest and investment income,
 net



(3,890
)




(2,440
)



(6,330
)



(7,136
)Minority interest and other expense, net



102





11




113




2,066Income
 (loss) from Continuing Operations 
 before Income Taxes



(28,117
)




(18,599
)



(46,716
)



99,117Provision
 (benefit) for income taxes



(10,817
)




(2,567
)



(13,384
)



37,619Income (Loss)
from Continuing Operations



(17,300
)




(16,032
)



(33,332
)



61,498Income (loss) from discontinued
operations, net
 of income taxes



(69
)




(47
)



(116
)



6,472Net Income (Loss)


$
(17,369
)



$
(16,079
)


$
(33,448
)


$
67,970(1)As previously described, our combined results
for the three months ended September 30, 2007 represent the sum of the amounts
of the Predecessor period from July 1, 2007 to July 24, 2007 and for the
Successor period from July 25, 2007 to September 30, 2007. This combination
does not comply with GAAP or with the rules for pro forma presentation, but is
presented because we believe it enables a meaningful presentation, comparison
and evaluation of our results.

The Company reported
third quarter 2007 revenue of $958 million compared to $971 million in 2006.
Included in the 2007 reported revenue figure is a non-recurring and non-cash
$31 million reduction in revenue resulting from recording deferred revenue at
its fair value in connection with applying purchase accounting related to the
Merger. Excluding purchase accounting, third quarter revenue increased two
percent in 2007. The Company reported a loss from continuing operations of
($33) million in the third quarter of 2007 and income from continuing
operations of $61 million in the third quarter of 2006. Operating income for
the third quarter was $29 million in 2007 compared to $110 million in 2006. The
decrease in operating income primarily reflects:

27


An $18
 million (or 16 percent) increase in operating income before purchase
 accounting, restructuring charges and Merger related costs, supported by
 strong profit growth at American Home Shield and TruGreen LawnCare, offset in
 part by lower profits at InStar,
The net
 impact of non-cash purchase accounting adjustments which reduced 2007
 operating income by $53 million (consisting of increased amortization expense
 of $55 million, $31 million less revenue resulting from the reduction of
 deferred revenue, reduced deferred customer acquisition expense of $32 million
 and $1 million of reduced depreciation expense and other), and
A $46
 million increase in restructuring charges and Merger related costs in 2007
 over the 2006 levels.In the third quarter of
2007, the Company recognized $9.8 million of restructuring charges. Approximately
$7.0 million of these charges is related to the Companys consolidation of its
corporate headquarters into its operations support center in Memphis, Tennessee
and closing of its headquarters in Downers Grove, Illinois. The transition to Memphis was substantially
completed in November 2007. The 2007 restructuring amount also included
approximately $2.8 million of charges related to organizational changes made
within the TruGreen LandCare operations, primarily related to costs to exit
leases and severance.

The Company has identified
several cost savings opportunities, including, but not limited to, organization
structure optimization, strategic procurement efficiencies and implementation
of best practices at branch-owned locations. Management has set a goal of
achieving $60 million in annual cost savings from initiatives currently
underway, which are expected to be fully realized by the end of 2009. As it
relates to organization optimization, the Company started to implement, in November
2007, a company-wide reorganization and restructuring (the Restructuring).
The purpose of the Restructuring is to eliminate layers and bureaucracy and
simplify work processes in order to better align our workforce around our
operational and strategic objectives. The Restructuring is expected to be an
ongoing process that will continue into 2008. The Company expects to incur
restructuring charges, primarily severance costs, in connection with the
Restructuring. At this time, the Company is unable to estimate the total amount
or range of potential amounts which are expected to be incurred, nor is the
Company able to estimate currently the timing of the charges or the cash
outlays associated with these charges.

The 2006 third
quarter results included a $0.9 million restructuring charge related to Project Accelerate, an internal, multi-phase restructuring
project designed to improve the effectiveness and efficiency of all functional
support areas. All the restructuring costs associated with Project Accelerate
were recognized entirely in 2006.

During the
third quarter of 2007, the Company incurred Merger related expenses totaling
$36.6 million. These Merger related costs include investment banking,
accounting, legal and other costs associated with the Merger, which cannot be
capitalized as part of the purchase cost for financial reporting purposes.

Cost of
services rendered and products sold decreased three percent in the third
quarter of 2007 compared to 2006. As a percentage of revenue, these costs
decreased to 60.7 percent in the third quarter of 2007 from 61.7 percent in the
third quarter of 2006, due in part to a reduced incidence as well as cost per
claim within the American Home Shield operations. Selling and administrative
expenses decreased six percent in the third quarter of 2007 compared to 2006.
As a percentage of revenue, these costs decreased to 25.4 percent in the third
quarter of 2007 from 26.6 percent in the third quarter of 2006, primarily
reflecting the favorable leveraging of overhead costs within the TruGreen
LawnCare and Terminix operations, as well as a $13 million non-recurring
reduction in selling and administrative costs resulting from recording deferred
customer acquisitions costs at their fair value in connection with applying purchase
accounting related to the Merger.

28

Amortization
expense for the third quarter of 2007 was $58 million compared to $3 million
for the same period in 2006. The substantial increase in amortization expense
relates to the intangible assets that were recorded in purchase accounting
related to the Merger.

Third quarter
non-operating expense totaled $75.6 million in 2007 compared with $11.0 million
in 2006. This change includes $65.7 million more of interest expense in 2007
primarily resulting from the increased debt levels related to the Merger.

The effective
tax rate from continuing operations for the three months ended September 30 was
a 29 percent tax benefit in 2007 and a 38 percent tax expense in 2006. The 2007
effective tax rate was unfavorably impacted by Merger related book expenses
that are not deductible for Federal income tax reporting purposes, the impact
of which was offset, in part, by the incremental deferred tax benefits that
became recognizable related to the conversion of the minority equity interests
in Terminix into eight million shares of ServiceMaster common stock.

Segment Reviews for the Third Quarter 2007 Compared to
2006

The following business segment reviews should be read in conjunction
with the required footnote disclosures presented in the Notes to the Condensed
Consolidated Financial Statements.

The Company
uses EBITDA and Comparable Operating Performance to facilitate operating
performance comparisons from period to period. EBITDA and Comparable Operating
Performance are supplemental measures of the Companys performance that are not
required by, or presented in accordance with, GAAP. EBITDA and Comparable
Operating Performance are not measurements of the Companys financial
performance under GAAP and should not be considered as alternatives to net
income or any other performance measures derived in accordance with GAAP or as
alternatives to net cash provided by operating activities or any other measures
of the Companys liquidity. EBITDA means net income before net income (loss)
from discontinued operations; provision for income taxes; minority interest and
other expense, net; interest (income) expense, net; and depreciation and
amortization expense; as well as adding back interest and net investment
income. The Company views its total interest and investment income as an
integral part of its business model and earnings stream. Comparable Operating
Performance is calculated by adding back to EBITDA non-cash option and
restricted stock expense and non-cash effects on EBITDA attributable to the
application of purchase accounting in connection with the Merger.

The Company
believes EBITDA facilitates company-to-company operating performance
comparisons by backing out potential differences caused by variations in
capital structures (affecting net interest income and expense), taxation and
the age and book depreciation of facilities and equipment (affecting relative
depreciation expense), which may vary for different companies for reasons
unrelated to operating performance. The Company further believes that EBITDA is
frequently used by securities analysts, lenders, investors and other interested
parties in their evaluation of companies, many of which present an EBITDA
measure when reporting their results. The Company uses Comparable Operating
Performance as a supplemental measure to assess the Companys performance
because it excludes non-cash option and restricted stock expense and non-cash
effects on EBITDA attributable to the application of purchase accounting in
connection with the Merger. The Company presents Comparable Operating
Performance because it believes that it is useful for investors to analyze
disclosures of the Companys operating results on the same basis as that used
by the Companys management.

EBITDA and
Comparable Operating Performance are not necessarily comparable to other
similarly titled financial measures of other companies due to the potential
inconsistencies in the method of calculation. EBITDA and Comparable Operating
Performance have limitations as analytical tools, and should not be considered
in isolation or as substitutes for analyzing the Companys results as reported
under GAAP. Some of these limitations are:


EBITDA and Comparable
 Operating Performance do not reflect changes in, or cash requirements for,
 the Companys working capital needs;29


EBITDA and
  Comparable Operating Performance do not reflect the Companys interest
  expense, or the cash requirements necessary to service interest or principal
  payments on the Companys debt;
EBITDA and
  Comparable Operating Performance do not reflect the Companys tax expense or
  the cash requirements to pay the Companys taxes;
EBITDA and
  Comparable Operating Performance do not reflect historical cash expenditures
  or future requirements for capital expenditures or contractual commitments;
Although
  depreciation and amortization are non-cash charges, the assets being
  depreciated and amortized will often have to be replaced in the future, and
  EBITDA and Comparable Operating Performance do not reflect any cash
  requirements for such replacements; and
Other
  companies in the Companys industries may calculate EBITDA and Comparable
  Operating Performance differently, limiting their usefulness as comparative
  measures.Operating
revenues and Comparable Operating Performance by operating segment are as
follows:

(In thousands)

Successor
  Period
  July 25, 2007
  To
  Sept. 30, 2007


Predecessor
  Period
  July 1, 2007
  to
  July 24, 2007

Non-GAAP
  Combined (1)
  Three Months
  Ended
  Sept. 30, 2007

Predecessor
  Three Months
  Ended
  Sept. 30, 2006Operating
Revenue:TruGreen
LawnCare


$
273,485




$
88,927



$
362,412



$
342,375TruGreen
LandCare



76,325





26,914




103,239




116,383Terminix



201,087





72,200




273,287




269,213American Home
Shield



99,389





50,134




149,523




164,405Other
Operations and Headquarters



52,783





17,157




69,940




79,060Total
  Operating Revenue


$
703,069




$
255,332



$
958,401



$
971,436Comparable
  Operating Performance:TruGreen
LawnCare


$
66,355




$
15,332



$
81,687



$
70,851TruGreen
LandCare



(1,600
)




180




(1,420
)



386Terminix



32,027





3,229




35,256




35,149American Home
Shield



26,216





10,689




36,905




26,995Other
Operations and Headquarters



(5,598
)




(40,465
)



(46,063
)



2,257Total
  Comparable Operating Performance


$
117,400




$
(11,035
)


$
106,365



$
135,638Memo:
  Items included in Comparable Operating Performance:Restructuring
charges and Merger related
  expenses (2)


$
(8,669
)



$
(37,698
)


$
(46,367
)


$
(855
)Management fee
(3)



(375
)









(375
)



(1)
As previously described,
  our combined results for the three months ended September 30, 2007 represent
  the sum of the amounts of the Predecessor period from July 1, 2007 to July
  24, 2007 and for the Successor period from July 25, 2007 to September 30,
  2007. This combination does not comply with GAAP or with the rules for pro
  forma presentation, but is presented because we believe it enables a
  meaningful presentation of our results.(2)
Comparable Operating
  Performance includes (i) restructuring charges associated with Project
  Accelerate (a firm-wide initiative designed to improve the effectiveness and
  efficiency of functional support areas), (ii) severance costs and costs
  related to the consolidation of our corporate headquarters in Memphis,
  Tennessee, including the closing of our office in Downers Grove, Illinois,
  (iii) costs to exit leases and severance payments related to organizational
  changes within the TruGreen LandCare operations and (iv) Merger related
  expenses resulting from the Merger. All of the restructuring charges and
  Merger related expenses are included in the Comparable Operating Performance
  of the Other Operations and Headquarter segment, with the exception of $2.8
  million of restructuring costs for the Successor period July 25, 2007 to
  September 30, 2007 that are included in the TruGreen LandCare segment.30

(3)
Represents a new management
  fee payable to CD&R.The following
table presents reconciliations of net income, the most directly comparable
financial measure under GAAP, to EBITDA and Comparable Operating Performance
for the periods presented.

Successor


Predecessor

Predecessor(In thousands)

July 25, 2007
  to
  Sept. 30, 2007


July 1, 2007
  To
  July 24, 2007

Three
  months ended
  Sept. 30, 2006Net income (loss)


$
(17,369
)



$
(16,079
)


$
67,970(Income) loss from discontinued
  operations, net of income taxes



69





47




(6,472
)Provision (benefit) for income
  taxes from continuing operations



(10,817
)




(2,567
)



37,619Minority interest and other
  expense, net



102





11




2,066Interest expense, net
(a)



74,376





1,062




8,945Depreciation and amortization
  expense



66,606





3,694




15,489EBITDA before adding back
  interest and investment income, net



112,967





(13,832
)



125,617Interest and investment income,
  net (b)



3,890





2,440




7,136EBITDA



116,857





(11,392
)



132,753Non-cash option and restricted
  stock expense









357




2,885Non-cash charges attributable
  to purchase accounting (c)



543










Comparable Operating
  Performance


$
117,400




$
(11,035
)


$
135,638Memo: Items included in
  Comparable Operating Performance:Restructuring
charges and
  Merger related expenses (d)


$
8,669




$
37,698



$
855Management fee
(e)



375










(a) Represents interest
expense less interest and investment income, net.

(b) Interest and investment
income is primarily comprised of investment income and realized gains/losses on
our American Home Shield (AHS) segment investment portfolio. Cash, short-term
and long-term marketable securities associated with regulatory requirements in
connection with AHS and for other purposes totaled approximately $395 million
as of September 30, 2007. AHS interest and investment income was $2.0 million
for the Predecessor period July 1, 2007 to July 24, 2007, $0.3 million for the
Successor period July 25, 2007 to September 30, 2007 and $4.3 million for the
Predecessor period three months ended September 30, 2006. The balance of
interest and investment income primarily relates to (i) a portion of the
earnings generated by ServiceMaster Acceptance Corporation (SMAC), our
financing subsidiary exclusively dedicated to providing financing to our
franchisees and retail customers of our operating units; (ii) interest and
investment income from the investment portfolio of Steward Insurance Company,
the Companys wholly-owned insurance company; (iii) investment income from our
employee deferred compensation trust (for which there is a corresponding and
offsetting increase in compensation expense within operating income); and (iv)
interest income on other cash balances. We view our total interest and
investment income as an integral part of our business model and earnings
stream.

(c) The Merger was accounted
for using purchase accounting. This adjustment represents the aggregate,
non-cash adjustments (other than amortization and depreciation) attributable to
the application of purchase accounting.

(d) Includes (i) restructuring charges associated with Project
Accelerate (a firm-wide initiative designed to improve the effectiveness and
efficiency of functional support areas), (ii) severance costs and costs related
to the consolidation of our corporate headquarters in Memphis, Tennessee,
including the closing of our office in Downers Grove, Illinois, (iii) costs to
exit leases and severance payments related to organizational changes within the
TruGreen LandCare operations and (iv) Merger related expenses resulting from
the Merger.

(e) Represents the new
management fee payable to CD&R.

31

The TruGreen LawnCare segment, which provides lawn
care services to residential and commercial customers, reported a six percent
increase in third quarter revenue to $362 million in 2007 from $342 million in
2006. The segment reported third quarter 2007 Comparable Operating Performance
of $82 million compared to $71 million in 2006, a 15 percent increase. The
growth in revenue and Comparable Operating Performance was supported by
improved price realization and an increase in customer counts driven by continued
strong improvements in customer retention. With respect to overall pricing, the lawn care operations realized an
improvement in average prices of approximately three percent. Full
program customer counts increased one percent, reflecting continued improvements
in retention, offset in part by a decline in new sales. Third quarter 2007
Comparable Operating Performance of the lawn care operations increased $11
million, or 15 percent. During the third quarter of 2006, the lawn care
operations experienced an increased level of customer service calls resulting
from increased crab grass treatments. The growth in Comparable Operating
Performance this year was supported by improved labor productivity, due in part
to a reduced level of service calls relative to last year, as well as the
favorable leveraging of overhead costs.

The TruGreen LandCare segment, which provides
landscape maintenance services primarily to commercial customers, reported an
11 percent decrease in third quarter 2007 revenue to $103 million, compared to
$116 million in 2006. Comparable Operating Performance decreased to ($1.4)
million in the third quarter of 2007, compared to $0.4 million in 2006. In the
third quarter of 2007, the Company implemented organizational changes within the TruGreen LandCare
operations, including the closing and consolidation of certain branch
locations. The restructuring charges related to these changes totaled $2.8
million pretax. TruGreen LandCares Comparable Operating Performance for the third
quarter of 2007 includes the impact of
these restructuring charges. Base contract maintenance revenue decreased
11 percent and enhancement revenue (e.g., add-on services such as seasonal
flower plantings, mulching, etc.) decreased 13 percent in the third quarter of
2007. These revenue declines resulted from the branch closures completed during
the quarter, as well as the near-term impacts of the Companys efforts to
improve its customer base with a better customer mix by pruning less profitable
jobs, implementing stricter pricing on new sales, and increasing the average
size of new proposals and sales. Although the total base maintenance contract
sales dollars declined during the third quarter of 2007, the Company continued
to realize a meaningful improvement in the average value per contract sold
(higher value contracts tend to be more profitable). Before the impact of
restructuring charges, Comparable Operating Performance improved in the third
quarter primarily reflecting increased profit margins on the base contract
maintenance portfolio supported by improved materials and labor management, as
well as lower overhead spending, partially offset by reductions in higher
margin enhancement revenue.

The Terminix segment, which includes termite and pest
control services, reported overall third quarter revenue of $273 million in
2007 compared to $269 million in 2006. Included in the 2007 reported revenue
figure is a $3 million non-recurring and non-cash reduction in reported
revenues resulting from recording deferred revenue at its fair value in
connection with applying purchase accounting related to the Merger. This only
impacts revenue as the non-cash effects attributable to purchase accounting are
excluded from Comparable Operating Performance. Excluding purchase accounting,
third quarter revenue increased three percent in 2007. Terminix reported third
quarter 2007 Comparable Operating Performance of $35 million, comparable with
2006. Terminixs overall revenue growth for the quarter included a strong
increase in pest control revenues and growth in termite contract renewals,
offset in part by a double-digit percentage decrease in revenue from initial
termite treatments. Revenue from pest control services, which represent
approximately one-half of the annual revenues of the Terminix segment,
increased eight percent in the third quarter of 2007, bolstered by the impact
of acquisitions. Revenue from termite contract renewals increased five percent,
supported by improved pricing and retention. Revenue from initial termite
applications (termite completions) declined 13 percent, due in part to the
mix of units sold. There was an increase in renewable unit sales during the
third quarter of 2007, driven by the Companys new termite inspection and
protection plan (TIPP) offering. The revenue related to TIPP sales is
deferred and recognized over the one year term of the contract. Third quarter
2007 Comparable Operating Performance includes the beneficial impacts from
management of seasonal staffing of sales labor, reduced overhead spending and
lower termite materials costs, offset by increased provisions for certain legal
matters.

32

The American Home Shield segment, which provides home
warranties to consumers that cover heating, ventilation and air conditioning
(HVAC), plumbing and other home systems and appliances, reported third quarter
2007 revenue of $150 million compared to $164 million in 2006. Included in the
2007 reported revenue figure is a $28 million non-recurring and non-cash
reduction in reported revenues resulting from recording deferred revenue at its
fair value in connection with applying purchase accounting related to the
Merger. This only impacts revenue as the non-cash effects attributable to
purchase accounting are excluded from Comparable Operating Performance. Excluding
purchase accounting, American Home Shields third quarter revenue increased
eight percent in 2007. American Home Shield reported third quarter Comparable
Operating Performance of $37 million in 2007 compared to $27 million in 2006.
New contract sales and renewals, which are reported as earned revenue over the
subsequent twelve-month contract period, increased seven percent in the third
quarter of 2007. Contract sales from customer renewals, which represent
approximately 60 percent of total annual contracts written, increased eight
percent, supported by a larger base of renewable customers and continued strong
improvements in retention. Sales in the real estate channel, which represents
approximately 25 percent of total annual contracts written, increased 13
percent and included the beneficial impact of the Realogy agreement signed
during the third quarter of 2006. Excluding the impact of sales from the
Realogy agreement, real estate unit sales declined approximately 13 percent, as
home listings and closings were impacted by continued softness in the home
resale market throughout most of the country. The direct-to-consumer channel,
which represents approximately 15 percent of total annual contracts written,
experienced an eight percent decrease in sales, primarily reflecting the timing
of direct mail programs. The increase in Comparable Operating Performance
primarily reflects a decrease in the incidence of contract claims from the
levels experienced last year, the beneficial impacts of increases in prices and
service fees per claim and the favorable change in estimated contract costs
from earlier quarters this year. Third quarter of 2007 Comparable Operating
Performance included $2 million less of interest and investment income from the
American Home Shield investment portfolio as compared to the third quarter of
2006.

The Other Operations and Headquarters segment includes
the operations of ServiceMaster Clean, InStar and Merry Maids as well as the
Companys headquarters functions. Third quarter revenue in this segment
decreased to $70 million in 2007 from $79 million in 2006. Revenue from InStar
was $16 million compared to $29 million in the prior year. InStar reported
Comparable Operating Performance of ($5.4) million compared to Comparable
Operating Performance of $3.5 million in 2006. The combined franchise
operations of ServiceMaster Clean and Merry Maids reported combined revenue of
$53 million and $50 million for the three months ended September 30, 2007 and
2006, respectively. This increase in revenue reflects strong growth in disaster
restoration services as well as the impact of acquisitions at Merry Maids. The
ServiceMaster Clean and Merry Maids franchise operations reported combined
Comparable Operating Performance of $14.7 million and $14.4 million for the
three months ended September 30, 2007 and 2006, respectively. In total,
Comparable Operating Performance of the Other Operations and Headquarters
segment (as a whole) was ($46) million for the third quarter of 2007 compared
with $2 million in 2006. The decrease in the segments Comparable Operating
Performance for the quarter primarily reflects the Merger related expenses
incurred in 2007, an increase in restructuring charges in 2007 over 2006
levels, and a decrease in the operating results at InStar, offset in part by
increased profits from the combined franchise operations.

33

COMBINED NINE MONTHS ENDED SEPTEMBER 30, 2007 COMPARED WITH
NINE MONTHS ENDED SEPTEMBER 30, 2006

The following table
illustrates our operating activity for the combined nine months ended September
30, 2007 and the nine months ended September 30, 2006.

(In thousands)

Successor
 Period
 July 25, 2007
 to
 Sept. 30, 2007


Predecessor
 Period
 Jan. 1, 2007
 to
 July 24, 2007

Non-GAAP
 Combined(1)
 Nine Months
 Ended
 Sept. 30, 2007

Predecessor
 Nine Months
 Ended
 Sept. 30, 2006Operating Revenue


$
703,069




$
1,977,803



$
2,680,872



$
2,658,447Operating Costs and Expenses:Cost of services rendered and products sold



417,069





1,227,491




1,644,560




1,645,634Selling and administrative expenses



173,855





549,525




723,380




717,111Amortization
expense



57,115





6,448




63,563




8,526Restructuring
charges



8,211





16,919




25,130




10,693Merger related
expenses



458





41,431




41,889




Total operating costs and expenses



656,708





1,841,814




2,498,522




2,381,964Operating Income



46,361





135,989




182,350




276,483Non-operating Expense (Income):Interest expense



78,266





31,681




109,947




46,604Interest and investment income,
 net



(3,890
)




(28,624
)



(32,514
)



(18,685
)Minority interest and other expense, net



102





3,532




3,634




6,189Income from Continuing Operations 
 before Income Taxes



(28,117
)




129,400




101,283




242,375Provision for income taxes



(10,817
)




48,500




37,683




93,920Income from Continuing Operations



(17,300
)




80,900




63,600




148,455Income (loss)
from discontinued operations, net
 of income taxes



(69
)




201




132




(17,652
)Net Income


$
(17,369
)



$
81,101



$
63,732



$
130,803(1)As previously
 described, our combined results for the nine months ended September 30, 2007
 represent the sum of the amounts of the Predecessor period from January 1,
 2007 to July 24, 2007 and for the Successor period from July 25, 2007 to
 September 30, 2007. This combination does not comply with GAAP or with the
 rules for pro forma presentation, but is presented because we believe it
 enables a meaningful presentation, comparison and evaluation of our results.The Company reported revenue of $2.68 billion for the
nine months ended September 30, 2007 compared to $2.66 billion in 2006.
Included in the 2007 revenue figure is a non-recurring and non-cash $31 million
reduction in revenue resulting from recording deferred revenue at its fair
value in connection with applying purchase accounting related to the Merger.
Excluding purchase accounting, revenue for the nine months ended September 30,
2007 increased two percent over 2006 levels. Income from continuing operations
was $64 million in 2007 and $148 million in 2006. Operating income for the nine
months ended September 30, 2007 was $182 million in 2007 compared to $276
million in 2006. The decrease in operating income primarily reflects:


A $15 million (or five percent) increase in
 operating income before purchase accounting, restructuring charges and Merger
 related costs, supported by strong profit growth at Terminix, TruGreen
 LawnCare and American Home Shield, offset in part by lower profits at InStar,34


The net impact of non-cash purchase accounting
 adjustments which reduced 2007 operating income by $53 million (consisting of
 increased amortization expense of $55 million, $31 million less revenue
 resulting from the reduction of deferred revenue, reduced deferred customer
 acquisition expense of $32 million and $1 million of reduced depreciation
 expense and other), and
A $56 million increase in restructuring charges and
 Merger related costs in 2007 over the 2006 levels.For the nine months ended September 30, 2007, the Company
recognized $25.1 million of
restructuring charges. Approximately $22.3 million of these charges is
related to the Companys consolidation of its corporate headquarters into its
operations support center in Memphis, Tennessee and closing of its headquarters
in Downers Grove, Illinois. The 2007
restructuring amount also included approximately $2.8 million of charges
related to organizational changes made within the TruGreen LandCare operations.
The 2006 results included a $10.7 million restructuring charge related to Project Accelerate, an internal, multi-phase
restructuring
project designed to improve the effectiveness and efficiency of all functional
support areas. All the restructuring costs associated with Project Accelerate
were recognized entirely in 2006.

During the nine months ended September 30, 2007, the
Company incurred Merger related expenses totaling $41.9 million. These Merger
related costs include investment banking, accounting, legal and other costs
associated with the Merger, which cannot be capitalized as part of the purchase
cost for financial reporting purposes.

Cost of services rendered and products sold for the
first nine months in 2007 were comparable to the 2006 amount. As a percentage
of revenue, these costs decreased to 61.3 percent for the first nine months in
2007 from 61.9 percent in the same period in 2006. Selling and administrative
expenses increased one percent for the first nine months in 2007. These costs
comprised 27.0 percent of revenue in both the 2007 and 2006 nine month periods.

Amortization expense for the first nine months of 2007
was $64 million compared to $9 million for the same period in 2006. The
substantial increase in amortization expense relates to the intangible assets
that were recorded in purchase accounting related to the Merger.

Non-operating expense for the first nine months of
2007 totaled $81.1 million compared with $34.1 million in the same period in
2006. This change includes $63.3 million more of interest expense in 2007,
primarily resulting from the increased debt levels related to the Merger,
offset in part by $13.8 million more interest and investment income in 2007
primarily due to investment gains and income realized on the American Home
Shield investment portfolio.

The effective tax rate from continuing operations for the nine
months
ended September 30 was 37 percent in 2007 and 39 percent in 2006. The 2007
effective tax rate includes reductions in tax expense resulting from the
favorable resolution of state tax items related to a prior non-recurring
transaction, as well as the incremental deferred tax benefits that became
recognizable during the second quarter of 2007 upon the conversion of the
minority equity interests in Terminix into eight million shares of
ServiceMaster common stock. These factors were offset, in part, by the
unfavorable impact of Merger related book expenses that are not deductible for
Federal income tax reporting purposes.

35

Key Performance Indicators

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

Key Performance Indicators
 As of September 30,2007



2006TruGreen
LawnCare-Growth in Full
Program
 Contracts

1
%

-2
%Customer
Retention Rate

67.2
%

64.6
%Terminix -Growth in Pest
Control
 Customers

6
%

4
%Pest Control
Customer Retention
 Rate

78.8
%

78.9
%Growth in
Termite Customers

1
%

0
%Termite
Customer Retention Rate

87.6
%

87.4
%American Home Shield
-Growth in
Warranty Contracts

6
%

0
%Customer
Retention Rate

61.1
%

58.1
%Segment
Reviews for the Combined Nine Months Ended September 30, 2007 Compared to 2006

As discussed in the third quarter comparison,
the following business segment reviews should be read in conjunction with the
required footnote disclosures presented in the Notes to the Condensed
Consolidated Financial Statements. See also the third quarter comparison for
the discussion regarding the Companys use of EBITDA and Comparable Operating
Performance.

36

Operating
revenues and Comparable Operating Performance by operating segment are as
follows:

(In thousands)

Successor
 Period
 July 25, 2007
 To
 Sept. 30, 2007


Predecessor
 Period
 Jan. 1, 2007
 to
 July 24, 2007

Non-GAAP
 Combined (1)
 Nine Months
 Ended
 Sept. 30, 2007

Predecessor
 Nine Months
 Ended
 Sept. 30, 2006Operating Revenue:TruGreen
LawnCare


$
273,485




$
597,147



$
870,632



$
837,069TruGreen
LandCare



76,325





242,154




318,479




334,236Terminix



201,087





645,700




846,787




830,487American Home
Shield



99,389





331,361




430,750




440,801Other
Operations and Headquarters



52,783





161,441




214,224




215,854Total Operating
Revenue


$
703,069




$
1,977,803



$
2,680,872



$
2,658,447Comparable Operating
Performance:TruGreen
LawnCare


$
66,355




$
84,209



$
150,564



$
138,847TruGreen
LandCare



(1,600
)




965




(635
)



(846
)Terminix



32,027





120,057




152,084




134,957American Home
Shield



26,216





63,432




89,648




75,872Other
Operations and Headquarters



(5,598
)




(66,017
)



(71,615
)



(1,788
)Total Comparable Operating
Performance


$
117,400




$
202,646



$
320,046



$
347,042Memo: Items included in
Comparable Operating Performance:Restructuring
charges and Merger related
 expenses (2)


$
(8,669
)



$
(58,350
)


$
(67,019
)


$
(10,693
)Management fee
(3)



(375
)









(375
)



(1)
As previously described,
 our combined results for the nine months ended September 30, 2007 represent
 the sum of the amounts of the Predecessor period from January 1, 2007 to July
 24, 2007 and for the Successor period from July 25, 2007 to September 30, 2007.
 This combination does not comply with GAAP or with the rules for pro forma
 presentation, but is presented because we believe it enables a meaningful
 presentation, comparison and evaluation of our results.(2)
Comparable Operating
 Performance includes (i) restructuring charges associated with Project
 Accelerate (a firm-wide initiative designed to improve the effectiveness and
 efficiency of functional support areas), (ii) severance costs and costs
 related to the consolidation of our corporate headquarters in Memphis,
 Tennessee, including the closing of our office in Downers Grove, Illinois,
 (iii) costs to exit leases and severance payments related to organizational
 changes within the TruGreen LandCare operations and (iv) Merger related
 expenses resulting from the Merger. All of the restructuring charges and
 Merger related expenses are included in the Comparable Operating Performance
 of the Other Operations and Headquarter segment, with the exception of $2.8
 million of restructuring costs for the Successor period July 25, 2007 to
 September 30, 2007 that are included in the TruGreen LandCare segment.(3)
Represents a new management
 fee payable to CD&R.37

The following table present
reconciliations of net income, the most directly comparable financial measure
under GAAP, to EBITDA and Comparable Operating Performance for the periods
presented.

Successor


Predecessor

Predecessor(In thousands)

July 25, 2007
 to
 Sept. 30, 2007


Jan. 1, 2007
 To
 July 24, 2007

Nine
 months ended
 Sept. 30, 2006Net income (loss)


$
(17,369
)



$
81,101



$
130,803(Income) loss from discontinued
 operations, net of income taxes



69





(201
)



17,652Provision (benefit) for income
 taxes from continuing operations



(10,817
)




48,500




93,920Minority interest and other
 expense, net



102





3,532




6,189Interest expense, net
(a)



74,376





3,057




27,919Depreciation and amortization
 expense



66,606





34,618




43,507EBITDA before adding back
 interest and investment income, net



112,967





170,607




319,990Interest and investment income,
 net (b)



3,890





28,624




18,685EBITDA



116,857





199,231




338,675Non-cash option and restricted
 stock expense









3,415




8,367Non-cash charges attributable
 to purchase accounting (c)



543










Comparable Operating
 Performance


$
117,400




$
202,646



$
347,042Memo: Items
included in
 Comparable Operating Performance:Restructuring
charges and
 Merger related expenses (d)


$
8,669




$
58,350



$
10,693Management fee
(e)



375










(a) Represents interest
expense less interest and investment income, net.

(b) Interest and investment
income is primarily comprised of investment income and realized gains/losses on
our American Home Shield (AHS) segment investment portfolio. Cash, short-term
and long-term marketable securities associated with regulatory requirements in
connection with AHS and for other purposes totaled approximately $395 million
as of September 30, 2007. AHS interest and investment income was $24.2 million for
the Predecessor period January 1, 2007 to July 24, 2007, $0.3 million for the
Successor period July 25, 2007 to September 30, 2007 and $15.7 million for the
Predecessor period nine months ended September 30, 2006. The balance of
interest and investment income primarily relates to (i) a portion of the
earnings generated by ServiceMaster Acceptance Corporation (SMAC), our
financing subsidiary exclusively dedicated to providing financing to our
franchisees and retail customers of our operating units; (ii) interest and
investment income from the investment portfolio of Steward Insurance Company,
the Companys wholly-owned insurance company; (iii) investment income from our
employee deferred compensation trust (for which there is a corresponding and
offsetting increase in compensation expense within operating income); and (iv)
interest income on other cash balances. We view our total interest and
investment income as an integral part of our business model and earnings
stream.

(c) The Merger was accounted
for using purchase accounting. This adjustment represents the aggregate,
non-cash adjustments (other than amortization and depreciation) attributable to
the application of purchase accounting.

(d) Includes (i)
restructuring charges associated with Project Accelerate (a firm-wide
initiative designed to improve the effectiveness and efficiency of functional
support areas), (ii) severance costs and costs related to the consolidation of
our corporate headquarters in Memphis, Tennessee, including the closing of our
office in Downers Grove, Illinois, (iii) costs to exit leases and severance
payments related to organizational changes within the TruGreen LandCare
operations and (iv) Merger related expenses resulting from the Merger.

(e) Represents the new
management fee payable to CD&R.

For the first nine months, the
TruGreen LawnCare segment reported a four percent increase in revenue to $871
million compared to $837 million in 2006 and Comparable Operating Performance
of $151 million in 2007 compared to $139 million in 2006, an eight percent
increase. Customer counts at September 30

38

were one percent higher than last years level and improved from a one
percent decline that existed at the beginning of the year. The growth in
customer counts was supported by improved customer retention, which helped
offset a three percent decline in new sales, which were adversely impacted by
poor April weather. The rolling twelve-month retention rate improved 260 basis
points over last year, driven by improvements in overall quality of service
delivery and enhanced customer communication, including the Lawn Quality Audit
(LQA) visits initiated during the second half of 2006. The eight percent
increase in Comparable Operating Performance for the first nine months was
supported by lower sales costs and the favorable leveraging of overhead costs.

The TruGreen LandCare segment reported a five percent decrease in
revenue for the first nine months to $318 million in 2007 compared to $334
million in 2006, and Comparable Operating Performance of ($0.6) million in
2007, compared to ($0.8) million in 2006. As discussed in the three month
comparison, TruGreen LandCares Comparable Operating Performance for the third
quarter of 2007 includes the impact of $2.8 million of restructuring charges.
The decline in revenue for the first nine months included a five percent decline
in base contract maintenance revenue and a 10 percent decrease in enhancement
revenue. As discussed in the third quarter segment review, the revenue
comparison was adversely impacted by branch closures completed during the third
quarter, as well as the near-term impacts of the Companys efforts to improve
the quality of its customer portfolio. These factors were offset, in part, by a
$6 million increase this year in first quarter snow removal service revenue.
Excluding the impact of the restructuring charges in 2007, Comparable Operating
Performance improved over 2006 levels, primarily due to the increase in high
margin snow removal work and improved materials and labor management on the
base contract maintenance portfolio. These factors were offset, in part, by
increased sales labor resulting from investments made to increase the size,
caliber and training of the sales team and reductions in higher margin
enhancement revenue.

Revenue for the first nine months in the Terminix segment increased two
percent to $847 million in 2007 compared to $830 million in 2006. As discussed
in the third quarter segment review, included in Terminixs 2007 reported
revenue figure is a $3 million non-cash and non-recurring reduction in reported
revenues resulting from recording deferred revenue at its fair value in
connection with applying purchase accounting related to the Merger. This only
impacts revenue as the non-cash effects attributable to purchase accounting are
excluded from Comparable Operating Performance. Excluding purchase accounting,
revenue for the first nine months increased two percent in 2007 over the 2006
period. Terminix reported Comparable Operating Performance of $152 million in
the first nine months of 2007, an increase of 13 percent compared to $135 million
in the same period in 2006. The segments overall revenue growth for the nine
months reflected strong growth in pest control revenues and increases in
termite contract renewals, offset, in part, by a double digit percentage
decline in revenue from termite completions. Pest control revenues increased
nine percent for the nine months, as the impact of acquisitions more than
offset a decrease in new unit sales. A four percent increase in renewal
revenues was supported by improved pricing and a 20 basis point improvement in
termite customer retention. Revenue from termite completions declined 13
percent, reflecting a weak annual termite swarm season and a change in mix of
renewable unit sales to the new TIPP offering. The revenue related to TIPP
sales is deferred and recognized over the one year term of the contract.. The
strong growth in Comparable Operating Performance reflects lower termite
materials costs, effective management of seasonal staffing of production and
sales labor, and reduced overhead spending, offset, in part, by increased
provisions for certain legal matters.

The American Home Shield segment reported revenue for the first nine
months of $431 million in 2007 compared to $441 million in 2006. As discussed
in the third quarter segment comparison, the 2007 reported revenue figure
includes a non-cash and non-recurring $28 million reduction in reported
revenues resulting from recording deferred revenue at its fair value in
connection with applying purchase accounting related to the Merger. This only
impacts revenue as the non-cash effects attributable to purchase accounting are
excluded from Comparable Operating Performance. Excluding purchase accounting,
American Home Shields revenue for the first nine months increased four percent
in 2007. American Home Shield reported Comparable Operating Performance of $90
million for the first nine months, compared to $76 million in the same period
in 2006. New contract sales and renewals, which are

39

reported as earned revenue over the subsequent twelve-month contract
period, increased eight percent for the first nine months. Contract sales from
customer renewals increased eight percent, reflecting a larger base of
renewable customers and a 300 basis point improvement in retention. Sales in
the real estate channel were supported by the favorable impact of the Realogy
agreement signed during the third quarter of 2006, with overall year-to-date
sales growth of 12 percent. Real estate unit sales, excluding the impact of
sales from the Realogy agreement, declined due to continued softness in the
home resale market throughout most of the country. Sales in the
direct-to-consumer channel decreased one percent, due in part to the timing of
direct mail programs, as well as lower response rates. The increase in Comparable
Operating Performance for the first nine months of 2007 includes $9 million
more of interest and investment income from the American Home Shield investment
portfolio as compared to the same period in 2006, as well as a decrease in the
incidence of contract claims from the levels experienced last year and the
beneficial impacts of increases in prices and service fees per claim.

The Other Operations and Headquarters segment reported revenue of $214
million for the first nine months in 2007, compared to $216 million in 2006.
Revenue from InStar (which was acquired on February 28, 2006) was $56 million
in the nine month period in 2007 compared to $73 million for the seven months
subsequent to acquisition in the prior year. InStar reported Comparable Operating
Performance of ($9.2) million compared to Comparable Operating Performance of
$9.7 million in 2006. InStars results were negatively impacted by a
substantially lower volume of hurricane-related work, reduced margins, and
increased provisions for doubtful accounts receivables associated with prior
year hurricanes. The ServiceMaster Clean and Merry Maids franchise operations
reported combined revenue of $153 million and $138 million for the nine months
ended September 30, 2007 and 2006, respectively. The growth in revenue resulted
from strong increases in product sales and disaster restoration services, as
well as the impact of acquisitions at Merry Maids. The ServiceMaster Clean and
Merry Maids franchise operations reported combined Comparable Operating
Performance of $44.3 million and $40.9 million for the nine months ended
September 30, 2007 and 2006, respectively. In total, Comparable Operating
Performance of the Other Operations and Headquarters segment (as a whole) was
($72) million for the nine months in 2007 compared to ($2) million in 2006. The
decrease in the segments nine month Comparable Operating Performance primarily
reflects the Merger related expenses incurred in 2007, an increase in
restructuring charges in 2007 over 2006 levels, and a decrease in the operating
results at InStar, offset, in part, by increased profits from the combined
franchise operations.

FINANCIAL POSITION AND LIQUIDITY

As a result of the Merger, the cash flow
results for the nine month period ended September 30, 2007 have been separately
presented in the condensed consolidated statements of cash flows segregated
between the Predecessor, covering the period January 1, 2007 to July 24, 2007
and the Successor covering the period July 25, 2007 to September 30, 2007. The comparable
period results for the prior year are presented under Predecessor. For
comparative purposes, the Company combined the two periods from January 1, 2007
through September 30, 2007 in its discussion below. This combination is not a
GAAP presentation. However, the Company believes this combination is useful to
provide the reader a more meaningful comparison and is provided to enhance the
readers understanding of cash flows for the periods presented. The following
table reconciles the cash flows for the nine months ended September 30, 2007
and the nine months ended September 30, 2006 with the discussion of cash flows
that follows:

(In thousands)

Successor
  Period
  July 25, 2007
  To
  Sept. 30, 2007


Predecessor
  Period
  Jan. 1, 2007
  To
  July 24, 2007

Non-GAAP
  Combined (1)Nine Months
  Ended
  Sept. 30, 2007

PredecessorNine Months
  Ended
  Sept. 30, 2006Cash
  flows from operations


$
32,038




$
208,348



$
240,386



$
156,337Cash
  flows from investing activities



(4,937,292
)




(15,847
)



(4,953,139
)



(184,712
)Cash
  flows from financing activities



4,879,938





(78,315
)



4,801,623




39,651(1) As previously described, our combined results
for the nine months ended September 30, 2007 represent the sum of the amounts
of the Predecessor period from July 1, 2007 to July 24, 2007 and for the
Successor period from July 25, 2007 to

40

September
30, 2007. This combination does not comply with GAAP or with the rules for pro
forma presentation, but is presented because we believe it enables a meaningful
presentation of our results.

Cash Flows from Operating Activities from Continuing
OperationsNet cash provided from operating
activities from continuing operations for the nine months ended September 30,
2007 was $240 million, compared to $156 million in the prior year. The increase
in cash provided from operating activities from continuing operations resulted
from lower working capital requirements, primarily reflecting improvements in
receivable collections at InStar and LandCare, increased customer prepayments
at American Home Shield and lower incentive payments in 2007 combined with
strong profit growth at Terminix, TruGreen LawnCare and American Home Shield.



Cash Flows from Investing Activities from Continuing
Operations
Net cash used for investing activities from continuing
operations for the nine months ended September 30, 2007 was $4,953 million and
included $4,890 million paid in connection with the Merger. Capital
expenditures decreased modestly from the prior year and included recurring
capital needs and information technology projects. The Company anticipates
that capital expenditures for the full year 2007 will total approximately $40
to $50 million, reflecting the continuation of investments in information
systems and productivity enhancing operating systems. The Company has no
material capital commitments at this time.

Acquisitions for the nine months ended September 30, 2007
totaled $29 million, compared with $134 million in 2006. This decrease reflects
the 2006 acquisition of InStar, a leading direct provider of commercial
disaster response and reconstruction services, for approximately $85 million of
cash. Consideration paid for tuck-in acquisitions consisted of cash payments,
seller financed notes and, for 2006 only, Company stock. The Company expects to
continue its tuck-in acquisition program at both Terminix and TruGreen
LawnCare.


The change in notes receivable, financial investments and securities
includes an increase in the net sale of marketable securities at American Home
Shield due in part to lowering the amount of excess reserves over
minimum statutory reserve requirements in certain states in accordance with
investment policy and reduced statutory reserve requirements.

Cash Flows  from Financing
Activities from Continuing OperationsNet cash provided from financing activities from
continuing operations for the nine months ended September 30, 2007 was $4,802
million. Proceeds from debt incurred in connection with the Merger, net of issuance
costs, aggregated $3,699 million and cash equity contributions received in
connection with the Merger totaled $1,431 million. Cash dividends paid to
shareholders totaled $70 million for the nine months ended September 30, 2007.
On May 31, 2007, the Company paid its last dividend to shareholders prior to
the Merger.

There were no share repurchases for the nine months ended September
30, 2007. As a result of the Merger, the Companys share repurchase program is no longer in effect.

LiquidityThe
Merger was completed on July 24, 2007 (the Closing Date). Following the
completion of the Merger, the Company is highly leveraged, and a very
substantial portion of the Companys liquidity needs will arise from debt
service on indebtedness incurred in connection with the Merger and the
Transactions and from funding the Companys operations, working capital and
capital expenditures. Equity contributions totaling $1,431 million from the
Equity Sponsors, together with (i) borrowings under a new $1,150 million senior
unsecured interim loan facility (the Interim Loan Facility), (ii) borrowings
under the $2,650 million senior secured term loan facility (the Senior Term
Loan Facility), and (iii) cash on hand at ServiceMaster, were used, among
other things, to finance the aggregate Merger Consideration, to make payments
in satisfaction of other equity-based interests in ServiceMaster under the
Merger Agreement, to settle existing interest rate swaps, to redeem or provide
for the repayment of certain of the Companys prior indebtedness and to pay
related transaction fees and expenses. In addition, letters of credit issued
under a new $150 million pre-funded letter of credit facility (together with
the

41

Senior
Term Loan Facility, the Term Facilities) were used to replace and/or secure
letters of credit previously issued under the ServiceMaster revolving credit
facility that was terminated as of the Closing Date. On the Closing Date, the
Company also entered into a new $500 million senior secured revolving credit facility
(the Revolving Credit Facility), which remains undrawn.

The agreements
governing the Term Facilities, the Interim Loan Facility and the Revolving
Credit Facility contain certain covenants that limit or restrict the incurrence
of additional indebtedness, liens, sales of assets, certain payments (including
dividends) and transactions with affiliates, subject to certain exceptions. The
Company was in compliance with the covenants under these agreements at
September 30, 2007.

The
Company may, at its option prior to the start of any interest period, elect to
pay interest on outstanding amounts under the Interim Loan Facility or
Permanent Notes through July 2011 entirely in cash (Cash Interest), entirely
by increasing the principal amount of the outstanding loans (PIK Interest),
or 50% as Cash Interest and 50% as PIK Interest.

Cash
and short and long-term marketable securities totaled approximately $479
million at September 30, 2007, compared with approximately $421 million at
December 31, 2006. Approximately $395 million of the cash and short and
long-term marketable securities balance is associated with regulatory
requirements at American Home Shield and for other purposes and, accordingly,
limitations exist on our ability to freely use such cash and securities. For
example, the payment of ordinary and extraordinary dividends to ServiceMaster
by our subsidiaries that are regulated as insurance, home warranty, service
contract or similar companies is subject to applicable state law limitations.

The
Company has an arrangement enabling it to sell, on a revolving basis and
without recourse, certain receivables generated by our TruGreen LawnCare and
Terminix segments to unrelated third party purchasers. The Company may sell up
to $70 million of its receivables to these purchasers in the future and
therefore would have immediate access to cash proceeds from these sales. The
amount of the eligible receivables varies during the year based on seasonality
of the business. For example, the amount available generally is less than $70
million during winter and spring. During the nine month period ended September
30, 2007, no receivables were sold to third parties under this agreement.

The
Company maintains lease facilities with banks totaling $68 million, which provide
for the financing of branch properties to be leased by the Company. At
September 30, 2007, approximately $68 million was funded under these
facilities. Approximately $15 million of these leases are treated as capital
leases and have been included on the balance sheet as assets with related debt
as of September 30, 2007 and December 31, 2006. The balance of the funded
amount is treated as operating leases. The Company has guaranteed the residual
value of the properties under the leases up to 73 percent of the fair market
value at the commencement of the lease. At September 30, 2007, the Companys
residual value guarantee related to the leased assets totaled $53 million for
which the Company has recorded the estimated fair value of this guarantee
(approximately $0.5 million) in the Condensed Consolidated Statements of
Financial Position. In connection with the closing of the Merger, the Company
amended these leases effective July 24, 2007. Among the modifications, the
Company extended the lease terms through July 24, 2010. The operating lease and
capital lease classifications of these leases did not change as a result of the
modifications.

The majority of the Companys vehicle 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 by the Company (ranging
from 70 percent to 87 percent depending on the agreement) relative to these
vehicles and equipment, which historically have not resulted in significant net
payments to the lessors. At September 30, 2007, there was approximately $195
million of residual value relating to the Companys fleet and equipment leases.
Approximately $72 million of this residual value is with a vendor that has
elected its option to terminate the lease effective August 2008. The Company
currently plans to move the vehicles to another lessor or purchase these
vehicles prior to August 2008. The fair value guarantee of the assets under all
of the fleet

42

and equipment
leases is expected to fully mitigate the Companys obligations under the
agreements. At September 30, 2007, the Company has recorded the estimated fair
value of this guarantee of approximately $2.7 million in the Condensed
Consolidated Statements of Financial Position.

The Companys
ongoing liquidity needs are expected to be funded by net cash provided by
operating activities and, as required, borrowings under the Revolving Credit
Facility. We expect that cash provided from operations and available borrowings
under the Revolving Credit Facility will provide sufficient funds to operate
our business, make expected capital expenditures and meet our foreseeable
liquidity requirements, including payment of interest and principal on our
debt.

As a holding
company, we depend on our subsidiaries to distribute funds to us so that we may
pay our obligations and expenses, including our debt service obligations. The
ability of our subsidiaries to make distributions and dividends to us depends
on their operating results, cash requirements and financial condition and
general business conditions. As previously described, certain of our
subsidiaries are subject to legal and regulatory restrictions on the payment of
dividends to us.

The following table summarizes the Companys future
obligations for
debt repayments and estimated interest payments as of September 30, 2007. The
Companys other contractual obligations and commitments have not changed
significantly from those disclosed in the Predecessors 2006 Annual Report.

(In thousands)

Total

2007

2008-
 2009

2009-
 2010

2011 and
 ThereafterPrincipal
repayments


$
4,236,707



$
12,006



$
88,984



$
88,781



$
4,046,936Estimated
interest payments (1)



2,867,904




87,533




710,968




704,856




1,364,547(1)These amounts represent
future interest payments related to the Companys existing debt obligations
based on fixed and variable interest rates specified in the associated debt
agreements. Payments related to variable debt are based on applicable rates at
September 30, 2007 plus the specified margin in the associated debt agreements
for each period presented. The amounts provided relate only to existing debt
obligations and assumes the interim loan under the Interim Loan Facility is
refinanced under the current terms in 2008 through maturity in 2015. The
average debt balance (in thousands) for each fiscal year from 2008 through 2012
is $4,201,861, $4,157,369, $4,108,436, $4,064,046, and $4,031,920,
respectively. The average interest rate (including interest rate swaps) for
each fiscal year from 2008 through 2012 is 8.43%, 8.59%, 8.62%, 8.64% and
8.65%, respectively. See Note 14 of the condensed consolidated financial
statements for the terms and maturities of existing debt obligations.

Financial
Position

The Company
has accounted for the Merger in accordance with Statement of Financial
Accounting Standards No. 141, Business Combinations, which requires the cost
of the Transactions to be allocated to the assets and liabilities of the
Company based on fair value. Consequently, goodwill, other intangible assets,
deferred customer acquisition costs, property and equipment, deferred revenue
and other balances changed significantly from the December 31, 2006 balances.

Receivables
increased from year-end levels reflecting general business growth and increased
seasonal activity. The receivable balance at September 30, 2007 includes
approximately $46 million of InStar receivables (including approximately $17
million of work-in-process that has not yet been billed). InStars receivables
include hurricane disaster recovery work performed in New Orleans, southern
Florida and other hurricane-affected areas in late 2005 and 2006. The Company
has accounts receivable from customers that were insured by a family of
insurance companies in Florida that are insolvent, and whose claims are now
being administered by the Florida Insurance Guaranty Association (FIGA). The
net receivable balance due from FIGA insured customers is not material to the
Companys consolidated financial statements. The Company expects that
collection of certain of InStars receivables, potentially including certain of
those administered by FIGA, will be significantly delayed and require or involve
litigation. While InStar has a history of recovering amounts related to its
disaster recovery projects, the current circumstances increase the
uncertainties in estimating the amounts recoverable on certain projects. The
consolidated allowance for doubtful accounts at September 30, 2007 included
approximately $9 million related to InStars accounts receivable. Such
allowance reflects managements best estimate of the amounts that will not be
collected. If the estimated amounts recoverable on the projects change from the
amounts currently recorded, these differences will be recognized as income or
loss when the change in

43

estimate is
made. Such changes, if any, would not currently be expected to be material to
the Companys consolidated financial statements.

Inventories
increased from year-end levels, reflecting general business growth and
increased seasonal activity. Deferred customer acquisition costs decreased from
year end as a result of recording these costs at their fair value in connection
with applying purchase accounting related to the Merger.

There is
seasonality in the lawn care operations. In the winter and spring, this
business sells a series of lawn applications to customers, which are rendered
primarily in March through October. On an ongoing basis, these direct and
incremental selling expenses which relate to successful sales will be deferred
and recognized over the production season and are not deferred beyond the
calendar year-end. In addition, the Company will continue to capitalize sales
commissions and other direct contract acquisition costs relating to termite
baiting and pest contracts, as well as home warranty agreements. These costs
vary with and are directly related to a new sale, and will be amortized over
the life of the related contract.

Property and
equipment increased from year-end levels, reflecting the purchase accounting
impacts of recording the assets at their fair value. The Company does not have
any material capital commitments at this time.

The increase
in goodwill and intangible assets from year-end resulted from the application
of purchase accounting related to the Merger. Debt issue costs increased as a
result of the debt incurred related to the Transactions.

Accrued
payroll and related expenses include employee retention and severance accruals
related to the Companys corporate headquarter consolidation plan, as well as
provisions for payments due under change in control severance agreements.
Deferred revenue decreased from year-end levels, as a result of recording these
amounts at fair value.

On June 4,
2007, the Company converted into eight million shares of ServiceMaster common
stock the minority equity interests of the minority investors in Terminix.
Total shareholders equity was $1.4 billion at September 30, 2007.

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. The Company
currently expects that none of the Predecessor dividends in 2007 will be taxable
as dividend income for federal income tax purposes. Any portion of the dividend
that is not taxable as dividend income would be treated as a return of capital
and would generally be applied to reduce the cost basis of outstanding shares.
The 2007 estimate is subject to change, based on the outcome of future events.

The Company
has been advised that, during the fourth quarter of 2007, its indirect parent
entity, ServiceMaster Global Holdings, Inc., expects to issue equity interests
(including stock options) in that entity to executive management of the
Company.

DISCONTINUED OPERATIONS

The changes in
the results of operations and financial position of discontinued operations
primarily reflects the divestitures in the third quarter of 2006 of the American
Residential Services (ARS) and American Mechanical Services (AMS) businesses.
Additionally, during the first quarter of 2006, the Company recorded a $25
million after-tax impairment charge for expected losses on the disposition of
certain ARS/AMS properties that were held pending sale at that time.

As part of the ARS and AMS sale agreements, the Company
guaranteed
obligations to third parties with respect to bonds (primarily performance and
license type), operating leases for which the Company has been released as
being the primary obligor, real estate leased and operated by the buyers, and
other guarantees of payment. At the present time, the Company does not believe
it is probable that the buyers will default on

44

their obligations subject to guarantee. The fair value of
the Companys
obligations related to these guarantees is not significant and no liability has
been recorded.

Information
Regarding Forward-Looking Statements

This report includes forward-looking
statements and cautionary statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Some of the forward-looking
statements can be identified by the use of forward-looking terms such as
believes, expects, may, will, should,
would, could, seek,
intends, plans, estimates, anticipates or other comparable terms.
These
forward-looking statements include all matters that are not historical facts.
They appear in a number of places throughout this report and include, without
limitation, statements regarding our intentions, beliefs or current
expectations concerning, among other things, our results of operations,
financial condition, liquidity, prospects, growth strategies and the industries
in which we operate as well as future restructurings and reorganizations,
including the Restructuring, and any expected charges or savings and the
outcome of pending litigation.

Forward-looking statements are subject to
known and unknown risks and uncertainties, many of which may be beyond our
control. We caution you that forward-looking statements are not guarantees of
future performance or outcomes and that actual outcomes and performances,
including, without limitation, our actual results of operations, financial
condition and liquidity, and the development of the industries in which we
operate may differ materially from those made in or suggested by the
forward-looking statements contained in this report. In addition, even if our
results of operations, financial condition and liquidity, and the development
of the industries in which we operate are consistent with the forward-looking
statements contained in this report, those results or developments may not be
indicative of results or developments in subsequent periods. A number of
important factors could cause actual results and outcomes to differ materially
from those in the forward-looking statements, including those factors discussed
in Risk Factors previously disclosed in our Annual Report on Form 10-K for
the year ended December 31, 2006, as updated by our Quarterly Report on Form
10-Q for the quarter ended June 30, 2007. Factors that could cause actual
results and outcomes to differ from those reflected in forward-looking
statements include, without limitation:


the effects of our substantial indebtedness
 and the limitations contained in the agreements governing such indebtedness;
our ability to generate the significant
 amount of cash needed to service our debt obligations;
increases in interest rates;
weather conditions and seasonality factors
 that affect the demand for our services;
changes in the source and intensity of
 competition in our markets;
higher fuel prices or lack of fuel
 availability;
increases in operating costs, such as
 higher insurance premiums, self-insurance costs and health care claim costs;
labor shortages or increases in
 compensation and benefits;
the risk that the benefits from the
 Transactions or the Restructuring may not be fully realized or may take
 longer to realize than expected;45


changes in general economic conditions in
 the United States, especially as they may affect home resales, consumer
 confidence or spending levels including as a result of the subprime credit
 dislocations;
changes in the type or mix of our service
 offerings or products;
governmental regulation and the enforcement
 thereof, including telemarketing, potential direct mail or other marketing
 restrictions and legal restrictions on pesticides and fertilizers;
the successful consolidation of our
 headquarters in Memphis and our ability to recruit qualified management
 personnel to support our functional areas;
changes in the estimated recoverable
 amounts of receivables related to hurricane disaster recovery work;
the number, type, outcomes and costs of
 legal or administrative proceedings;
possible labor organizing activities at the
 Company or its franchisees;
risks inherent in acquisitions; and
other factors described from time to time
 in documents that we file with the Securities and Exchange Commission.You should read this report completely and
with the understanding that actual future results may be materially different
from expectations. All forward-looking statements made in this report are
qualified by these cautionary statements. These forward-looking statements are
made only as of the date of this report, and we do not undertake any
obligation, other than as may be required by law, to update or revise any
forward-looking statements to reflect changes in assumptions, the occurrence of
events, unanticipated or otherwise, changes in future operating results over
time or otherwise.

Comparisons of results for current and any
prior periods are not intended to express any future trends, or indications of
future, performance, unless expressed as such, and should only be viewed as
historical data.

46

QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK

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

The Company
does not hold or issue derivative 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.

As previously discussed in the Merger Agreement
section of the
Management Discussion and Analysis of Financial Condition and Results of
Operations, the Merger completed on July 24, 2007 was financed, in part, by
borrowings under new loan and credit facilities. Prior to the Merger, the
Company had interest rate swap agreements with a total notional amount of $165
million, and in connection with the closing of the Merger, effective July 24,
2007, these swaps were terminated. In August 2007, the Company
entered into three, 3-year interest rate swap agreements, effective September
4, 2007. The total notional amount of the agreements was $530 million. Under
the terms of the agreements, the Company will pay a weighted average fixed rate
of interest of approximately 5.05% on the $530 million notional amount and the
Company will receive a floating rate of interest (based on the one month LIBOR)
on the notional amount. Therefore, the effective interest rate for $530 million
of the term loans under the Term Facilities is fixed at approximately 7.80%,
including the borrowing margin on the term loans.

Prior to the
completion of the Merger, the Company believed its exposure to interest rate
fluctuations, when viewed on both a gross and net basis, was not material to
its overall results of operations. The completion of the Merger significantly
increased the Companys exposure to floating interest rates. Interest on the
Companys $2.65 billion senior secured term loan is payable based on floating
LIBOR. This floating rate exposure is partially offset by the $530 million of
interest rate swap agreements discussed above. In addition, interest on the
Companys $1.15 billion senior unsecured loan facility is payable based on
floating LIBOR (subject to a cap) through July 24, 2008. Additionally, payments
on certain operating leases are tied to floating interest rates. These
operating leases consist of approximately $68 million of funding outstanding
under the Companys real estate operating lease facilities as well as fleet and
equipment operating leases (approximately $195 million in residual value). The
Companys exposure to interest expense based on floating rates is partially
offset on a net basis by floating rate investment income earned on its cash and
marketable securities balances. The Company estimates that on a net basis, each
one percentage point change in interest rates would result in a change to
operating results of approximately $35 million pretax on an annual basis.

The following table summarizes information about the
Companys fixed
rate debt as of September 30, 2007 (after considering the effect of the
interest rate swap agreements), 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 $873 million at
September 30, 2007.

Expected Maturity Date

(In thousands)

2007

2008

2009

2010

2011

There-
 after

TotalFixed rate debt

$
5,381

$
19,180

$
16,804

$
13,221

$
7,719

$
798,199

$
860,504Avg. rate


4.86
%

4.97
%

5.09
%

5.38
%

5.37
%

8.54
%

8.29
%47

CONTROLS AND
PROCEDURES

The Companys
Chief Executive Officer, J. Patrick Spainhour, and the Companys Vice Chairman
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 Downers Grove, Illinois
office of the Company. 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. Spainhour
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.

48

PART II. OTHER INFORMATION

Item
1: Legal Proceedings

On July 21, 2006, the New York State Department of Environmental
Conservation, Division of Legal Affairs, Region 4 (NYDEC), sent to Terminix a
certified letter enclosing a Notice of Hearing, Pre-Hearing Conference and
Complaint, naming as Respondents Terminix and seven individuals employed by
four Terminix branches located in New York. The Complaint alleged various
violations by the Respondents of Article 33 of the Environmental Conservation
Law of the State of New York and Part 20 et seq. of Title 6 of the Official
Compilation of Codes, Rules and Regulations and sought a $1,500,000 fine, the
submission of a plan by the Respondents through a third-party consultant for
evaluating purported training, record-keeping, employee license certifications
and pesticide label distribution issues at four New York branches, and the
submission of a plan to address any issues identified during such evaluation.
On September 29, 2006, Terminix filed on behalf of the Respondents an Answer
and Affirmative Defenses.

Terminix met with the NYDEC on numerous occasions since the
filing of its Answer and Affirmative Defenses to discuss the resolution of the
matter, and Terminix and the NYDEC have reached agreement on the
final terms of the consent agreement. Under the final agreement, Terminix will make a one-time payment
of $150,000, with a suspended fine in the amount of $200,000. The suspended
fine is conditioned upon Terminix
adhering to the compliance portion of the consent agreement. On June 22, 2007,
the Commissioner executed the consent agreement and the agreement is now final.
The initial compliance report was due and submitted to the NYDEC on September
22, 2007. The final report will be due for submission on June 22, 2008. This
matter is now concluded.

Item
1A: Risk Factors

There have been no material changes from the
risk factors previously disclosed in the Companys Quarterly Report of Form
10-Q for the quarter ended June 30, 2007.

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

(a)           None.

(b)           None.

(c)           Share Repurchases:

In February 2006, the Board of
Directors authorized $250 million for share repurchases. On July 24, 2007, as a
result of the Merger, in which all of the common stock of the Company was
converted into the right to receive $15.625 per share in cash and all of the
common stock of the Company was subsequently cancelled, the Company is now a
wholly-owned subsidiary and does not have outstanding common stock, other than
that which is owned by its parent. As a result, the Companys share repurchase
program is no longer in effect.
Total Number
  of Shares
  Purchased

Average Price
  Paid per
  Share

Total
  Number
  of Shares
  Purchased as
  Part of Publicly
  Announced
  Plan

Approximate
  Dollar Value
  of Shares that
  May Yet be
  Purchased
  Under the
  PlanJuly 1, 2007
  throughJuly 24,
2007





$






$
179,000,00049

Item 6: Exhibits

Exhibit No.
Description
  of Exhibit31.1
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 200231.2
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 200232.1
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 200232.2
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 200250

SIGNATURE

Pursuant to
the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.

Date:
  November 14, 2007THE
  SERVICEMASTER COMPANY(Registrant)By: /s/ Ernest J. MrozekErnest J.
  MrozekVice
  Chairman and Chief Financial Officer51