SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q            


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

                   For the quarterly period ended June 30, 1998
                                                 

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

                  For the transition period from ____ to ____

                        Commission file number 1-14762        

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

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

One ServiceMaster Way, Downers Grove, Illinois           60515-1700
(Address of principal executive offices)                 (Zip Code)

                                  630-271-1300
              (Registrant's telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes _X_ No___.

Indicate the number of shares outstanding of each of  the  issuer's  classes  of
shares:  196,522,730 shares on August 7, 1998.

This document consists of 13 pages, including the cover page.


<PAGE>

                                           
                                  TABLE OF CONTENTS

                                                                            Page
                                                                             No.
                                                                            ----
            
THE SERVICEMASTER COMPANY (Registrant) -

Part I.  Financial Information
-------  ---------------------

Consolidated Statements of Income for the three and
   six months ended June 30, 1998 and June 30, 1997                            2

Consolidated Statements of Financial Position
   as of June 30, 1998 and December 31, 1997                                   3

Consolidated Statements of Cash Flows for the six months
   ended June 30, 1998 and June 30, 1997                                       4

Notes to Consolidated Financial Statements                                     5

Management Discussion and Analysis of Financial Position
   and Results of Operations                                                   7

Signature                                                                     12


                                 1
<PAGE>
                                            
<TABLE>
<CAPTION>
                          PART I. FINANCIAL INFORMATION

                            THE SERVICEMASTER COMPANY
                        Consolidated Statements of Income
                      (In thousands, except per share data)


                                                    Three Months Ended                    Six Months Ended
                                                         June 30,                             June 30,

                                                  1998             1997                1998            1997
                                             -------------    -------------       -------------   -------------                    
<S>                                          <C>              <C>                 <C>             <C>          
Operating Revenue.........................   $   1,244,627    $   1,010,794       $   2,226,415   $   1,827,930


Operating Costs and Expenses:
Cost of services rendered
 and products sold........................         951,366          753,534           1,746,163       1,410,679
Selling and administrative expenses.......         179,466          158,823             296,684         260,214
                                             -------------    -------------       -------------    ------------
Total operating costs and expenses........       1,130,832          912,357           2,042,847       1,670,893
                                             -------------    -------------       -------------    ------------
Operating Income..........................         113,795           98,437             183,568         157,037


Non-operating Expense (Income):
Interest expense..........................          24,545           20,800              48,640          31,192
Interest and investment income............          (5,389)          (2,746)             (8,824)         (5,313)
Minority interest.........................               -            2,015                   -           4,163
                                              ------------    -------------       -------------    ------------

Income before Income Taxes................          94,639           78,368             143,752         126,995
Provision for income taxes
 (pro forma in 1997) (1)..................          38,235           31,661              58,078          51,306
                                              ------------    -------------       -------------    ------------   

Net Income (pro forma in 1997) (1) .......    $     56,404    $      46,707       $      85,674    $     75,689
                                              ============    =============       =============    ============

Per Share
 Basic (pro forma in 1997) (1) (2)........          $  .30           $  .26              $  .45          $  .38
                                                    ======           ======              ======          ======
 Diluted (pro forma in 1997) (1) (2)......          $  .29           $  .25              $  .44          $  .37
                                                    ======           ======              ======          ======                    

 Cash Distributions ......................          $  .12        $ .11 1/3              $  .24       $ .22 2/3
                                                    ======        =========              ======       =========               


On July 24, 1998, the Board of Directors of the Company declared a three-for-two
share split effective  August 26, 1998, for shareholders of record on August 12,
1998.  The  following  presents  the per share  data  restated  to  reflect  the
three-for-two share split.

Basic.....................................          $  .20           $  .17              $  .30          $  .25
                                                    ======           ======              ======          ======                    
Diluted...................................          $  .19           $  .16              $  .29          $  .24
                                                    ======           ======              ======          ======
Cash Distributions........................          $  .08        $ .07 1/2              $  .16          $  .15
                                                    ======        =========              ======          ======


(1) The Company  converted  from  partnership  to corporate form on December 26,
1997.  The results  shown  above for the  periods  ended June 30, 1997 have been
restated to adjust the actual  historical  information  to a basis that  assumes
that  reincorporation  had occurred as of the beginning of that year. Actual net
income, as previously reported (i.e., excluding the effects of pro forma federal
and state income  taxes),  was $75,707 and $122,567 for the three months and six
months ended June 30, 1997, respectively (basic and diluted net income per share
were $.42 and $.40 for the  three  months  ended,  and $.62 and $.59 for the six
months ended June 30, 1997, respectively).

(2) Basic earnings per share are calculated  based on 191,185 shares and 181,737
shares for the three  months  ended  June 30,  1998 and 1997,  respectively  and
188,667  shares and  198,927  shares for the six months  ended June 30, 1998 and
1997,  respectively.  Diluted earnings per share are calculated based on 197,627
shares and  190,762  shares for the three  months  ended June 30, 1998 and 1997,
respectively and 195,073 shares and 207,500 shares for the six months ended June
30, 1998 and 1997, respectively.


                 See Notes to Consolidated Financial Statements
</TABLE>
                      
                                     2 
<PAGE>
<TABLE>
<CAPTION>


                                       THE SERVICEMASTER COMPANY
                             Consolidated Statements of Financial Position
                                            (In thousands)


                                                                                  As of
                                                                         June 30,       December 31,
                                                                           1998             1997
                                                                       ------------    -------------
Assets

Current Assets:
<S>                                                                   <C>             <C>           
Cash and cash equivalents............................................ $      52,324   $       64,876
Marketable securities................................................        65,580           59,248
Receivables, less allowances of $37,576
   and $32,221, respectively.........................................       381,345          299,138
Inventories..........................................................        55,135           48,157
Prepaid expenses and other assets....................................       179,008          122,665
                                                                       ------------    -------------
    Total current assets.............................................       733,392          594,084
                                                                       ------------    -------------    

Property and Equipment:
   At cost...........................................................       432,802          362,653
   Less:  accumulated depreciation...................................       240,730          204,383
                                                                       ------------    -------------     
    Net property and equipment.......................................       192,072          158,270
                                                                       ------------    -------------              

Intangible assets, primarily trade names and goodwill,
   net of accumulated amortization of $241,843
   and $218,293, respectively........................................     1,724,106        1,563,309
Notes receivable, long-term securities, and other assets.............       154,650          159,561
                                                                       ------------    -------------       

    Total assets..................................................... $   2,804,220   $    2,475,224
                                                                       ============    =============       


Liabilities and Shareholders' Equity

Current Liabilities:
Accounts payable..................................................... $      98,943   $       84,673
Accrued liabilities..................................................       338,872          270,667
Deferred revenues....................................................       212,895          181,298
Current portion of long-term obligations.............................        30,535           21,539
                                                                       ------------    -------------                         
    Total current liabilities........................................       681,245          558,177
                                                                       ------------    -------------    

Long-Term Debt.......................................................     1,173,159        1,247,845
Other Long-Term Obligations..........................................       129,679          144,764
Commitments and Contingencies .......................................

Shareholders' Equity:
Common stock $0.01 par value, authorized 1 billion shares; issued
    and outstanding 196,449 and 186,629 shares, respectively.........         1,964            1,866
Additional paid-in capital...........................................       742,704          519,424
Retained earnings....................................................       115,957           65,000
Restricted stock.....................................................        (3,826)          (4,270)
Treasury stock.......................................................       (36,662)         (57,582)
                                                                       ------------     ------------
    Total shareholders' equity.......................................       820,137          524,438
                                                                       ------------     ------------  
    Total liabilities and shareholders' equity....................... $   2,804,220    $   2,475,224
                                                                       ============     ============

                                                
                            See Notes to Consolidated Financial Statements
</TABLE>

                                                   3
<PAGE>
<TABLE>
<CAPTION>
                                       THE SERVICEMASTER COMPANY
                                 Consolidated Statements of Cash Flows
                                             (In thousands)


                                                                                 Six Months Ended
                                                                                     June 30,
                                                                               1998             1997
                                                                          ------------      ------------       

<S>                                                                     <C>                <C>          
Cash and Cash Equivalents at January 1................................  $       64,876     $      72,009

Cash Flows from Operations:
Net Income............................................................          85,674           122,567
    Adjustments to reconcile net income
    to net cash provided from operations:
       Depreciation...................................................          24,366            22,318
       Amortization...................................................          23,550            20,035
       Change in working capital, net of acquisitions:
         Receivables..................................................         (61,538)          (41,729)
         Inventories and other current assets.........................         (54,687)          (47,011)
         Accounts payable.............................................          11,197             3,635
         Deferred revenues............................................          29,682            34,473
         Accrued liabilities..........................................          48,350            (4,667)
       Other, net.....................................................             779              (451)
                                                                          ------------      ------------     
Net Cash Provided from Operations.....................................         107,373           109,170
                                                                          ------------      ------------    

Cash Flows from Investing Activities:
    Business acquisitions, net of cash acquired.......................        (144,053)         (103,145)
    Property additions................................................         (40,241)          (23,384)
    Payments to sellers of acquired businesses........................          (5,130)           (2,102)
    Sale of equipment and other assets ...............................           2,814             2,727
    Notes receivable and financial investments........................          (2,657)           (7,939)
    Net purchases of investment securities............................          (2,133)           (1,134)
                                                                          ------------      ------------  
Net Cash Used for Investing Activities................................        (191,400)         (134,977)
                                                                          ------------      ------------   

Cash Flows from Financing Activities:
    Proceeds from stock offering......................................         209,391                 -
    Payments of borrowings and other obligations......................        (293,632)         (150,170)
    Long-term borrowings, net.........................................         185,571           827,950
    Distributions to shareholders and shareholders' trust.............         (34,718)          (48,402)
    Proceeds from employee share option plans.........................           5,877             4,701
    Purchase of ServiceMaster shares..................................          (4,019)         (640,785)
    Other.............................................................           3,005              (524)
                                                                          ------------      ------------
Net Cash Provided from (used for) Financing Activities................          71,475            (7,230)
                                                                          ------------      ------------

Cash Decrease during the Period.......................................         (12,552)          (33,037)
                                                                          ------------      ------------

Cash and Cash Equivalents at June 30..................................  $       52,324     $      38,972
                                                                          ============      ============



                            See Notes to Consolidated Financial Statements

</TABLE>

                                                    4
<PAGE>
                              THE SERVICEMASTER COMPANY
                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

Note 2: The consolidated financial statements included herein have been prepared
by the  Company  pursuant to the rules and  regulations  of the  Securities  and
Exchange  Commission.  Certain  information  and footnote  disclosures  normally
included in financial  statements prepared in accordance with generally accepted
accounting  principles have been condensed or omitted pursuant to such rules and
regulations.  However, the Company believes that the disclosures are adequate to
make the  information  presented  not  misleading.  It is  suggested  that these
consolidated  financial  statements  be read in  conjunction  with the financial
statements and the notes thereto  included in the Company's latest Annual Report
to shareholders and the Annual Report to the Securities and Exchange  Commission
on Form  10-K for the year  ended  December  31,  1997.  In the  opinion  of the
Company, all adjustments,  consisting only of normal and recurring  adjustments,
necessary to present fairly the financial position of The ServiceMaster  Company
as of June 30, 1998 and December 31, 1997, and the results of operations for the
three month and six month  periods  ended June 30,  1998 and 1997,  and the cash
flows for the six months  ended June 30, 1998 and 1997 have been  included.  The
preparation  of the  financial  statements  requires  management to make certain
estimates  and  assumptions   required  under  generally   accepted   accounting
principles  which may differ from the actual results.  The results of operations
for any interim period are not necessarily indicative of the results which might
be obtained for a full year.

Note 3: For interim accounting purposes,  certain costs directly associated with
the  generation of lawn care revenues are initially  deferred and  recognized as
expense  as the  related  revenues  are  recognized.  All such  costs  are fully
recognized within the fiscal year in which they are incurred.

Note 4: Basic earnings per share  includes no dilution from options,  debentures
or other financial  instruments and is computed by dividing income  available to
common  stockholders  by the  weighted  average  number of  shares  outstanding.
Diluted  earnings  per share  reflects  the  potential  dilution of  convertible
securities and options to purchase common stock.  The following chart reconciles
both  the  numerator  and  the  denominator  of the  basic  earnings  per  share
computation to the numerator and  denominator of the diluted  earnings per share
computation.


<TABLE>
<CAPTION>

                                                      Three months                        Three months
                                                  ended June 30, 1998                  ended June 30, 1997
                                            -------------------------------      ------------------------------


                                                                                  Pro forma
(in thousands, except per share data)         Income      Shares     EPS           Income      Shares     EPS
                                            ----------   --------   ------       ----------   --------   ------

<S>                                         <C>           <C>       <C>          <C>           <C>       <C>   
Basic earnings per share                    $   56,404    191,185   $ 0.30       $   46,707    181,737   $ 0.26
                                                                    ======                               ======
Effect of dilutive securities, net of tax:
   Options                                           -      6,442                         -      5,398
   Convertible debentures                            -          -                       277      3,627
                                            ----------   --------                ----------   --------

Diluted earnings per share                  $   56,404    197,627   $ 0.29       $   46,984    190,762   $ 0.25
                                            ==========   ========   ======       ==========   ========   ======

</TABLE>

                                   
                                     5

<PAGE>
<TABLE>
<CAPTION>

                                                      Six months                           Six months
                                                  ended June 30, 1998                  ended June 30, 1997
                                            -------------------------------      ------------------------------
                                                                      
                                                                                  Pro forma
(in thousands, except per share data)         Income      Shares     EPS           Income      Shares     EPS
                                            ----------   --------   ------       ----------   --------   ------ 

<S>                                         <C>           <C>       <C>          <C>           <C>       <C>                       
Basic earnings per share                    $   85,674    188,667   $ 0.45       $   75,689    198,927   $ 0.38                    
                                                                    ======                               ======
Effect of dilutive securities, net of tax:
   Options                                           -      5,974                         -      4,946
   Convertible debentures                           32        432                       554      3,627
                                            ----------   --------                ----------   --------           
                                         
Diluted earnings per share                  $   85,706    195,073   $ 0.44       $   76,243    207,500   $ 0.37
                                            ==========   ========   ======       ==========   ========   ======
                                                         
</TABLE>
                 

Note 5: In the  Consolidated  Statements of Cash Flows and on the Balance Sheet,
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  Consolidated  Statements of Cash Flows for the six
months  ended June 30, 1998 and 1997 is presented in the  following  table.  The
increase in interest paid in 1998 from 1997 is primarily  due to overall  higher
debt  balances  throughout  the six month period  (relating to the first quarter
impact of the April 1997 WMX share repurchase) as well as the timing of payments
on the public debt.

<TABLE>
<CAPTION>

                                                                   (In thousands)
                                                                  1998        1997
                                                               ---------   ---------   
Cash paid or received for:
<S>                                                           <C>         <C>       
Interest expense............................................  $   44,475  $   23,385
Interest and dividend income................................  $    4,268  $    3,901
</TABLE>


Note 6: Effective  January 1, 1998, the Company  adopted  Statement of Financial
Accounting Standards No. 130, "Reporting  Comprehensive  Income". This statement
establishes  standards for reporting and display of comprehensive income and its
components in financial  statements.  Total comprehensive  income which included
primarily net income and  unrealized  gains on marketable  securities  was $54.9
million  and $48.9  million for the three  months  ended June 30, 1998 and 1997,
respectively,  and $86.3 million and $73.6 million for the six months ended June
30, 1998 and 1997, respectively.

In 1998,  Statement of Position No. 98-1,  "Accounting for the Costs of Computer
Software  Developed or Obtained for Internal Use", and Statement of Position No.
98-5,  "Reporting on the Costs of Start Up and  Preoperating  Activities",  were
issued.  The  Company  intends  to adopt  these  policies  beginning  in 1999 as
required by the  Statements.  The Company  does not expect the adoption of these
statements to have a material impact to the financial statements.

In June 1998,  the Financial  Accounting  Standards  Board issued a Statement of
Financial Accounting  Standards No. 133, "Accounting for Derivative  Instruments
and Hedging  Activities". The Company intends to adopt this Statement in January
2000 as required by the Statement. Adoption of this Statement is not expected to
have a material impact on the Company's financial statements.


                                      6

<PAGE>

                              THE SERVICEMASTER COMPANY
                         MANAGEMENT DISCUSSION AND ANALYSIS

RESULTS OF OPERATIONS

SECOND QUARTER 1998 COMPARED TO SECOND QUARTER 1997

Revenues  increased 23 percent  over the second  quarter of 1997 to $1.2 billion
through a combination  of  acquisitions  and solid growth from base  operations.
Approximately  9 percent of the growth  resulted  from the formation of Employer
Services  through an  acquisition  of a professional  employer  organization  in
August  of  1997.  Professional  employer  organizations  provide  clients  with
administrative  processing of payroll,  workers' compensation insurance,  health
insurance, unemployment insurance and other employee benefit plans. This service
line has a  significant  impact on  revenues  and  margins,  because  the entire
payroll of the employees  for whom  services are provided is recognized  both as
revenue and operating  cost.  As a result,  the margins are low in this business
and reduce the Company's consolidated operating income margin.  Operating income
increased 16 percent to $113.8 million while margins decreased to 9.1 percent of
revenue from 9.7 percent in 1997.  Operating margins excluding Employer Services
increased to 9.9 percent of revenue,  reflecting improved operating efficiencies
and the continued growth of the higher margin  businesses.  Diluted earnings per
share in the second quarter were $.29 compared to pro forma diluted earnings per
share of $.25 last year,  an  increase of 16  percent.  On this same basis,  net
income grew 21 percent,  from $46.7 million to $56.4 million. Net income grew at
a faster  rate  than  earnings  per  share  reflecting  the  increase  in shares
outstanding resulting from the Company's equity offering in May 1998.

The Consumer  Services business unit achieved double digit increases in revenues
and profits.  The segment's  profit growth included solid double digit increases
at  all  of  the  companies.  Strong  growth  from  both  internal  sources  and
acquisitions,  including the Rescue Rooter plumbing business,  contributed to an
overall 20 percent  increase  in segment  revenues.  TruGreen-ChemLawn  achieved
strong revenue  increases  from base  operations  and  acquisitions,  as well as
improved margins reflecting continued productivity  improvements,  cost controls
and the  successful  integration of  acquisitions.  The Company has also further
broadened  its  service  lines  with  acquisitions  of  commercial   landscaping
companies.  Terminix achieved double digit growth in revenues and profits due to
excellent  increases  in termite  completions  and improved  margins  reflecting
strong growth in the higher margin  renewal  business,  favorable  weather,  and
improved efficiencies. American Home Shield experienced strong momentum and very
good   volume   increases   with  double   digit   growth  in  real  estate  and
direct-to-consumer  sales  as well  as  strong  renewal  growth.  The  franchise
operations,  Residential/Commercial and Merry Maids, achieved good profit growth
reflecting  improvements in company-owned  operations and cost controls.  Rescue
Rooter achieved very good results,  reflecting  increased focus on marketing and
effective cost controls.

The  Management  Services  business  unit  reported  good  revenue  growth  from
acquisitions  and  internal  sources  but  margin  pressures  in the  healthcare
businesses  resulted in profits below last year. The Healthcare  market achieved
slight  revenue  growth with profits below last year due to industry  pressures,
        
                                       7
<PAGE>

investments   in  the   business,   and   reduced   margins  in  the   Company's
non-traditional  service  lines.  Education  reported  increases in revenues and
profits,  resulting  from  improved  retention  and strong  cost  controls.  The
Business  &  Industry  group  reported   strong  growth   primarily   reflecting
acquisitions with a solid increase in new customer contracts.

Cost of services  rendered and products sold increased 26 percent  primarily due
to the addition of Employer  Services,  which carries a lower gross margin level
than the rest of the  business,  as well as  general  business  growth.  Cost of
services  increased as a percentage of revenue to 76.4 percent in 1998 from 74.5
percent in 1997.

Selling and administrative expenses increased 13 percent due to general business
growth  and  acquisitions,  and  decreased  as a  percentage  of revenue to 14.4
percent in 1998 from 15.7  percent in 1997.  This  decrease as a  percentage  of
revenue is primarily  attributable to the addition of Employer  Services,  which
incurs lower levels of selling and  administrative  expenses as a percentage  of
revenue, as well as efficiency gains at Consumer Services.

Interest  expense  increased over the prior year primarily due to increased debt
levels  associated with  acquisitions and higher rates.  Interest and investment
income  increased  due to  growth  in and  strong  returns  from the  investment
portfolio  at  American  Home  Shield  as well as  gains  realized  on  sales of
marketable securities.

SIX MONTHS ENDED JUNE 30, 1998 AS COMPARED TO JUNE 30, 1997

Revenues  for the six  months  increased  22 percent  over 1997 to $2.2  billion
reflecting solid internal growth and the effect of acquisitions. As discussed in
the three  months  comparison,  a  significant  amount of the growth (9 percent)
resulted from the newly acquired professional employer  organization.  Operating
income  increased 17 percent to $183.6  million while  margins  decreased to 8.2
percent  of  revenue  from 8.6  percent  in 1997.  Operating  margins  excluding
Employer Services increased to 9.0 percent of revenue,  reflecting strong growth
of our higher margin  businesses,  productivity  improvements and the successful
integration of acquisitions.  Diluted earnings per share for the six months were
$.44  compared to pro forma  diluted  earnings  per share of $.37 last year,  an
increase  of 19 percent.  On  this  same basis, net income grew 13 percent, from
$75.7 million  to $85.7 million.  Earnings  per share grew at a faster rate than
net  income  primarily  due to higher interest expense  and  a lower  number  of
shares  outstanding  related  to  the  Company's  repurchase  of   ServiceMaster
shares from Waste  Management  Inc. (WMX) in April 1997, partially offset by the
Company's equity offering in May 1998.

The Consumer  Services business unit continued to achieve double digit increases
in revenue and profits  reflecting good base business  growth and  acquisitions.
TruGreen-ChemLawn  realized  double digit increases in revenue and profit during
the first six months of the year  reflecting  solid  customer  count  increases,
accelerated  production due to favorable  weather  conditions and the entry into
the commercial  landscape business through  acquisitions of regional  companies.
Strong  revenue and profit  growth at the Terminix  operations  were a result of
excellent  growth  in  termite  completions  and  renewals  as  well  as  margin
improvements   reflecting   improved   efficiencies   and    favorable   weather

                                       8
<PAGE>

conditions.  American Home Shield  reported  double  digit  increases in revenue
and  profit with  strong   increases   in  real  estate   sales  and   direct-to
-consumer sales.  Residential/Commercial and  Merry Maids  reported  good profit
growth  for  the  six months  as  a  result of operational improvements and cost
controls.  Rescue Rooter  performed  well, reflecting marketing and productivity
initiatives.

The Management Services business unit reported revenue growth for the six months
primarily  related  to  acquisitions  as  well  as  modest base business growth.
Profits for the six months were below the prior year level as  increases  in the
Education and Business & Industry  markets were offset by reduced  profitability
in the Healthcare  market.  For the six months,  the Healthcare  market achieved
good revenue  growth with profits  reduced from last year  reflecting  increased
pressures in the industry, more investments in the business compared to 1997 and
profitability  declines in  non-traditional  service lines. The Education market
achieved  strong profit growth due to better  retention as well as the favorable
effect of the  elimination  of costs  incurred  last year related to unwinding a
large contract. The Business & Industry group reported strong revenue and profit
growth  compared to last year primarily  reflecting  acquisitions  with improved
sales and customer retention in the base business.

Cost of services  rendered and products sold increased 24 percent  primarily due
to the addition of Employer Services,  as well as general business growth.  Cost
of services  increased as a  percentage  of revenue to 78.4 percent in 1998 from
77.2 percent in 1997. Excluding Employer Services, cost of services increased 12
percent and decreased as a percentage of revenue to 77.0 percent.  This decrease
primarily  reflects  the  changing  mix of the  business  as  Consumer  Services
increases in size in  relationship to the overall  business of the Company.  The
Consumer Services  businesses  generally  operates at higher gross margin levels
than the rest of the  business  but  also  incur  somewhat  higher  selling  and
administrative expenses as a percentage of revenue.

Selling and administrative expenses increased 14 percent due to general business
growth and acquisitions and decreased as a percentage of revenue to 13.3 percent
in 1998 from 14.2 percent in 1997.  This  decrease as a percentage of revenue is
primarily  attributable to the addition of Employer  Services and the efficiency
gains at Consumer  Services,  offset in part by the changing business mix of the
Company noted above.

Interest  expense  increased over the prior year primarily due to increased debt
outstanding   throughout   the  six  months   relating  to  the   repurchase  of
ServiceMaster  shares  held by WMX and  acquisitions.  Interest  and  investment
income  increased  due to growth in the  investment  portfolio at American  Home
Shield, as well as gains realized on sales of marketable securities.

FINANCIAL POSITION

Net cash provided from operations of $107.4 million represents a slight decrease
compared  to the first six  months of 1997,  reflecting  the  timing of  certain
items. The decline was primarily due to the acceleration of customer prepayments
at  TruGreen-ChemLawn  into  the  fourth  quarter  of 1997  due to a  successful
pre-season  selling  campaign  and the  current  year  funding of early seasonal
investments for the acquired lawn care operations. Due to the seasonality of the
lawn care and  pest control  operating  cycles, the  Company's  working  capital

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<PAGE>

needs are higher during the first half of the year than in the second half, with
a  corresponding  impact on funds  provided from operations. Management believes
that funds generated from  operations and other existing resources will continue
to be adequate to satisfy the ongoing working capital needs of the Company.

Federal  taxes on the  Company's  earnings,  while  accrued in the  consolidated
income  statement,  will not have to be paid until the first quarter of 1999. At
that time,  the Company will be  responsible  for its 1998  obligation  and will
begin making estimated  payments for 1999 as well. In addition,  a large portion
of the tax expense will be deferred for a longer  period due to the  significant
timing  differences  between  book and tax basis.  Since the  Company is able to
defer its 1998 tax payment, the cash flow is fairly comparable to last year when
the Company was in partnership form and paid no federal taxes.

In the second quarter, the Company filed a Form S-3 Registration Statement,  and
14.15  million  Company  shares  were sold at $28.75  per share.  This  included
approximately  7.6  million of newly  issued  shares  from the  Company and 6.55
million shares sold by existing  shareholders.  The net proceeds to the Company,
after the underwriting  discount and offering  expenses,  was approximately $209
million  and was used to reduce  outstanding  debt under  existing  bank  credit
facilities.

The  increase in accounts  and notes  receivable  over year end levels  reflects
general business growth,  increased  seasonal build-ups in the Consumer Services
segment,  and  acquisitions.  The increase in  inventories is a result of normal
seasonal build-ups in the pest control and lawn care businesses.

Prepaids and other assets have increased from year end because of seasonality in
the lawn care business.  The lawn care operation defers certain  marketing costs
that are incurred  during the first six months but are directly  associated with
revenues  that are realized in subsequent  quarters of the current  year.  These
costs are then  amortized  over the balance of the current lawn care  production
season,  as the related revenues are recognized.  In addition,  prepaid expenses
have  also  increased  due to the  deferral  of  contract  acquisition  costs at
American  Home Shield  which have grown as a result of the  increased  volume of
warranty  contracts  written.  Deferred  revenues also increased  significantly,
reflecting  strong  growth and increases in customer  prepayments  for lawn care
services, as well as warranty contracts.

Property  and   equipment   increased  due  to  general   business   growth  and
acquisitions.   Capital  expenditures  grew  primarily  due  to  investments  in
automatic dialers at  TruGreen-ChemLawn  and computer system upgrades throughout
the organization. The Company has no material commitments at this time.

Intangible  assets  increased  from year end primarily  reflecting the effect of
acquisitions,  which included Rescue Rooter,  commercial landscape companies and
other smaller Consumer Services and Management Services companies.

Accrued  liabilities  increased  from year end reflecting  seasonal  activity at
Consumer  Services and an increase in income taxes  payable.  The tax  liability
represents  taxes payable on 1998 earnings which payment has been deferred until
first quarter 1999.
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<PAGE>

Debt levels decreased reflecting the use of proceeds from the equity offering to
pay  down  debt  offset  in  part  by   acquisitions,   capital   spending   and
distributions.  The Company is a party to a number of long-term debt  agreements
which  require it to  maintain  compliance  with  certain  financial  covenants,
including  limitations  on  indebtedness,   restricted  payments,  fixed  charge
coverage  ratios and net worth.  The Company is in compliance with the covenants
related to these debt agreements.

Total  shareholders'  equity  increased  to $820.1  million in 1998 from  $524.4
million at December 31, 1997  reflecting the equity  offering,  strong growth in
earnings  and shares  issued for  acquisitions  which were  partially  offset by
shareholder distributions.  Cash distributions paid directly to shareholders for
the six months ended June 30, 1998, totaled $45 million or $.24 per share. Total
cash  distributions  paid to  shareholders  was  consistent  with the prior year
primarily  reflecting a 6 percent increase in per share distributions  offset by
the April 1997 repurchase of ServiceMaster shares from WMX.

On July 23, 1998, the Company filed a Form S-1 Shelf Registration Statement with
the  Securities  and Exchange  Commission  to issue up to 3.5 million  shares of
common stock in connection with the completion of future acquisitions.

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<PAGE>


                                      SIGNATURE


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

Date:  August 13, 1998


                          THE SERVICEMASTER COMPANY
                          (Registrant)

                          By:          /s/Steven C. Preston
                          -------------------------------------------------
                                          Steven C. Preston
                          Executive Vice President and Chief Financial Officer




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