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

                                    FORM 10-Q
                                 --------------

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


                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005

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

              FOR THE TRANSITION PERIOD FROM _________ TO _________

                         COMMISSION FILE NUMBER 1-14762
                                  --------------

                            THE SERVICEMASTER COMPANY
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
                                  --------------

                  Delaware                              36-3858106
            (STATE OR OTHER JURISDICTION OF   (IRS EMPLOYER IDENTIFICATION NO.)
             INCORPORATION OR ORGANIZATION)


         3250 LACEY ROAD, STE. 600, DOWNERS GROVE, ILLINOIS O 60515-1700
               (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

                                  630-663-2000
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

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

Yes          X      No
          ---------       ---------

Indicate  by check mark  whether  the  Registrant  is an  accelerated  filer (as
defined in Exchange Act Rule 12b-2).

Yes          X      No
          ---------       ---------

Indicate by check mark whether the  registrant is a shell company (as defined in
Exchange Act Rule 12b-2).

Yes                 No       X
          ---------       ---------

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock: 290,674,000 shares of common stock on October 28, 2005.


<PAGE>


                                TABLE OF CONTENTS

<TABLE>
                                                                                           Page
                                                                                           NO.
<S>                                                                                       <C>
THE SERVICEMASTER COMPANY (Registrant) -

PART I. FINANCIAL INFORMATION

Item 1: Financial Statements (Unaudited)

Condensed Consolidated Statements of Operations for the three
   and nine months ended September 30, 2005 and September 30, 2004                          3

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

Condensed Consolidated Statements of Cash Flows for the nine months
   ended September 30, 2005 and September 30, 2004                                          5

Notes to Condensed Consolidated Financial Statements                                        6

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

Item 3: Quantitative and Qualitative Disclosures About Market Risk                          23

Item 4: Controls and Procedures                                                             24

PART II. OTHER INFORMATION

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

Item 6: Exhibits                                                                            25

Signature                                                                                   26
</TABLE>




<PAGE>



                          PART I. FINANCIAL INFORMATION
                            THE SERVICEMASTER COMPANY
           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

<TABLE>
(IN THOUSANDS, EXCEPT PER SHARE DATA)

                                                        THREE MONTHS ENDED                    NINE MONTHS ENDED
                                                          SEPTEMBER 30,                         SEPTEMBER 30,
                                                     2005               2004             2005               2004
                                                ----------------  -----------------  --------------  -----------------
<S>                                             <C>               <C>                <C>              <C>
OPERATING REVENUE                               $     1,133,549   $      1,053,867   $   3,089,970    $       2,899,474

OPERATING COSTS AND EXPENSES:
Cost of services rendered and products sold             743,593            686,992       2,045,300            1,929,754
Selling and administrative expenses                     256,584            240,546         738,072              679,984
Amortization expense                                      1,443              1,503           3,926                4,436
                                                ----------------  -----------------  --------------   ------------------
Total operating costs and expenses                    1,001,620            929,041       2,787,298            2,614,174
                                                ----------------  -----------------  --------------   ------------------

OPERATING INCOME                                        131,929            124,826         302,672              285,300

NON-OPERATING EXPENSE (INCOME):
Interest expense                                         13,749             15,210          43,729               45,148
Interest and investment income                           (5,516)            (3,913)        (18,116)             (11,519)
Minority interest and other expense, net                  2,080              2,047           6,173                6,179
                                                ----------------  -----------------  --------------   ------------------

INCOME FROM CONTINUING OPERATIONS
 BEFORE INCOME TAXES                                    121,616            111,482         270,886              245,492
Provision for income taxes                               46,553             43,139         104,920               95,000
                                                ----------------  -----------------  --------------   ------------------

INCOME FROM CONTINUING OPERATIONS                        75,063             68,343         165,966              150,492

Income (loss) from discontinued operations,
 net of income taxes                                      6,524               (619)          5,994               (1,173)
                                                ----------------  -----------------  --------------   ------------------
NET INCOME                                      $        81,587   $         67,724   $     171,960    $         149,319
                                                ================  =================  ==============   ==================

PER SHARE:
Basic Earnings Per Share:
Income from continuing operations               $          0.26   $           0.24   $        0.57    $            0.52

Income (loss) from discontinued operations                 0.02                 --            0.02                   --
                                                ----------------  -----------------  --------------   ------------------
Basic earnings per share                        $          0.28   $           0.23   $        0.59    $            0.51
                                                ================  =================  ==============   ==================

SHARES                                                  291,474            290,258         291,426              290,647

Diluted Earnings Per Share:
Income from continuing operations               $          0.25   $           0.23   $        0.56    $            0.51

Income (loss) from discontinued operations                 0.02                 --            0.02                   --
                                                ----------------  -----------------  --------------   ------------------
Diluted earnings per share                      $          0.27   $           0.23   $        0.57    $            0.50
                                                ================  =================  ==============   ==================
SHARES                                                  305,239            303,336         305,250              303,437
</TABLE>

            SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




                                       3
<PAGE>




                            THE SERVICEMASTER COMPANY
       CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)

<TABLE>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                                           AS OF SEPT. 30,        AS OF DEC. 31,
ASSETS                                                                           2005                  2004
                                                                          ----------------       ----------------

CURRENT ASSETS:
<S>                                                                 <C>                  <C>
Cash and cash equivalents                                           $          122,646   $            256,626
Marketable securities                                                          108,455                103,681
Receivables, less allowance of $24,510 and $25,183, respectively               481,562                369,026
Inventories                                                                     77,867                 66,657
Prepaid expenses and other assets                                               41,031                 27,456
Deferred customer acquisition costs                                             49,945                 41,574
Deferred taxes                                                                  59,606                108,780
Assets of discontinued operations                                                  776                  4,952
                                                                    -------------------  ---------------------
Total Current Assets                                                           941,888                978,752
                                                                    -------------------  ---------------------
PROPERTY AND EQUIPMENT:
At cost                                                                        432,436                405,655
Less: accumulated depreciation                                                (248,161)              (218,838)
                                                                    -------------------  ---------------------
   Net property and equipment                                                  184,275                186,817
                                                                    -------------------  ---------------------

OTHER ASSETS:

Goodwill                                                                     1,597,707              1,568,044
Intangible assets, primarily trade names                                       230,811                220,780
Notes receivable                                                                32,365                 35,411
Long-term marketable securities                                                148,139                135,824
Other assets                                                                    10,812                 14,574
                                                                    -------------------  ---------------------
Total Assets                                                        $        3,145,997   $          3,140,202
                                                                    ===================  =====================

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable                                                    $          115,442   $             76,053
Accrued liabilities:
Payroll and related expenses                                                   118,335                113,366
Self-insured claims and related expenses                                       100,474                 86,554
Income taxes payable                                                            28,936                152,841
Other                                                                          109,038                111,092
Deferred revenues                                                              449,475                443,238
Liabilities of discontinued operations                                           6,652                 21,536
Current portion of long-term debt                                               19,186                 23,247
                                                                    -------------------  ---------------------
Total Current Liabilities                                                      947,538              1,027,927
                                                                    -------------------  ---------------------

LONG-TERM DEBT                                                                 749,567                781,841

LONG-TERM LIABILITIES:

Deferred taxes                                                                 131,118                 88,100
Liabilities of discontinued operations                                           8,858                  9,057
Other long-term obligations                                                    157,217                141,742
                                                                    -------------------  ---------------------
Total Long-Term Liabilities                                                    297,193                238,899
                                                                    -------------------  ---------------------

MINORITY INTEREST                                                              100,000                100,000


COMMITMENTS AND CONTINGENCIES


SHAREHOLDERS' EQUITY:
Common stock $0.01 par value, authorized 1,000,000 shares; issued
 321,079 and 318,559 shares, respectively                                        3,211                  3,186
Additional paid-in capital                                                   1,109,574              1,083,057
Retained earnings                                                              287,958                212,116
Accumulated other comprehensive income                                           9,301                 10,804
Restricted stock (unearned compensation)                                       (16,143)               (12,857)
Treasury stock                                                                (342,202)              (304,771)
                                                                    -------------------  ---------------------
Total Shareholders' Equity                                                   1,051,699                991,535
                                                                    -------------------  ---------------------
Total Liabilities and Shareholders' Equity                          $        3,145,997   $          3,140,202
                                                                    ===================  =====================

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>

                                       4
<PAGE>





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

<TABLE>


                                                                                     NINE MONTHS ENDED
                                                                                       SEPTEMBER 30,
                                                                                2005                  2004
(IN THOUSANDS)                                                                           ---------------      -----------------
<S>                                                                        <C>                  <C>
CASH AND CASH EQUIVALENTS AT JANUARY 1                                     $      256,626       $        228,161

CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME                                                                        171,960                149,319
 Adjustments to reconcile net income to net cash flows from
  operating activities:
  (Income) loss from discontinued operations                                       (5,994)                 1,173
  Depreciation expense                                                             37,643                 36,658
  Amortization expense                                                              3,926                  4,436

 Change in working capital, net of acquisitions:
   Receivables                                                                   (113,425)               (90,238)
   Inventories and other current assets                                           (27,477)               (14,696)
   Accounts payable                                                                40,274                  5,432
   Deferred revenues                                                                5,453                  7,569
   Accrued liabilities                                                             28,898                 53,400
   Change in tax accounts:
    Deferred income taxes                                                          93,459                 82,450
    Payment relating to income tax audits                                        (131,146)                    --
  Other, net                                                                        8,906                  5,540
                                                                            --------------        ---------------
NET CASH PROVIDED FROM OPERATING ACTIVITIES                                       112,477                241,043
                                                                            --------------        ---------------

CASH FLOWS FROM INVESTING ACTIVITIES:
 Property additions                                                               (35,270)               (39,903)
 Sale of equipment and other assets                                                 2,044                  7,271
 Business acquisitions, net of cash acquired                                      (27,342)               (26,519)
 Notes receivable, financial investments and securities                           (13,492)               (32,505)
                                                                            --------------        ---------------
NET CASH USED FOR INVESTING ACTIVITIES                                            (74,060)               (91,656)
                                                                            --------------        ---------------

CASH FLOWS FROM FINANCING ACTIVITIES:
 Borrowings of debt                                                               108,299                     --
 Payments of debt                                                                (157,371)               (29,778)
 Purchase of ServiceMaster stock                                                  (51,305)               (55,482)
 Shareholders' dividends                                                          (96,118)               (93,336)
 Other, net                                                                        25,040                 11,737
                                                                            --------------        ---------------
NET CASH USED FOR FINANCING ACTIVITIES                                           (171,455)              (166,859)
                                                                            --------------        ---------------

NET CASH USED FOR OPERATING ACTIVITIES OF DISCONTINUED OPERATIONS                    (942)                (7,959)
                                                                            --------------        ---------------

CASH DECREASE DURING THE PERIOD                                                  (133,980)               (25,431)
                                                                            --------------        ---------------

CASH AND CASH EQUIVALENTS AT SEPTEMBER 30                                  $      122,646       $        202,730
                                                                           ===============      =================
</TABLE>

            SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



                                       5
<PAGE>





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

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

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

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

The Company had $449 million and $443  million of deferred  revenue at September
30, 2005 and December 31, 2004, respectively, which consist primarily of upfront
payments  received  for annual  contracts  relating  to home  warranty,  termite
baiting,  pest  control and lawn care  services.  The  revenue  related to these
services is recognized  over the  contractual  period as the direct costs occur,
such as when the services are performed or claims are incurred.


                                       6
<PAGE>


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

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

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

The preparation of the financial  statements requires management to make certain
estimates and assumptions  required under GAAP which may differ  materially from
the  actual  results.  Disclosures  in the  2004  Annual  Report  presented  the
significant  areas that require the use of management's  estimates and discussed
how management formed its judgments.  The areas discussed included the allowance
for  uncollectible  receivables;  accruals  for  self-insured  retention  limits
related to medical, workers' compensation,  auto and general liability insurance
claims;  accruals for home  warranty  and termite  damage  claims;  the possible
outcome of  outstanding  litigation;  income tax  liabilities  and  deferred tax
accounts;  useful  lives for  depreciation  and  amortization  expense;  and the
valuation of tangible and intangible  assets. In 2005, there was a correction in
estimating  the accrual  for  termite  damage  claims.  The Company  recorded $8
million of adjustments  through  September 2005 in order to increase the accrual
relating to prior years termite damage claims.  There have been no other changes
in  the  significant   areas  that  require   estimates  or  in  the  underlying
methodologies used in determining the amounts of these associated estimates.

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

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

The increase in goodwill and intangible  assets relates to tuck-in  acquisitions
completed throughout the first nine months by Terminix and TruGreen ChemLawn, as
well as the acquisition of a distributorship by ServiceMaster Clean in the third
quarter.


                                       7
<PAGE>





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


(IN THOUSANDS)
<TABLE>

                                         AS OF                                                              AS OF
                                         DEC. 31,                                                          SEPT. 30,
                                         2004                 ADDITIONS               AMORT.                 2005
                                    ------------------     -----------------       --------------      -----------------
Not Amortized:
<S>                                 <C>                    <C>                     <C>                  <C>
Goodwill                            $     1,568,044        $         29,663       $           --       $      1,597,707
Trade names & other                         204,793                  10,700                   --                215,493

Amortized:
Other intangible assets                      45,788                   3,257                   --                 49,045
Accumulated amortization(1)                 (29,801)                     --               (3,926)               (33,727)
                                    ----------------       -----------------       --------------      -----------------
Net other intangibles                        15,987                   3,257               (3,926)                15,318
                                    ----------------       -----------------       --------------      -----------------
Total                               $     1,788,824        $         43,620        $      (3,926)      $      1,828,518
                                    ================       =================       ==============      =================
</TABLE>

(1) Annual amortization  expense of approximately $5 million in 2005 is expected
to decline over the next five years.

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

(IN THOUSANDS)                       SEPT. 30,                   DEC. 31,
                                       2005                        2004
                              ------------------------     -------------------
TruGreen                      $         696,847            $          681,954
Terminix                                657,827                       643,567
American Home Shield(1)                  85,526                        72,085
ARS/AMS                                  56,171                        56,171
Other Operations(1)                     101,336                       114,267
                              ------------------           -------------------
Total                         $       1,597,707            $        1,568,044
                              ==================           ===================

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

NOTE 6: Basic  earnings per share are computed by dividing  income  available to
common stockholders by the weighted-average number of shares outstanding for the
period.  The  weighted-average  common shares for the diluted earnings per share
calculation  include the incremental  effect related to outstanding  options and
stock  appreciation  rights  (SARS) whose market price is in excess of the grant
price.  Shares  potentially  issuable  under  convertible  securities  have been
considered   outstanding  for  purposes  of  the  diluted   earnings  per  share
calculations.  In computing  diluted earnings per share, the after-tax  interest
expense  related to  convertible  securities  is added back to net income in the
numerator,  while the  diluted  shares in the  denominator  include  the  shares
issuable upon conversion of the securities.

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

<TABLE>

(IN THOUSANDS, EXCEPT PER SHARE DATA)          THREE MONTHS                             THREE MONTHS
                                           ENDED SEPT. 30, 2005                    ENDED SEPT. 30, 2004
                                  ---------------------------------------  ----------------------------------------

CONTINUING OPERATIONS:                 Income   Shares               EPS       Income     Shares              EPS
----------------------            ------------ --------         --------- ------------ ----------         --------

<S>                               <C>          <C>              <C>        <C>            <C>            <C>
 Basic earnings per share         $    75,063  291,474          $   0.26   $    68,343    290,258        $  0.24
                                                                =========                                 ========

Effect of dilutive securities, net of tax:
 Options & SARS                                  5,765                                      5,078
 Convertible Securities                 1,178    8,000                           1,178      8,000
                                    ---------- --------                    ----------- ----------
 Diluted earnings per share       $    76,241  305,239          $   0.25   $    69,521    303,336         $  0.23
                                    ========== ========         =========  =========== ==========         ========

</TABLE>

                                       8
<PAGE>


<TABLE>

(IN THOUSANDS, EXCEPT PER SHARE DATA)          NINE MONTHS                              NINE MONTHS
                                          ENDED SEPT. 30, 2005                     ENDED SEPT. 30, 2004
                                  --------------------------------------  ----------------------------------------

CONTINUING OPERATIONS:                 Income   Shares              EPS       Income      Shares              EPS
----------------------            ------------ --------         --------  ----------- -----------        ---------
<S>                               <C>          <C>             <C>        <C>             <C>            <C>
Basic earnings per share          $   165,966  291,426         $   0.57   $  150,492      290,647        $    0.52
                                                                ========                                 =========
Effect of dilutive securities, net of tax:
 Options & SARS                                  5,824                                     4,790
 Convertible Securities                 3,534    8,000                         3,534       8,000
                                    ---------- --------                    ---------- -----------

 Diluted earnings per share       $   169,500  305,250         $   0.56   $  154,026      303,437        $   0.51
                                    ========== ========         ========   ========== ===========        =========
</TABLE>


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

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

<TABLE>

                                                       THREE MONTHS ENDED                       NINE MONTHS ENDED
                                                            SEPT. 30,                               SEPT. 30,
(IN THOUSANDS, EXCEPT PER SHARE DATA)               2005                 2004                2005                2004
                                               ---------------      ---------------      --------------      -------------

<S>                                            <C>                  <C>                  <C>                 <C>
Net income as reported                         $       81,587       $       67,724       $     171,960       $    149,319

Add back:  Stock-based compensation
 expense included in reported net income,
 net of related tax effects                               620                  291               1,685                830

Deduct:  Stock-based compensation
 expense determined under fair-value method,
 net of related tax effects                            (1,380)              (1,396)             (4,389)            (4,216)
                                               ---------------      ---------------      --------------      -------------

Proforma net income                            $       80,827       $       66,619       $     169,256       $    145,933
                                               ===============      ===============      ==============      ==============

Basic Earnings Per Share:
 As reported                                   $         0.28       $         0.23       $        0.59       $       0.51

 Proforma                                      $         0.28       $         0.23       $        0.58       $       0.50

Diluted Earnings Per Share:
 As reported                                   $         0.27       $         0.23       $        0.57       $       0.50

 Proforma                                      $         0.27       $         0.22       $        0.57       $       0.49

</TABLE>

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




                                       9
<PAGE>



NOTE 8: In the Condensed Consolidated Statements of Cash Flows, the caption Cash
and  Cash  Equivalents   includes   investments  in  short-term,   highly-liquid
securities having a maturity of three months or less.  Supplemental  information
relating to the  Condensed  Consolidated  Statements  of Cash Flows for the nine
months ended September 30, 2005 and 2004 is presented in the following table:

                                                        (IN THOUSANDS)
CASH PAID FOR OR (RECEIVED FROM):                  2005                2004
---------------------------------                  ----                ----
Interest expense                              $   54,784           $  52,836
Interest and investment income                   (15,725)            (12,713)
Income taxes, net of refunds                     141,496              11,796

The increase in cash  received from interest and  investment  income  reflects a
higher level of investment  income and gains realized on the growing  investment
portfolio at American Home Shield.  Cash paid for income taxes increased in 2005
as a result of $131  million  of taxes  paid  this  year to the IRS and  various
states  pursuant to the Company's  agreement with the Internal  Revenue  Service
(IRS) that was reached in January 2005.  Acquisitions  for the nine months ended
September  30, 2005  totaled  $44  million,  compared  with $41 million in 2004.
Consideration  consisted of cash  payments,  seller  financed  notes and Company
stock.

NOTE 9: Total comprehensive income was $83 million and $66 million for the three
months ended September 30, 2005 and 2004, respectively and $170 million and $146
million for the nine months  ended  September  30, 2005 and 2004,  respectively.
Total comprehensive income primarily includes net income,  changes in unrealized
gains and losses on  marketable  securities  and  foreign  currency  translation
balances.

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

NOTE 11: Total debt was $769 million at September  30, 2005,  approximately  $36
million  below the level at December 31, 2004.  Approximately  60 percent of the
Company's debt matures beyond five years and 50 percent beyond fifteen years. In
April 2005, approximately $137 million of the Company's public debt matured. The
Company funded this debt payment with long-term financing under revolving credit
facilities.

NOTE 12: In the past  several  years,  the  Company  has sold or exited  various
operations  of the  Company.  The  results  of these  business  units  have been
reclassified  as  "Discontinued   Operations"  in  the  accompanying   financial
statements.  The following table  summarizes the activity during the nine months
ended  September 30, 2005 for the remaining  liabilities  from the  discontinued
operations,  with $11 million of the decrease during this period  reflecting the
favorable  conclusion  of certain  obligations  related to the  previously  sold
international  pest control  operations.  The  remaining  liabilities  primarily
represent  obligations related to long-term  self-insurance  claims. The Company
continues to believe that the remaining reserves are adequate.


                                       10
<PAGE>

<TABLE>

(IN THOUSANDS)                     BALANCE AT               CASH                                   BALANCE AT
                                    DECEMBER 31,          PAYMENTS             INCOME/              SEPT. 30,
                                      2004                OR OTHER            (EXPENSE)               2005
                                ------------------      --------------      --------------      ------------------
<S>                             <C>                     <C>                 <C>                 <C>
Remaining liabilities from
  discontinued operations       $          30,593       $       5,517       $       9,566       $          15,510
</TABLE>


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

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

<TABLE>

(IN THOUSANDS)                   THREE MONTHS        THREE MONTHS             NINE MONTHS        NINE MONTHS
                                ENDED SEPT. 30,    ENDED SEPT. 30,          ENDED SEPT. 30,    ENDED SEPT. 30,
                                     2005                2004                    2005                2004
                               ------------------  -----------------       ------------------ -------------------
Operating Revenue:

<S>                            <C>                 <C>                     <C>                <C>
 TruGreen                      $         458,643   $        438,474        $       1,159,408  $        1,116,843
 Terminix                                266,986            253,235                  820,347             772,349
 American Home Shield                    154,599            137,961                  409,895             374,220
 ARS/AMS                                 208,057            181,097                  570,091             514,778
 Other Operations                         45,264             43,100                  130,229             121,284
-----------------------------  ------------------  -----------------       ------------------ -------------------
Total Operating Revenue        $       1,133,549   $      1,053,867        $       3,089,970  $        2,899,474
=============================  ==================  =================       ================== ===================


Operating Income (1):
 TruGreen                      $          79,413   $         79,983        $         140,408  $          142,982
 Terminix                                 34,060             26,695                  122,071             111,432
 American Home Shield                     22,851             23,433                   60,802              57,386
 ARS/AMS                                   4,864              4,302                    6,548               2,267
 Other Operations                         (9,259)            (9,587)                 (27,157)            (28,767)
-----------------------------  ------------------  -----------------       ------------------ -------------------
Total Operating Income         $         131,929   $        124,826        $         302,672  $          285,300
=============================  ==================  =================       ================== ===================
</TABLE>

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


                                       11
<PAGE>

<TABLE>

(IN THOUSANDS)                           THREE MONTHS        THREE MONTHS         NINE MONTHS        NINE MONTHS
                                        ENDED SEPT. 30,     ENDED SEPT. 30,     ENDED SEPT. 30,    ENDED SEPT. 30,
                                             2005                2004                2005               2004
                                     -------------------   ------------------   ----------------- -----------------
<S>                                  <C>                    <C>                  <C>                 <C>
Segment Operating Income             $      131,929         $      124,826       $    302,672        $     285,300

Non-operating expense (income):

  Interest expense                           13,749                 15,210             43,729               45,148

  Interest and investment income             (5,516)                (3,913)           (18,116)             (11,519)

  Minority interest and other
  expense, net                                2,080                  2,047              6,173                6,179
---------------------------------  ---------------------   ------------------   ----------------- -----------------
Income from Continuing
  Operations before Income Taxes     $      121,616         $      111,482       $    270,886        $     245,492
=================================  =====================   ==================   ================= =================
</TABLE>

<TABLE>

(IN THOUSANDS)                                                          AS OF                     AS OF
                                                                   SEPT. 30, 2005             DEC. 31, 2004
                                                               ------------------------ -----------------------
Identifiable Assets:
<S>                                                            <C>                        <C>
  TruGreen                                                     $       1,020,617          $     957,683
  Terminix                                                               873,704                843,272
  American Home Shield                                                   532,719                474,326
  ARS/AMS                                                                221,623                191,618
  Other Operations                                                       497,334                673,303
-------------------------------------------------------------  ------------------------ -----------------------
Total Identifiable Assets                                      $       3,145,997          $   3,140,202
=============================================================  ======================== =======================
</TABLE>

<TABLE>

(IN THOUSANDS)                                                         AS OF                      AS OF
                                                                   SEPT. 30, 2005             SEPT. 30, 2004
                                                               -----------------------   ----------------------
Capital Employed: (2)
<S>                                                            <C>                        <C>
  TruGreen                                                     $         919,870          $     899,813
  Terminix                                                               634,164                617,342
  American Home Shield                                                   202,152                162,734
  ARS/AMS                                                                 98,053                 96,615
  Other Operations                                                        66,213                (33,873)
-------------------------------------------------------------  -----------------------    ----------------------
Total Capital Employed                                         $       1,920,452          $   1,742,631
=============================================================  =======================    ======================
</TABLE>

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

<TABLE>

(IN THOUSANDS)                                                           AS OF                      AS OF
                                                                    SEPT. 30, 2005              SEPT. 30, 2004
                                                                ------------------------  ---------------------------
<S>                                                             <C>                          <C>
Total Assets                                                    $        3,145,997           $      3,094,820

 Less:
 Current liabilities, excluding current portion of
   long-term debt                                                          928,352                    875,796
 Long-term liabilities                                                     297,193                    476,393
--------------------------------------------------------------  ------------------------  ---------------------------
Total Capital Employed                                          $        1,920,452           $      1,742,631
==============================================================  ========================  ===========================
</TABLE>

                                       12
<PAGE>


          MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                             RESULTS OF OPERATIONS


RESULTS OF OPERATIONS

THIRD QUARTER 2005 COMPARED TO 2004

ServiceMaster  (the  "Company")  reported  third  quarter  2005 revenue of $1.13
billion,  an eight percent  increase  compared to 2004.  Every business  segment
achieved solid  increases in revenue,  and  substantially  all of the growth was
organic.  Third quarter diluted  earnings per share were $.27 compared with $.23
in 2004.  Diluted earnings per share from continuing  operations  increased nine
percent  to $.25,  compared  to $.23 in 2004.  Operating  income  for the  third
quarter  increased six percent to $132 million compared to $125 million in 2004.
The increase in operating income primarily reflects strong  double-digit  profit
growth at Terminix  supported by improved  labor and material cost  efficiencies
from a new liquid termite perimeter  treatment  technique and a new termite bait
product,   improved   profitability   in  the  ARS  operations,   and  continued
safety-related savings. These factors offset higher fuel costs, which impact the
enterprise's entire fleet as well as petroleum-based fertilizer used at TruGreen
ChemLawn,  much higher claim costs at American  Home Shield which  resulted from
hotter weather conditions, as well as continued investments in certain strategic
initiatives.

The enterprise's  results continued to be affected by two significant costs that
are trending in opposite directions. (1) Fuel Costs - The Company's large fleet,
with annual  consumption of over 35 million gallons,  continues to be negatively
impacted  by  significant  increases  in oil prices,  which have also  adversely
impacted  fertilizer  costs at TruGreen  ChemLawn.  Although the Company  hedges
approximately  two-thirds  of its estimated  annual fuel usage,  even net of the
hedges,  fuel  costs  increased  over  $5  million  in  the  third  quarter  and
approximately  $12 million for the first nine months.  The Company  expects this
trend to continue and anticipates  that it will be absorbing over $.03 per share
of  incremental  costs due to this factor in 2005. At current  price  levels,  a
similar  incremental  impact would be expected in 2006.  The Company is piloting
GPS and routing and  scheduling  technologies  which  would  tighten  routes and
reduce drive time and fuel consumption. The Company is also starting to evaluate
the use of hybrid trucks.  These have a longer runway, but if viable, would have
an even more significant impact on fuel consumption.  (2) Safety-related costs -
On the positive side, the Company continues to experience favorable results from
its efforts to reduce safety and insurance related costs, which include workers'
compensation,  auto and general liability claims. As previously disclosed,  this
once rapidly  escalating cost has already  started to recede.  Through the first
nine months of 2005,  the Company has  achieved a reduction  in overall  vehicle
collisions and a sharp decline in lost employee work days. In addition, the cost
of claims  incurred  in 2004 and prior years  continues  to trend  favorably  in
comparison  to the  original  estimates  prepared by the  Company's  independent
actuaries.  In total, safety and insurance related costs,  including the effects
of favorable  prior year claims  trending,  were down over $5 million during the
third  quarter and $12 million for the first nine  months.  The Company is still
well  short of its long  term  safety  targets,  and is  anticipating  continued
progress in the future.

The Company has re-affirmed  its outlook for the year. The Company  continues to
expect  annual  revenue  growth to be in the mid to high single  digit range and
that earnings per share will grow somewhat  faster than revenues.  The Company's
cash provided from  operating  activities  has  consistently  and  significantly
exceeded  net income,  and the Company  expects  this trend to continue in 2005,
even after  considering  the effects of the payments  related to the  previously
disclosed agreement with the Internal Revenue Service (IRS).  Instability in gas
and oil prices  combined with increasing  interest rates are currently  having a
negative  effect on  consumer  confidence.  It is too early for the  Company  to
determine  whether these trends will continue and how they will affect  spending
patterns in 2006, but the Company is closely monitoring these factors.


                                       13
<PAGE>


Cost of services  rendered and products  sold  increased  eight  percent for the
third  quarter and  increased as a percentage of revenue to 65.6 percent in 2005
from 65.2 percent in 2004.  This increase  primarily  reflects the growth in the
ARS/AMS  segment as these  operations  generally  have lower gross margin levels
relative  to the rest of the  enterprise,  as well as the impact of higher  fuel
costs,  offset in part by favorable trending of prior year self-insured  claims.
Selling and administrative  expenses increased seven percent for the quarter. As
a percentage of revenue,  these costs  decreased to 22.6 percent for the quarter
in 2005 from 22.8 percent in 2004.

Net non-operating expenses were reduced by approximately $3 million in the third
quarter.  Approximately  one-half  of this  decrease  was due to lower  interest
expense  resulting  from the  repayment  of fixed  rate debt in April,  with the
balance attributable to income and realized gains from the growing American Home
Shield investment portfolio.

The  income  from  discontinued  operations,  net of income  taxes for the third
quarter  and nine  months  ended  September  30,  2005  primarily  reflects  the
favorable   conclusion  of  certain   obligations  related  to  previously  sold
international pest control operations.

SEGMENT REVIEWS FOR THE THIRD QUARTER 2005 COMPARED TO 2004

The following  business  segment reviews should be read in conjunction  with the
required  footnote   disclosures   presented  in  the  Notes  to  the  Condensed
Consolidated Financial Statements.  This disclosure provides a reconciliation of
segment  operating  income to income from  continuing  operations  before income
taxes,  with net  non-operating  expenses  as the  only  reconciling  item.  The
Company's  business  segment  reviews include  discussions of capital  employed,
which is a non-U.S.  GAAP measure that is defined as the segment's  total assets
less  liabilities,  exclusive  of  debt  balances.  The  Company  believes  this
information  is useful to investors  in helping  them compute  return on capital
measures and  therefore  better  understand  the  performance  of the  Company's
business segments.  The Notes to the Condensed Consolidated Financial Statements
also include a reconciliation of segment capital employed to its most comparable
U.S. GAAP measure.

The TruGreen  segment  includes lawn care services  performed under the TruGreen
ChemLawn  brand  name and  landscape  maintenance  services  provided  under the
TruGreen  LandCare  brand name.  The TruGreen  segment  reported  third  quarter
revenue of $459 million, five percent above the prior year. The segment reported
a one  percent  decrease  in  operating  income for the  quarter to $79  million
compared  to $80  million in 2004.  The 2004  results  included a  non-recurring
pre-tax gain of $4 million from the sale of a support facility.

Revenue in the lawn care operations  increased five percent to $341 million from
$325  million in 2004.  Year-to-date  unit sales  increased  modestly  from last
year's  levels as the  Company's  neighborhood  selling  efforts and direct mail
programs offset a decline in telemarketing  sales due to the increased impact of
"do-not-call"  restrictions.  This  successful  expansion of new sales channels,
combined with a two percent  improvement in price  realization and approximately
two percent  growth in  supplemental  services  (e.g.,  seeding  and  aeration),
generated  mid  single  digit  revenue  growth  in the  quarter.  Third  quarter
operating income of the lawn care operations declined $2 million, primarily as a
result of last year's $4 million  non-recurring  gain from the sale of a support
facility,  and  differences in the timing of certain  expenses  between  interim
periods.  Improved labor  productivity and other cost controls helped offset the
impact of higher fuel and fertilizer costs.

Third quarter  revenue in the landscape  maintenance  business  increased  three
percent  to $117  million,  compared  to $114  million  in 2004.  Base  contract
maintenance  revenue  increased  three  percent  despite a decline  in  customer
retention.  Enhancement  revenue (e.g.,  add-on services such as seasonal flower
plantings,  mulching,  etc.), which accounts for approximately one-third of this
business' revenue,  also increased three percent for the quarter.  Although this
rate of growth is still modest relative to the Company's long-term  expectations
for this business, management is encouraged by its steady

                                       14
<PAGE>


improvement.  The Company believes the trend of improvement should continue into
the fourth  quarter  and into 2006 and beyond,  as it develops a  systematically
stronger  sales  organization,  with an expanded team that is better  qualified,
trained  and  equipped  to realize  the  substantial  growth  potential  in this
business.  Third quarter operating losses for the landscape  operations improved
by $1 million  reflecting  improvements  in labor,  material and  safety-related
costs, and a favorable reduction in acquisition related reserves, offset in part
by higher fuel prices.

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

The Terminix segment, which includes termite and pest control services, reported
a five percent  increase in third quarter  revenue to $267 million,  compared to
$253  million in 2004.  Operating  income  increased  28 percent to $34  million
compared to $27 million in 2004. This unit achieved solid growth in revenue from
initial  termite  applications  ("termite  completions")  as an increase in unit
sales was supported by a larger sales force and expanded geographic  presence. A
strong  increase in termite  renewal  revenue  resulted from  improved  pricing,
partially  offset by a decrease in  customer  retention.  Solid  growth in third
quarter pest control  revenue  reflected the impact of  acquisitions,  offset in
part by lower customer retention.  As previously disclosed,  there have been two
successful  innovations on the termite side of the business this year. In March,
the Company  introduced a new bait option which  utilizes an active  termiticide
from day one, and provides  meaningful  labor and material cost  advantages over
the prior offering.  Labor efficiencies are also being realized in the Company's
liquid option as a result of the new perimeter treatment  technique.  The strong
growth in the segment's  operating income reflects these labor and material cost
savings, and lower current year damage claims expense. Combined, these more than
offset the effects of a $4 million  correction  to the accrual  related to prior
years  termite  damage  claims and the  effects of higher  fuel  costs.  Capital
employed in the Terminix segment increased three percent,  reflecting the impact
of tuck-in acquisitions.

The American Home Shield  segment,  which provides home  warranties to consumers
that cover heating,  ventilation and air conditioning (HVAC), plumbing and other
home systems and appliances,  reported a 12 percent  increase in revenue to $155
million from $138 million in 2004 and a two percent decrease in operating income
to $23  million.  New  warranty  contract  sales,  which are  reported as earned
revenue over the subsequent twelve-month contract period, increased nine percent
for the quarter. A solid increase in customer renewals,  which are American Home
Shield's largest source of revenue,  was supported by a larger base of renewable
customers  and an  overall  improved  customer  retention  rate.  American  Home
Shield's  second  largest   channel,   real  estate  sales,  has  shown  initial
improvements  in  momentum  and a  modest  increase  in sales  for the  quarter.
Consumer  sales,  the Company's  fastest  growing  channel,  experienced  strong
double-digit  growth driven by an increased level of targeted direct mail. Third
quarter  operating  income  declined  modestly as  incremental  profits from the
increased  revenue levels were more than offset by approximately  $11 million of
higher air conditioning claim costs relating to both an increased rate of claims
per contract as well as a higher cost per claim,  resulting  from hotter weather
compared to the generally mild conditions that prevailed last year. In addition,
the  Company  made  planned   investments  in  initiatives  to  increase  market
penetration and further improve customer retention. Operating income comparisons
to last year were  positively  impacted by a $5.5  million  cumulative  negative
adjustment  to deferred  revenue and  operating  income that was reported in the
third quarter of 2004.  Capital employed  increased 24 percent reflecting volume
growth in the  business  resulting in a higher  level of  marketable  securities
balances.  The  calculation  of capital  employed for the  American  Home Shield
segment  includes  approximately  $279  million and $261  million of cash,  cash
equivalents   and  marketable   securities  at  September  30,  2005  and  2004,
respectively.

The ARS/AMS segment provides direct HVAC,  plumbing and electrical  installation
and repair  services  under the brand  names of ARS  Service  Express and Rescue
Rooter  (collectively  "ARS Service  Express"),  as well as American  Mechanical
Services  (AMS) for large  commercial  accounts.  Revenue for the third  quarter
increased  15  percent  to $208  million  in 2005  from  $181  million  in 2004.
Operating  income increased to $5 million from $4 million in 2004. The segment's
revenue growth consisted of very strong

                                       15
<PAGE>


increases in commercial project revenue in the AMS operations,  continued strong
growth  in  ARS'  HVAC  replacement   sales  and  residential  new  construction
installations, and a slight increase in HVAC service revenue. The growth in HVAC
replacement  sales was supported by the Company's  efforts to increase the sales
mix of higher priced and more energy efficient  units,  continued growth in ARS'
retail  outlet  initiative,  as well as the favorable  impact of hotter  weather
conditions  across most of the country.  In the third quarter,  plumbing service
revenue decreased modestly,  resulting from continued declines in retail service
calls,  which more than  offset  increases  from sewer  line  repairs  and light
commercial  services.  The increase in the  segment's  third  quarter  operating
income  resulted from the increased  level of revenue,  a more  favorable mix of
replacement sales, and reductions in insurance and marketing expenses.  This was
offset in part by a provision  for loss  contracts  at an AMS  location,  higher
incentive  compensation,  and  increased  fuel costs.  Capital  employed in this
segment increased one percent.

The Other  Operations  segment  includes the Company's  ServiceMaster  Clean and
Merry Maids  operations as well as its headquarters  functions.  Revenue in this
segment  increased five percent to $45 million  compared to $43 million in 2004.
On  a  combined  basis,  the  ServiceMaster  Clean  and  Merry  Maids  franchise
operations  reported  revenue  growth of six  percent  and a solid  increase  in
operating income.  ServiceMaster Clean continued to achieve  double-digit growth
in disaster  restoration  services  along with  improved  momentum in commercial
cleaning.  Merry Maids continued to experience strong internal revenue growth in
its branch operations.  The segment as a whole reported a slightly smaller third
quarter operating loss in 2005, reflecting the effects of favorable, actuarially
determined adjustments to prior year self-insurance reserves, and higher profits
from ServiceMaster  Clean and Merry Maids,  offset by planned increases in other
headquarter  level  costs and  investments.  Capital  employed  in this  segment
increased,  primarily  reflecting the changes in deferred tax accounts that were
recorded in the fourth  quarter of 2004 at the  conclusion of the IRS reviews of
the Company's federal income taxes through the year 2002.

NINE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO 2004

The  Company  reported  revenue  of  $3.09  billion  for the nine  months  ended
September 30, 2005, a seven percent increase over 2004, with  approximately  six
percent  of the  growth  from  organic  sources.  For the nine  months,  diluted
earnings per share were $.57  compared with $.50 in 2004.  Diluted  earnings per
share from  continuing  operations were $.56, 10 percent above the $.51 reported
in 2004. Operating income increased six percent to $303 million compared to $285
million in 2004.  Operating  income margins were comparable to 2004,  reflecting
higher  margins at  Terminix,  improved  profitability  in the ARS and  TruGreen
LandCare operations, and reduced safety-related costs throughout the enterprise,
offset in part by higher fuel costs,  and increased claim costs at American Home
Shield due to hotter  weather  conditions,  as well as continued  investments in
certain strategic initiatives.

Cost of services  rendered and products sold  increased six percent for the nine
months and decreased as a percentage of revenue to 66.2 percent in 2005 compared
to 66.6  percent in 2004.  The  decrease as a  percentage  of revenue  primarily
reflects the impact of continued favorable trending of prior year self-insurance
claims,  offset in part by  increased  fuel costs.  Selling  and  administrative
expenses increased nine percent and increased as a percentage of revenue to 23.9
percent in 2005 from 23.5 percent in 2004.

Net non-operating  expense decreased $8 million from 2004,  primarily reflecting
higher  investment  income  experienced  on the American Home Shield  investment
portfolio. It is important to note that investment gains are an integral part of
the  business  model at  American  Home  Shield,  and there will  always be some
market-based  variability  in the  amount  of gains  realized  from  quarter  to
quarter.


                                       16
<PAGE>


KEY PERFORMANCE INDICATORS

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

                                                  KEY PERFORMANCE INDICATORS
                                                      AS OF SEPTEMBER 30,
                                                   2005                2004
                                               --------------     -------------

TRUGREEN CHEMLAWN-
  Growth in Full Program Contracts                   1%                   7%
  Customer Retention Rate                         64.1%                64.8%

TERMINIX -
  Growth in Pest Control Customers                   4%                   6%
  Pest Control Customer Retention Rate            77.7%                78.4%

  Growth in Termite Customers                        0%                  -1%
  Termite Customer Retention Rate                 87.3%                88.1%

AMERICAN HOME SHIELD -
  Growth in Warranty Contracts                       6%                   5%
  Customer Retention Rate                         56.5%                55.0%


SEGMENT REVIEWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO 2004

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.

For the nine months, the TruGreen segment reported revenue of $1.2 billion, four
percent  above the prior year.  Operating  income  decreased two percent to $140
million  compared to $143 million in 2004,  which  included a pre-tax gain of $4
million from the sale of a support facility.

Revenue in the lawn care operations  increased five percent to $822 million from
$786  million  in  2004.  The  increase  in  revenue  reflects   improved  price
realization,  growth in supplemental  customer  services,  as well as the higher
customer  count.  The  lawn  care  operations  have  continued  to  successfully
diversify  their sales  channels  through  increased  emphasis  on  neighborhood
selling,  direct mail and other  efforts.  Expansion of these new sales channels
have helped offset continued  declines in telemarketing  sales,  which have been
adversely impacted by "do-not-call" restrictions. Year-to-date sales from direct
mail  efforts  have  increased  over 13 percent,  while sales from  neighborhood
programs  have more than tripled to almost  300,000  customers.  With respect to
overall  pricing,  the lawn care  operations have achieved a two percent overall
improvement in price realization this year through disciplined efforts to reduce
discounting  on new sales and  strategically  targeted  price  increases  to the
existing  customer base. The customer  retention rate decreased 70 basis points,
as improvements in the U.S. were offset by declines in Canada. The circumstances
in Canada are unique,  and included the combination of five acquired brands into
one at the beginning of this year, as well as tightened application  regulations
in certain markets.  Despite this recent decline,  overall  retention rates have
increased  400  basis  points  over the  last  four  years  and the  Company  is
targeting, and anticipating, meaningful additional improvement in the future. To
capture that opportunity,  the Company has taken  comprehensive steps to improve
customer  communication  and  problem  resolution  procedures,   expand  quality
assurance processes,  and provide


                                       17
<PAGE>

focused incentives at all levels.  For the nine months,  operating income in the
lawn care  operations  decreased  $6  million.  This  comparison  was  adversely
impacted by the gain in 2004 from the sale of a support facility, increased fuel
costs this year,  the first time  inclusion of $3 million of seasonal  losses in
the  Canadian  operations  that were  acquired in April 2004,  and the timing of
certain  expenses  between   quarters.   These  factors  more  than  offset  the
incremental profits from increased revenues and reduced safety-related costs for
the nine months.

Revenue in the landscape  maintenance  operations  increased two percent to $337
million  from  $331  million  in 2004.  The level of the  operating  loss of the
landscape  operations  improved  $3  million  for the  nine  months,  reflecting
improvements  in labor,  material  and  safety-related  costs and the  favorable
impact of  one-time  branch  shut-down  costs  that  were  incurred  last  year,
partially  offset by higher fuel prices.  The Company  continues  to  anticipate
improvement in the operating results of the landscape  operations for the fourth
quarter and for the full year. Results are expected to benefit from management's
focus on key initiatives,  including: improving the scheduling and management of
labor costs, enhancing the capabilities, training and methods of the sales team,
and reducing workers compensation and safety claims.

The  Terminix  segment  reported a six percent  increase in revenue for the nine
months to $820  million  compared to $772 million in 2004 and  operating  income
growth of 10 percent to $122 million  compared to $111 million in 2004.  For the
nine months,  strong growth in termite  completion revenue was supported by both
an increase in unit sales,  despite a  relatively  weak  termite  swarm  season,
resulting from an expanded sales force and geographic  presence,  as well as the
favorable impact of a new termite bait product  introduced in 2005. Solid growth
in termite renewal revenue reflected the impact of improved  pricing,  offset in
part by an 80 basis point  decline in customer  retention.  Solid growth in pest
control revenue resulted from the impact of acquisitions and an increase in unit
sales,  offset  in part  by a  decline  in  retention.  The  Company  is  taking
comprehensive  steps to reverse the trend in  retention  in both the termite and
pest  operations  and realize  improvements  over the next few years,  which the
Company believes could be in the 300 basis point range. Key actions include more
strategic pricing practices,  improved problem resolution  procedures,  and more
extensive  communication  and follow up with customers.  Operating income growth
for the nine  months  was  supported  by the  higher  revenue  levels as well as
improved  labor and material  cost  efficiencies  resulting  from the new liquid
termite perimeter treatment  technique and the new termite bait product,  offset
in part by  incremental  pre-season  investments  made in the first  quarter  to
expand the sales force and re-organize the field operations.  In addition, since
more of the total first year costs  associated with the new termite bait product
are  incurred at the time of  installation,  less  revenue  and gross  profit is
required to be  deferred  to future  quarters.  This  timing  benefit  favorably
impacted  this  year's  second  quarter  operating  income  but did  not  have a
significant  net impact on the third  quarter.  During  the first  nine  months,
Terminix recorded  approximately $8 million of incremental  damage claim expense
due to a correction in the  estimated  prior years  reserve  levels.  Last year,
Terminix  recorded a $6 million  favorable but non  recurring  adjustment in the
second quarter.

For the nine months,  the  American  Home Shield  segment  reported a 10 percent
increase  in revenue to $410  million  from $374  million in 2004 and  operating
income  growth of six percent,  to $61 million  compared to $57 million in 2004.
New  warranty  contract  sales,  which are  reported as earned  revenue over the
subsequent  twelve-month  contract period,  increased nine percent for the first
nine  months.  Real estate sales  increased  slightly for the first nine months,
while an  increased  level of  targeted  direct mail  solicitations  resulted in
strong  double-digit  sales  growth  in the  consumer  sales  channel.  Customer
renewals  increased at a  double-digit  rate,  resulting from an increase in the
base of customers  available to renew and an overall improved customer retention
rate.  The  improvement  in  retention  reflects a  favorable  mix in  customers
renewing as well as a reduced  level of  non-renewal  contracts  due to mortgage
refinancings.  As noted in the third quarter comparison,  incremental  operating
income  from the  increased  revenue  levels was offset in part by higher  claim
costs due to hotter weather  conditions this year and investments in initiatives
to increase market penetration and improve customer retention. Additionally, the
operating  income  comparison  to last year was  positively  impacted  by a $5.5
million cumulative

                                       18
<PAGE>


negative  adjustment to deferred  revenue and operating income that was reported
in the third quarter of 2004.

The ARS/AMS  segment  reported an 11 percent  increase in revenues  for the nine
months to $570 million  compared to $515 million in 2004.  The segment  reported
operating  income of $7 million  in 2005  compared  to $2  million in 2004.  The
increase in revenue resulted from very strong growth in AMS' commercial  project
revenue  and  double-digit   increases  in  ARS'  HVAC  replacement   sales  and
residential  new  construction  installations.  These  increases  were partially
offset by declines in core HVAC and plumbing service call revenue.  For the nine
months,  the increase in operating  income was supported by the higher volume of
revenue, lower insurance costs and a reduced level of marketing spending, offset
in part by a provision  for loss  contracts  at an AMS  location  and  increased
incentive compensation and fuel costs. At AMS, installation and retrofit project
revenue and related backlogs increased at double-digit  rates, as the commercial
construction sector continues to steadily recover from a cyclical downturn.

The Other  Operations  segment  reported a seven percent increase in revenues to
$130  million  for the nine  months  compared  with $121  million in 2004.  On a
combined basis,  the  ServiceMaster  Clean and Merry Maids franchise  operations
achieved  revenue  growth of eight  percent with a strong  increase in operating
income.  ServiceMaster  Clean  reported  strong  growth in disaster  restoration
services,  while Merry Maids  achieved very strong  internal  revenue growth and
improving  gross  profit  margins in the branch  operations.  For the first nine
months,  the Other Operations segment reported a smaller operating loss in 2005,
resulting from the effects of favorable,  actuarially  determined adjustments to
prior year self-insurance  reserves, and higher profits from ServiceMaster Clean
and Merry Maids,  offset by planned  increases in other  headquarter level costs
and investments.

FINANCIAL POSITION AND LIQUIDITY

CASH FLOWS FROM OPERATING ACTIVITIES
Net cash  provided  from  operating  activities  was $112  million  for the nine
months,  compared to $241  million in the prior year.  The  decrease in net cash
flow of $129 million primarily reflects $131 million of previously disclosed tax
payments relating to the 2005 IRS agreement.  These payments  represent only one
part of a four part agreement with the IRS, which also included:  tax savings of
$25 million that were  realized in 2004; a reduction in required  estimated  tax
payments in 2005 of $45 million, and a deferred tax annuity totaling $57 million
that will be realized through 2016.  Approximately  one half of the expected $45
million  reduction in estimated  tax payments was realized as an offset to taxes
payable  in the third  quarter.  Excluding  the impact of the $131  million  tax
payment to the IRS and  various  states this year,  nine month cash  provided by
operating  activities  totaled $243  million,  slightly more than the prior year
level.  This result  primarily  reflects a higher  level of income  offset by an
increase in working  capital usage resulting from increased  incentive  payments
made early in the year relating to 2004 performance.

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

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

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

                                       19
<PAGE>


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

Acquisitions  for the nine months ended  September 30, 2005 totaled $44 million,
compared  with $41 million in 2004.  Consideration  consisted of cash  payments,
seller   financed  notes  and  Company  stock.   The  Company   expects  overall
acquisitions for the year to be at approximately the same level as in 2004.

CASH FLOWS FROM FINANCING ACTIVITIES
Cash  dividends paid to  shareholders  totaled $96 million or $.33 per share for
the nine months ended September 30, 2005. In October 2005, the Company announced
the  declaration  of a cash  dividend of $.11 per share  payable on November 30,
2005 to  shareholders  of record on November 14, 2005.  The timing and amount of
future  dividends and related  increases  are at the  discretion of the Board of
Directors  and  will  depend,  among  other  things,  on the  Company's  capital
structure objectives and cash requirements.

In July  2000,  the  Board  of  Directors  authorized  $350  million  for  share
repurchases.  There remains  approximately $30 million available for repurchases
under the July 2000  authorization.  The  Company  completed  approximately  $51
million in share  repurchases in the nine months ended  September 30, 2005 at an
average price of $13.61 per share. The Company expects share repurchases for the
full year to be  approximately  $10 million  higher than the level in 2004.  The
actual level of future share  repurchases will depend on various factors such as
the Company's commitment to maintain an investment grade credit rating and other
strategic investment opportunities.

LIQUIDITY
Cash and short and long-term  marketable  securities totaled  approximately $379
million at September 30, 2005,  compared with $496 million at December 31, 2004.
This decrease  reflects the  previously  disclosed tax payments  relating to the
2005 IRS agreement. Approximately $354 million of the 2005 amount is effectively
required to support  regulatory  requirements  at  American  Home Shield and for
other purposes. Total debt was $769 million at September 30, 2005, approximately
$36 million lower than the amount at December 31, 2004.

Approximately  60 percent of the Company's debt matures beyond five years and 50
percent  beyond  fifteen  years.  In April 2005,  $137 million of the  Company's
public  debt  matured.  The  Company  funded this debt  payment  with  long-term
financing under the existing revolving credit facilities.

Management  believes that funds  generated from  operating  activities and other
existing  resources  will  continue to be adequate  to satisfy  ongoing  working
capital needs of the Company.  The Company maintains a revolving credit facility
of $500 million.  In May 2005, this agreement was amended to extend the maturity
date to May 2010 and reduce by 50 basis points the interest  rate payable  under
the  facility.  As of  September  30,  2005,  the  Company  had $90  million  of
borrowings  outstanding  under this facility and had issued  approximately  $142
million of letters of credit,  resulting in unused  commitments of approximately
$268  million.  The Company also has $550 million of senior  unsecured  debt and
equity securities  available for issuance under an effective shelf  registration
statement. In addition, the Company has an arrangement enabling it to sell, on a
revolving basis,  certain  receivables to unrelated third party purchasers.  The
agreement  is a  364-day  facility  that  is  renewable  at  the  option  of the
purchasers.  The Company may sell up to $70 million of its  receivables to these
purchasers  in the future and  therefore  would  have  immediate  access to cash
proceeds from these sales. The amount of the eligible  receivables varies during
the year based on seasonality of the business and will at times limit the amount
available to the Company. During the nine month period ended September 30, 2005,
there were no receivables sold to third parties under this agreement.


                                       20
<PAGE>

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

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

The  majority  of the  Company's  fleet and some  equipment  are leased  through
operating leases.  The lease terms are non-cancelable for the first twelve-month
term, and then are month-to-month, cancelable at the Company's option. There are
residual value  guarantees  (ranging from 70 percent to 87 percent  depending on
the  agreement) on these  vehicles and equipment,  which  historically  have not
resulted in  significant  net  payments to the lessors.  At September  30, 2005,
there was approximately $270 million of residual value relating to the Company's
fleet and  equipment  leases.  The fair value  guarantee of the assets under the
leases  is  expected  to fully  mitigate  the  Company's  obligations  under the
agreements.  The fair value of this  guarantee is not material to the  Company's
consolidated financial statements.

The  Company's  2004  Annual  Report   included   disclosure  of  the  Company's
contractual  obligations  and  commitments  as of December 31, 2004. The Company
continues to make the contractually  required  payments and therefore,  the 2005
obligations  and  commitments  as listed in the December 31, 2004 Annual  Report
have been  reduced by the  required  payments.  During the first nine  months of
2005, the Company signed a product  supply  agreement with minimum  purchases of
$17  million  over  the next 18  months,  and has  entered  into  various  other
contracts totaling approximately $10 million.

FINANCIAL POSITION - CONTINUING OPERATIONS
Receivables  increased from year-end levels,  reflecting general business growth
and increased  seasonal  activity.  Inventories  increased from year-end levels,
reflecting a new vendor  relationship at Terminix,  as well as general  business
growth and increased seasonal activity.

Prepaid expenses and other assets increased from year-end  primarily  reflecting
preseason  advertising  costs at TruGreen ChemLawn and Terminix as well as costs
of annual  repair and  maintenance  procedures  that are  performed in the first
quarter at TruGreen  ChemLawn.  These costs are deferred and recognized over the
production  season and are not deferred  beyond the calendar year end.  Deferred
customer acquisition costs increased reflecting the seasonality in the lawn care
operations. In the winter and early spring, this business sells a series of lawn
applications  to  customers,  which  are  rendered  primarily  in March  through
October.   These  direct  and  incremental  selling  expenses  which  relate  to
successful sales are

                                       21
<PAGE>


deferred and recognized  over the production  season and are not deferred beyond
the calendar  year-end.  The Company  capitalizes  sales  commissions  and other
direct  contract   acquisition  costs  relating  to  termite  baiting  and  pest
contracts,  as well as home warranty  agreements.  These costs vary with and are
directly related to a new sale.

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

The increase in accounts  payable from year-end levels reflects  seasonality and
solid  business  growth at  several  of the  business  units.  Deferred  revenue
increased  from  year-end  levels,  reflecting  growth in  contracts  written at
American Home Shield and the impact from the seasonal  volume of the new termite
bait  product  partially  offset by a  decrease  from  year-end  2004  levels in
customer  prepayment  balances  for lawn care  services.  The decrease in income
taxes  payable from  year-end  levels  reflects  the  February  2005 federal tax
payment  related to the IRS  agreement.

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

Total  shareholders'  equity was $1.1  billion at  September  30,  2005 and $992
million at December 31, 2004. The increase  reflects  operating profits from the
business partially offset by cash dividend payments and share repurchases.

FINANCIAL POSITION - DISCONTINUED OPERATIONS
The  assets  and  liabilities  related  to  discontinued  businesses  have  been
classified  in separate  captions on the  Condensed  Consolidated  Statements of
Financial  Position.  Assets of the  discontinued  operations have declined from
year-end  levels  representing   collections  on  receivables.   Liabilities  of
discontinued  operations  decreased  from  year-end  levels  resulting  from the
favorable  conclusion  of certain  obligations  related to the  previously  sold
international  pest control  operations.  The  remaining  liabilities  primarily
represent obligations related to long-term self-insurance claims.

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


                                       22
<PAGE>



                    QUANTITATIVE AND QUALITATIVE DISCLOSURES
                                ABOUT MARKET RISK

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

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

In December 2003 and January 2004,  the Company  entered into interest rate swap
agreements  with a total  notional  amount of $165  million.  Under the terms of
these  agreements,  the Company  pays a floating  rate of  interest  (based on a
specified  spread over six-month  LIBOR) on the notional  amount and the Company
receives a fixed rate of interest at 7.88  percent on the notional  amount.  The
impact of these swap  transactions  was to convert $165 million of the Company's
debt from a fixed rate of 7.88  percent  to a variable  rate based on LIBOR (7.2
percent average rate during the nine months ended September 30, 2005).

The Company generally  maintains the majority of its debt at fixed rates.  After
the effect of the interest  rate swap  agreements,  approximately  63 percent of
total debt at  September  30,  2005 was at a fixed rate.  With  respect to other
obligations,   the  payments  on  the   approximately  $68  million  of  funding
outstanding  under the Company's real estate  operating lease facilities as well
as its fleet and  equipment  operating  leases  (approximately  $270  million in
residual value) are tied to floating  interest rates. The Company's  exposure to
interest  expense based on floating  rates is partially  offset by floating rate
investment income earned on cash and marketable securities. The Company believes
its overall  exposure  to  interest  rate  fluctuations  is not  material to its
overall results of operations.

The Company has several debt and lease  agreements  where the  interest  rate or
rent payable under the agreements  automatically adjusts based on changes in the
Company's credit ratings.  While the Company is not currently expecting a change
in its credit ratings, based on amounts outstanding at September 30, 2005, a one
rating category improvement in the Company's credit ratings would reduce pre-tax
annual expense by approximately $0.5 million. A one rating category reduction in
the Company's  credit  ratings would increase  pre-tax  expense on an annualized
basis by approximately $0.9 million.

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


                                            EXPECTED MATURITY DATE
<TABLE>
                                                                                           THERE-
(IN MILLIONS)              2005        2006        2007        2008          2009          AFTER        TOTAL
--------------------------------------------------------------------------------------------------------------------
<S>                     <C>           <C>         <C>          <C>           <C>           <C>            <C>
Fixed rate debt         $  160        $  13       $  62        $   10        $  21         $  359         $  625
Avg. rate                  8.0%         6.4%        7.0%          5.8%         7.9%           7.5%           7.5%
--------------------------------------------------------------------------------------------------------------------
</TABLE>

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


                                       23
<PAGE>


                             CONTROLS AND PROCEDURES

The Company's  Chairman and Chief Executive  Officer,  Jonathan P. Ward, and the
Company's  President  and  Chief  Financial  Officer,  Ernest  J.  Mrozek,  have
evaluated the Company's  disclosure controls and procedures as of the end of the
period covered by this report.

The Company's  disclosure controls and procedures include a roll-up of financial
and  non-financial  reporting that is  consolidated  in the principal  executive
office of the  Company in Downers  Grove,  Illinois.  The  reporting  process is
designed to ensure that  information  required to be disclosed by the Company in
the  reports  that it files  with or  submits  to the  Securities  and  Exchange
Commission  is recorded,  processed,  summarized  and  reported  within the time
periods specified in the Securities and Exchange  Commission's  rules and forms.
Messrs. Ward and Mrozek have concluded that both the design and operation of the
Company's disclosure controls and procedures are effective.

There were no changes in the Company's internal control over financial reporting
that  occurred  during  the  Company's  most  recent  fiscal  quarter  that have
materially  affected,  or  are  reasonably  likely  to  materially  affect,  the
Company's internal control over financial reporting.


                                       24
<PAGE>



 PART II. OTHER INFORMATION

ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

SHARE REPURCHASES:

In July  2000,  the  Board  of  Directors  authorized  $350  million  for  share
repurchases.  The following  table  summarizes the Company's  common stock share
repurchases  for the three  months  ended  September  30,  2005  under its share
repurchase  authorization.  Decisions  relating to any future share  repurchases
will depend on various  factors  such as the  Company's  commitment  to maintain
investment grade credit ratings and other strategic investment opportunities.
<TABLE>


                                                                             TOTAL              APPROXIMATE
                                                                            NUMBER              DOLLAR VALUE
                                                                           OF SHARES           OF SHARES THAT
                                                                         PURCHASED AS            MAY YET BE
                                 TOTAL NUMBER       AVERAGE PRICE      PART OF PUBLICLY           PURCHASED
                                  OF SHARES            PAID PER            ANNOUNCED              UNDER THE
                                  PURCHASED             SHARE                PLAN                   PLAN
--------------------------------------------------------------------------------------------------------------------
<S>                           <C>                  <C>                     <C>                   <C>
July 1, 2005 through
 July 31, 2005                     --              $     --                   --                 $65,000,000

August 1, 2005 through
 August 31, 2005              1,275,588            $   13.65               1,275,588             $48,000,000

September 1, 2005 through
 September 30, 2005           1,324,200            $   13.54               1,324,200             $30,000,000

                              ------------------------------------------------------
Total                         2,599,788            $   13.60               2,599,788
                              =======================================================
</TABLE>

ITEM 6: EXHIBITS

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

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

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

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

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


                                       25
<PAGE>





                                    SIGNATURE


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

Date: November 4, 2005


                           THE SERVICEMASTER COMPANY
                           (Registrant)

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

                                Ernest J. Mrozek
                                President and Chief Financial Officer




                                       26
<PAGE>